2 Accounting – The Language of Business Accounting is the information system that...measures business activities,processes data into reports, andcommunicates results to decision makers.
3 The Accounting Equation Assets are the economic resourcesof a business that are expected toproduce a benefit in the future.Liabilities are “outsider claims,”or economic obligationspayable to outsiders.Owners’ equity represents the“insider claims” of a business.
4 The Accounting Equation Economic Resources = Claims to Economic ResourcesAssets = Liabilities + Owners’ Equity
5 The Accounting Equation AssetsOwners’EquityLiabilitiesAssets = Liabilities + Owners’ Equity
6 The Accounting Equation For a corporation, stockholders’ equityis divided into two main categories.Paid-in capitalRetained earningsAssets = Liabilities + Stockholders’ equityAssets = Liabilities + Paid-in capital + Retained earnings
7 The Accounting Equation Paid-in capital is the amount investedin the corporation by its owners.The basic component of paid-incapital is common stock.Retained earnings is the amount earnedby income-producing activities andkept for use in the business.
8 The Accounting Equation Revenues are increases in retainedearnings from delivering goodsor services to customers.Expenses are decreases in retainedearnings that result from operations.
9 Components of Retained Earnings Revenues forthe period–Expenses for=Net income(or Net loss)for theperiodStart ofthe periodBeginningbalance ofretainedearnings+or–Endingbalance ofretainedearningsEnd ofthe period–Dividendsfor theperiod=
10 Information Reported on the Financial Statements 1. How well did thecompany perform(or operate) duringthe period?Revenues– ExpensesNet income (Net loss)IncomestatementQuestionAnswerFinancialStatement2. Why did the company’sretained earningschange during theperiod?Beg. retained earnings+ Net income (or – Net loss)Ending retained earningsStatementofretainedearnings
11 Information Reported on the Financial Statements QuestionAnswerFinancialStatement3. What is the company’sfinancial position at theend of the period?Assets= Liabilities+ Owners’ equityBalancesheet4. How much cash didthe company generateand spend duringthe period?Operating cash flows± Investing cash flows± Financing cash flowsIncrease or decrease in cashStatementofcashflows
12 Fossil, Inc. Consolidated Statement of Income Net sales revenue $546 $504Cost of goods soldGross profitOperating expenses:Selling and distribution expenseGeneral and administrative expenseTotal operating expensesOperating incomeYears EndedDecember 31,Amounts in millions
13 Fossil, Inc. Consolidated Statement of Income Amounts in millionsYears EndedDecember 31,Operating incomeOther revenue (expense):Write-off of investment (5) –Other income (expense) netIncome before income taxIncome tax expenseNet income $ 44 $ 56
14 The Income Statement: Measuring Operating Performance The income statement, statement ofoperations, or statement of earningsreports the company’s revenues,expenses, and net incomeor net loss for the period.Comprehensive income includes netincome from the income statementplus additional items whichdo not affect net income.
15 Fossil, Inc. Consolidated Statement of Retained Earnings Balance, beginning of year $208 $152Net earnings for the yearLess: Cash dividends declared (0) (0)Balance, end of year $252 $208Years EndedDecember 31,Amounts in millions
16 Fossil, Inc. Consolidated Balance Sheet Assets:Current assets:Cash and cash equivalents $ $ 80Short-term investmentsAccounts receivableInventoriesPrepaid expensesTotal current assets $270 $253InvestmentsProperty, plant, and equipment, netIntangible and other assetsTotal assets $381 $308December 31,Amounts in millions
18 Fossil, Inc. Consolidated Balance Sheet Amounts in millionsDecember 31,Stockholders’ equity:Common stock $ $ 15Retained earningsOther equity (4) (2)Total stockholders’ equity $264 $221Total liabilities and stockholders’ equity $381 $308
19 Fossil, Inc. Consolidated Balance Sheet Total assets $381= Total liabilitiesCurrent $106Long-termTotal liabilities+ Total stockholders’ equityTotal liabilities and stockholders’ equity $3812001Mustequal
20 The Statement of Cash Flows The statement of cash flows reportsthe company’s cash inflows andoutflows from operating, investing,and financing activities.
21 Fossil, Inc. Statement of Cash Flows Operating activities:Net income $44 $56Adjustments to reconcile net incometo net cash from operating activities (16)Net cash provided by operating activities $49 $40Amounts in millionsDecember 31,
22 Fossil, Inc. Statement of Cash Flows Amounts in millionsDecember 31,Investing activities:Business acquisitions $(16) (2)Additions to property, plant, and equipment (56) (20)Sale of investments –Other investing activities (2) (2)Net cash used for investing activities $(68) $(24)
23 Fossil, Inc. Statement of Cash Flows Amounts in millionsDecember 31,Financing activities:Issuance of common stock $3 $ 1Purchase and retirement of common stock (4) (28)Issuance of notes payable (borrowing) –Other financing activities (1) –Net cash provided by financing activities $7 $(27)
24 Fossil, Inc. Statement of Cash Flows Amounts in millionsDecember 31,Net increase in cash and cash equivalents $(12) $(11)Cash and cash equivalents,beginning of yearCash and cash equivalents, end of year $ $ 80