Bài giảng Understanding Business - Chapter 17 Understanding Accounting and Financial Information

Understanding Accounting and Financial InformationChapter 17 Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinDemonstrate the role that accounting and financial information play for a business and for its stakeholders.Identify the different disciplines within the accounting profession.List the steps in the accounting cycle, distinguish between accounting and bookkeeping, and explain how computers are used in accounting.Explain how the major financial statements differ.Demonstrate the application of ratio analysis in reporting financial information.LEARNING GOALSChapter Seventeen17-2Hilmarsson missed an Icelandic treat called skyr, a thick, strained, protein-rich yogurt.He perfected his yogurt and contacted a former professor for help with financing.Distribution raised cost problems that affected cash flow. SIGGI HILMARSSONSiggi’s YogurtProfile17-3Accounting -- Recording, classifying, summarizing and interpreting of financial events and transactions in an organization to provide interested parties needed financial information.Outside parties - like employees, owners, creditors, unions, investors and the government - make use of a firm’s accounting information.WHAT’S ACCOUNTING?What is Accounting?LG117-4The ACCOUNTING SYSTEMLG1What is Accounting?17-5Managerial Accounting -- Provides information and analysis to managers inside the organization to assist them in decision making.Managerial accounting is involved with:Costs of productionCosts of marketing Preparation and control of budgetsMinimizing tax liabilitiesMANAGERIAL ACCOUNTINGManagerial AccountingLG217-6USERS of ACCOUNTING INFORMATIONUsersType of ReportGovernment tax authorityTax reportsGovernment regulatory agenciesRequired reportsPeople interested in the organization’s incomeFinancial statements found in annual reportsManagers of the firmFinancial statements and internally distributed financial reportsLG2Managerial Accounting17-7Financial Accounting -- Financial information and analyses are generated for people primarily outside the organization. Outside users are interested in these questions:Is the organization profitable?Is it able to pay its bills?How much debt does it owe?Annual Report -- A yearly statement of the financial condition, progress, and expectations of the firm.FINANCIAL ACCOUNTINGFinancial AccountingLG217-8Key things to watch for and read:HOW to READ an ANNUAL REPORTManagement’s discussion and analysis of operationsBalance sheetIncome statementStatement of cash flowsAuditor’s opinionLG2Financial Accounting17-9Private Accountants -- Work in a single firm, government agency, or nonprofit organization.Public Accountants -- Provide accounting services to individuals or businesses.Certified Public Accountants (CPAs) -- Accountants who have passed a series of examinations established by the American Institute of Certified Public Accountants (AICPA) and met a states requirements for education and experience.PUBLIC vs. PRIVATE ACCOUNTANTSLG2Financial Accounting17-10Dodd-Frank Wall Street Reform and Consumer Protection Act increased financial regulation by increasing the power of the Public Company Accounting Oversight Board.Act was brought on by the recent financial crisis.DODD-FRANK ACTLG2Financial AccountingPhoto Courtesy of: Nancy Pelosi17-11Auditing -- Reviewing and evaluating the information used to prepare a company’s financial statements.Independent Audit -- An evaluation and unbiased opinion about the accuracy of a company’s financial statements.Certified Internal Auditors (CIAs) -- Accountants who have a bachelor’s degree and two years of experience in internal auditing and pass an exam administered by the Institute of Internal Auditors.AUDITING CHECKS ACCURACYAuditingLG217-12Tax Accountants -- Accountants trained in tax law and are responsible for preparing tax returns or developing tax strategies.SPECIALIZED ACCOUNTANTSTax Accounting and Not-for-Profit AccountingLG2Government and Not-for-Profit Accounting -- Support for organizations whose purpose is not generating a profit, but serving others according to a duly approved budget.17-13Accounting Cycle -- A six-step procedure that results in the preparation and analysis of the major financial statements.The ACCOUNTING CYCLEThe Accounting CycleLG317-14Bookkeeping -- The recording of business transactions. Bookkeepers divide a firm’s transactions into meaningful categories and post them into a record book or computer program called a journal.Double-Entry Bookkeeping -- Bookkeepers record all transactions in two places so they can check one list of transactions against the other for accuracy. BOOKKEEPER’S ROLELG3The Accounting Cycle17-15Ledger -- A specialized accounting book or program where all information is in one place. Trial Balance -- A summary of all the information in the account ledgers. BOOKKEEPER’S TOOLSLG3The Accounting Cycle17-16Computerized accounting programs post information instantly and from remote locations.Intuit’s QuickBooks and Sage’s Peachtree address the specific needs of small businesses.TECHNOLOGY and ACCOUNTINGLG3Accounting Technology17-17Financial Statement -- A summary of all the financial transactions that have occurred over a particular period.FINANCIAL STATEMENTSUnderstanding Key Financial StatementsKey financial statements of business are:Balance sheetIncome statementStatement of cash flowsLG317-18Fundamental Accounting Equation -- The basis for the balance sheet.The