Return and Risk Return $ Risk ? Profit Investment Amount of uncertainty about the return we expect to earn The lower the risk of our investment, the lower is our expected return .
Returns for Bonds with Different Risks Bonds are written promises by organizations to repay amounts loaned to them with interest. Exh. 1.2 Source: The Wall Street Journal
Accounting Information Factors of production are the means businesses use to make profit. Labor and Equipment Accounting Information Land and Building
Focus of Accounting <ul><li>Identifying Economic Events </li></ul><ul><li>Recording Economic Events </li></ul><ul><li>Reporting and Analyzing Economic Events </li></ul>
Setting Accounting Rules Generally Accepted Accounting Principles Securities and Exchange Commission Unions Investors Accountants Politicians Lenders Others AICPA Financial Accounting Standards Board Provide input to Help set
Accounting and Technology Reduces time, effort and cost of recordkeeping. Improves clerical accuracy. Changes the way we store, process and summarize large masses of data. Technology
Forms of Organization Law Offices Exh. 1.4 Corporation Partnership Proprietorship Sally’s Grocery Business
Forms of Organization Exh. 1.4 Private Nonprofit Government Nonbusiness
Characteristics of Business Organizations * * Limited partnerships and limited liability partnerships specifically restrict certain partners’ liabilities. Exh. 1.6
Corporation Owners of a corporation are called shareholders (or stockholders ). When a corporation issues only one class of stock, we call it common stock (or capital stock ).
Nonbusiness Organization Accounting for these organizations is usually a fund-based system, but the basic principles are similar to accounting for business organizations. Libraries Army Airports Cities Colleges Museums Hospitals Prisons Shelters Schools
Activities in Organizations Financing Planning Planning Operating Investing <ul><li>Operating activities </li></ul><ul><li>Aimed at selling products and services </li></ul><ul><li>Result in sales and expenses </li></ul>Exh. 1.7
Balance Sheet A balance sheet reports on investing and financing. It lists amounts for assets, liabilities, and equity at a point in time . The relationship is reflected in the Balance Sheet equation: Assets = Liabilities + Equity Exh. 1.8
Income Statement An income statement reports on operating activities. It lists sales (revenues), costs, and expenses over a period of time . The relationship is expressed: Net Income = Revenues - Expenses Exh. 1.9
Statement of Changes in Owners’ Equity This statement reports changes in the owners’ claims on the business over a period of time . It includes changes due to income and any owner contributions and withdrawals (called dividends in a corporation). Exh. 1.10
Statement of Cash Flows The statement of cash flows reports on cash flows for operating, investing, and financing activities over a period of time . Exh. 1.11
Users of Accounting Information Managerial Accounting is aimed at Internal Users Financial Accounting is aimed at External Users Managers Officers Internal Auditors Lenders Shareholders Government Labor Unions External Auditors Customers
Internal Operating Functions Products and Services Research & Development Purchasing Human Resources Production Marketing Distribution Servicing
Ethics and Social Responsibility Beliefs that separate right from wrong Accepted standards of good and bad behavior Often coincide with laws Ethics
Guidelines for Ethical Decision Making <ul><li>Identify Ethical Issues </li></ul><ul><li>Analyze Options </li></ul><ul><li>Make Ethical Decision </li></ul>Use personal ethics to recognize ethical issues. Consider both the good and bad consequences for all affected. Choose the best option after weighing all consequences.
Social Responsibility <ul><li>Donations to nonprofit organizations </li></ul><ul><li>Programs to reduce pollution </li></ul><ul><li>Programs to improve worker and consumer safety </li></ul><ul><li>Paid time off for workers </li></ul>