1. The Role Of Accounting In Business

2. Chapter Objectives
Define accounting and identify uses of its information
Understand the three basic financial statements
Understand cash-basis vs. accrual
Evaluate a company’s performance
Discuss career opportunities in accounting and its future

3. Stakeholders
“…parties who are interested in the activities of the business because they’re affect by them…

4. Accounting
“…measuring and summarizing business activities, interpreting financial statements, and communicating the results to management and other decision makers.”

5. Fields of Accounting
Management Accounting – provides information to decision makers inside the organization to help operate the business
Financial Accounting – furnishes information to individuals and groups inside/outside the organization to assess the firm’s financial performance

6. Management Accounting
“…provides… reports… tailored to the needs of individual managers… (in a) relevant, accurate, timely… format… (to aid) in making decisions.”

7. Financial Accounting Statements
Income Statement
Balance Sheet
Statement of Cash Flows
Generally Accepted Accounting Principles

8. Users Of Accounting Information
Owners &
Managers
Government Agencies
Other Users
Investors & Creditors

9. The Functions of Financial Statements
Income Statement – Shows sales/expenses and if made a profit
Balance Sheet – Indicates assets/liabilities and amount invested in company
Statement of Cash Flows – Shows how much cash in and out of firm

10. Income Statement Revenues and Expenses Cost of Goods Sold
Operating Expenses
Gross Profit
Net Income

11. Stress-Buster Income Statement

12. Proposed Income Statement #1

13. Proposed Income Statement #2

14. “…total sales revenue must exactly equal all your expenses…”
Breakeven Analysis
“…total sales revenue must exactly equal all your expenses…”
Fixed Costs
Variable Costs
Contribution Margin Per Unit
Breakeven Point In Units

15. Proposed Income Statement #3

16. Balance Sheet
“…tells what you have (and where it came from) at a specific point in time…”
Assets – Business resources
Liabilities – Debts owed to outside entities
Owner’s Equity – Amount invested

17. Assets = Liabilities + Owner’s Equity
Accounting Equation
Assets = Liabilities + Owner’s Equity

18. Stress-Buster Balance Sheet

19. Stress-Buster Balance Sheet #2

20. “…accountant records a transaction when it occurs…”
Accrual Accounting
“…accountant records a transaction when it occurs…”
Account Receivable
Account Payable
Inventory

21. Classified Balance Sheet
Assets
Current- Convert to cash within a year
Long-Term- Intend to hold for more than a year
Liabilities
Current- Pay off within a year
Long-Term- Not due for more than a year

22. College Shop Balance Sheet

23. College Shop Income Statement

24. End-of-Year Balance Sheet

25. Statement Of Cash Flows
“…tells… where cash came from and where it went.”
Activities:
Operating
Investing
Financing

26. Cash Flow Statement

27. Comparative Income Statement

28. Income Statement With Vertical Percentage Analysis

29. Ratio Analysis Profit Margin Management Efficiency
Management Effectiveness
Financial Condition

30. Gross Profit Margin
Gross Profit
Margin
Gross Profit
Sales =

31. Net Profit Margin
Net Profit
Margin
Net Profit
Sales =

32. Comparative Balance Sheet

33. Inventory Turnover
Inventory
Turnover
Sales
Inventory =

34. Return On Assets
Return On
Assets
Net Profit
Total Assets =

35. Current Ratio
Current
Ratio
Current Assets
Current Liabilities =

36. Debt-To-Equity
Total Debt
to Equity
Total Liabilities
Total Equity =

37. Interest Coverage Interest Coverage = Operating Income
Interest Expense =

38. Basic Things to Succeed
Good profit on each item
Move inventory
Good return on investment
Watch cash

39. Challenges To Accounting Profession
Arthur Andersen
Enron
Sarbanes-Oxley Act
Public Accounting Oversight Board

40. Careers In Accounting “People Profession” Skills Job Prospects
Analytical
Interpersonal
Communication
Job Prospects
Certified Public Accountants- Audits
Private Accountants- Controller
Certified Management Accountants