equation must always be balanced and includes the formula:Assets = Liabilities + Owners EquityBalance Sheet -- The financial statement that reports a firm’s financial condition at a specific time.Assets -- Economic resources owned by a firm. Items can be tangible or intangible. Liquidity -- Ease with which assets can be converted into cash.The FUNDAMENTALS ACCOUNTING EQUATIONThe Fundamental Accounting EquationLG417-19Current Assets -- Items that can or will be converted to cash within one year. Fixed Assets -- Long-term assets that are relatively permanent such as land, buildings, or equipment.Intangible Assets -- Long-term assets that have no physical form but do have value such as patents, trademarks, and goodwill.CLASSIFYING ASSETSLG4Classifying Assets17-20Liabilities -- What the business owes to others - its debts. Accounts Payable -- Current liabilities a firm owes for merchandise or services purchased on credit.Notes Payable -- Short or long-term liabilities a business promises to pay by a certain date.Bonds Payable -- Long-term liabilities that the firm must pay back.CLASSIFYING LIABILITIESLiabilities and Owners’ Equity Accounts LG417-21Owners’ Equity -- The amount of the business that belongs to the owners minus any liabilities of the owners.Retained Earnings -- Accumulated earnings from the firm’s profitable operations that are reinvested in the business.OWNERS’ EQUITY ACCOUNTSLG4Liabilities and Owners’ Equity Accounts 17-22Income Statement -- The financial statement that shows a firm’s bottom line - that is, its profit after costs, expenses, and taxes.Net Income/Net Loss -- The revenue left over after costs and expenses.The INCOME STATEMENTThe Income StatementLG417-23The formula for the income statement: RevenueCost of Goods Sold= Gross ProfitOperating Expenses= Net Income before TaxesTaxes= Net Income or Net LossThe INCOME STATEMENTLG4The Income Statement17-24Revenue is the monetary value a firm received for goods sold, services rendered or other payments.Cost of Goods Sold (or Manufactured) -- Measures the cost of merchandise the firm sells or the cost of raw materials and supplies it used in producing items for resale.Gross Profit (or Gross Margin) -- How much a firm earned by buying (or making) and selling merchandise.ACCOUNTS of the INCOME STATEMENT(Continued)LG4Cost of Goods Sold17-25Operating Expenses – Cost involved in operating a business, such as rent, salaries and supplies.Depreciation -- The systematic write-off of the cost of a tangible asset over its estimated useful life.ACCOUNTS of the INCOME STATEMENT(Continued)LG4Operating Expenses17-26Generally Accepted Accounting Principles (GAAP) sometimes permits accountants to use different method of accounting for inventory.FIFO: First-In, First-OutLIFO: Last-In, First-OutEach valuation can affect income and ending inventory valuation.WHAT’S COMING and GOING at the COLLEGE BOOKSTORE(Spotlight on Small Business)17-27Statement of Cash Flows -- Reports cash receipts and cash disbursements related to the three major activities of a firm:OperationsInvestmentsFinancingThe STATEMENT of CASH FLOWSThe Statement of Cash FlowsLG417-28Cash Flow -- The difference between cash coming in and cash going out of a business.UNDERSTANDING CASH FLOWThe Need for Cash Flow AnalysisManaging cash flow is a key consideration of a business and can be particularly challenging for small and seasonal businesses.LG417-29You’re the only accountant employed by a small, struggling dog food company.The company requests a bank loan to keep operations going and your boss suggests you record some revenue early.This is against accounting principles, but you know if you don’t get the loan, you may lose your job. What do you do?BARKING UP the WRONG FINANCIAL STATEMENT(Making Ethical Decisions)17-30Ratio Analysis -- The assessment of a firm’s financial condition using calculations and financial ratios developed from the firm’s financial statements.USING FINANCIAL RATIOSAnalyzing Financial Performance Using RatiosLG5Key ratios include:Liquidity ratiosLeverage ratiosPerformance ratiosActivity ratios17-31Liquidity ratios measure a firm’s ability to turn assets into cash to pay its short-term debts.Two key ratios are:Current ratioAcid-test ratioThis information is found on the firm’s balance sheet.COMMONLY USED LIQUIDITY RATIOSLiquidity RatiosLG517-32Leverage ratios measure the degree to which a firm relies on borrowed funds in its operations.Key ratios include:Debt to Owner’s Equity RatioThis information is found on the firm’s balance sheet.LEVERAGE RATIOSLeverage (Debt) Ratios LG517-33Profitability ratios measure how effectively a firm’s managers are using the firm’s various resources to achieve profits.Key ratios include:Basic earnings per shareReturn on salesReturn on equityThis information is found on the firm’s balance sheet and income statement.PROFITABILITY RATIOSProfitability (Performance) RatioLG517-34Activity ratios measure how effectively management is turning over inventory.Key ratios include:Inventory turnover ratioACTIVITY RATIOSActivity RatioThis information is found on the firm’s balance sheet and income statement.LG517-35Multinational companies must adapt their accounting reporting to the rules of multiple countries.Many countries have adopted International Financial Reporting Standards (IFRS) and are pushing to make them standard.The U.S. Securities & Exchange Commission believes there should be such a standard.ACCOUNTANTS of the WORLD UNITED(Reaching Beyond Our Borders)17-36