Your SlideShare is downloading. ×
  • Like
Financial Accounting: Tools for Business Decision Making
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×

Now you can save presentations on your phone or tablet

Available for both IPhone and Android

Text the download link to your phone

Standard text messaging rates apply

Financial Accounting: Tools for Business Decision Making

  • 1,763 views
Published

 

  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
No Downloads

Views

Total Views
1,763
On SlideShare
0
From Embeds
0
Number of Embeds
0

Actions

Shares
Downloads
39
Comments
0
Likes
1

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. Financial Accounting: Tools for Business Decision Making
    • Prepared by:
    • Dr. Jessica J. Frazier
    • and
    • Philip Li
    • Eastern Kentucky
    • University
    Kimmel, Weygandt, Kieso
  • 2. CHAPTER 1 Introduction to Financial Statements
    • After reading Chapter 1, you should be able to:
    • Describe the primary forms of business organization.
    • Identify the users and uses of accounting.
    • Explain the three principal types of business activity.
    • Describe the content and purpose of each of the financial statements.
  • 3. CHAPTER 1 Introduction to Financial Statements
    • After reading Chapter 1, you should be able to:
    • Explain the meaning of assets, liabilities, and stockholders’ equity and state the basic accounting equation.
    • Describe the components that supplement the financial statements in an annual report.
    • Explain the basic assumptions and principles underlying financial statements.
  • 4. FORMS OF BUSINESS ORGANIZATION
    • Sole proprietorship
    • Partnership
    • Corporation
  • 5. Sole Proprietorship
    • A business owned by one person
    • Advantages
      • Simple to establish
      • Owner Controlled
      • Tax advantages
  • 6. Partnership
    • A business owned by more than one person
    • Advantages of a partnership -
      • Simple to establish
      • Shared control
      • Tax advantages
      • Broader skills and resources
  • 7. Corporation
    • A business organized as a separate legal entity owned by stockholders
    • Advantages -
      • Easy to transfer ownership
      • Greater capital raising potential
      • Lower legal liability
  • 8. USERS AND USES OF ACCOUNTING
    • Internal users
    • External users
  • 9. Internal Users
    • Management uses financial information to answer the following questions:
      • Is cash sufficient to pay our debts?
      • Are customers paying their bills promptly?
      • What is the cost of each unit of product?
      • What costs exceed budget?
      • Can we afford to give employees pay raises this year?
      • Which product line is the most profitable?
      • How much money must be borrowed to expand?
  • 10. External Users
    • Investors, creditors, and other external users use financial information to answer the following questions:
      • Is the company earning satisfactory income?
      • How does the company compare in size and profitability with competitors?
      • Will the company be able to pay its debt as they come due?
      • Are interest payments and dividends protected by an adequate inflow of cash from operations?
  • 11. BUSINESS ACTIVITIES
    • Financing activities
    • Investing activities
    • Operating activities
  • 12. Financing Activities
    • Borrowing
    • Selling ownership interests in business
  • 13. Investing Activities
    • A business must acquire the resources it needs to operate--equipment, office supplies, etc.
  • 14. Operating Activities
    • Revenues - the assets a business receives from the sale of merchandise or the performance of services.
    • Expenses - the cost of assets consumed or services used in the process of generating revenue.
  • 15. CONTENT AND PURPOSE OF FINANCIAL STATEMENTS
    • Income Statement
    • Statement of Retained Earnings
    • Balance Sheet
    • Statement of Cash Flows
  • 16. Income Statement
    • Reports success or failure of the company's operations during the period.
    • Summarizes all revenue and expenses for period--month, quarter, or year. If revenues exceed expenses, the result is a net income. If expenses exceed revenue, the result is a (net loss).
  • 17. COPYRIGHT
    • Copyright © 1998 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that named in Section 117 of the United States Copyright Act without the express written consent of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.
  • 18. Statement of Retained Earnings
    • Indicates amount invested by owners, amount paid out in dividends, and amount of net income or net loss for period.
    • Shows changes in retained earnings balance during period covered by statement.
  • 19. Balance Sheet
    • Shows relationship between assets and equities--assets=equities--on a particular date.
    • Assets and equities (liabilities and stockholders' equity) must balance.
  • 20. Statement of Cash Flows
    • Reports the cash effects of a company's operations for a period of time.
    • Shows cash increases and decreases from investing and financing activities.
    • Indicates increase or decrease in cash balance as well as ending cash balance.
  • 21. ASSETS, LIABILITIES, STOCKHOLDERS’ EQUITY, AND THE ACCOUNTING EQUATION
    • Assets - resources owned by the business.
    • Liabilities - creditors claims on total assets (obligations or debts of the business).
    • Stockholders' Equity - ownership claim on total assets.
    • Accounting equation:
      • Assets = Liabilities + Stockholders' Equity
  • 22. ELEMENTS OF AN ANNUAL REPORT
    • Financial Statements
    • Management Discussion and Analysis
    • Notes to Financial Statements
    • Auditor's Report
  • 23. Financial Statements
    • Income Statement
    • Statement of Retained Earnings
    • Balance Sheet
    • Statement of Cash Flows
  • 24. Management Discussion and Analysis
    • Covers three aspects of a company:
      • liquidity,
      • capital resources, and
      • results of operation.
  • 25. Notes to Financial Statements
    • Provide additional information not included in body of statements.
    • Describe accounting policies or explain uncertainties and contingencies.
  • 26. Auditor's Report
    • Auditor, a professional accountant, who conducts an independent examination of the financial accounting data presented by a company.
    • Auditor gives an unqualified opinion if the financial statements present the financial position, results of operations, and cash flows in accordance with accepted accounting standards.
  • 27. BASIC ASSUMPTIONS AND PRINCIPLES UNDERLYING FINANCIAL STATEMENTS
    • Monetary unit assumption
    • Economic entity assumption
    • Cost principle
    • Time period assumption
    • Going concern assumption
  • 28. Monetary Unit Assumption
    • States that only transactions expressed in terms of money be included in accounting records.
    • Assumes that unit of measure remains constant over time.
  • 29. Economic Entity Assumption
    • Assumes economic events can be identified with a particular unit of accountability.
    • Requires economic activities of an entity be kept separate from those of owner and separate from all other economic entities.
  • 30. Cost Principle
    • Requires assets to be recorded at original cost as it is verifiable.
  • 31. Time Period Assumption
    • Allows the business to be divided into artificial time periods.
  • 32. Going Concern Assumption
    • Assumes business will be in existence long enough to carry out goals.
    • Assumption allows use of cost when recording assets.
  • 33. Chapter 1 Review
    • Name the three primary forms of business organization.
    • Identify the users of accounting. How do they use this information?
    • Explain the three principal types of business activity.
    • Describe the content and purpose of each of the financial statements .
  • 34. Chapter 1 Review
    • Explain the meaning of assets, liabilities, and stockholders equity and state the basic accounting equation.
    • Describe the components that supplement the financial statements in an annual report.
    • State the basic assumptions and principles underlying financial statements.
  • 35. COPYRIGHT
    • Copyright © 1998 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that named in Section 117 of the United States Copyright Act without the express written consent of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.