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Chapter 16 Understanding Accounting and Financial Statements
Users of Accounting Information <ul><li>People both inside and outside and organization rely on accounting information to ...
<ul><li>Users of Accounting Information </li></ul>
Business Activities That Involve Accounting <ul><li>Accountants contribute important information to help managers deal wit...
Business Activities That Involve Accounting <ul><li>Public accountant :  provides accounting services to individuals or bu...
Business Activities That Involve Accounting <ul><li>Certified Public Accountants —accountants who met specified educationa...
Business Activities That Involve Accounting <ul><li>Government and Not-for-Profit accountants —work for federal, state, an...
The Accounting Process <ul><li>Accounting Process —set of activities involved in converting information about individual t...
<ul><li>The Accounting Process </li></ul>
The Accounting Process <ul><li>The Impact of Computers and the Internet on the Accounting Process </li></ul><ul><ul><li>Ha...
The Accounting Process <ul><li>The Foundation of the Accounting System </li></ul><ul><ul><li>Generally Accepted Accounting...
The Accounting Process <ul><li>The Foundation of the Accounting System </li></ul><ul><ul><li>Sarbanes-Oxley Act of 2002 </...
The Accounting Process <ul><li>The Accounting Equation </li></ul><ul><ul><li>Asset —anything of value owned or leased by a...
The Accounting Process <ul><li>The Accounting Equation </li></ul><ul><ul><li>Relationship that states that assets equal li...
Financial Statements <ul><li>The Balance Sheet </li></ul><ul><ul><li>Balance sheet —statement of a firm’s financial positi...
 
 
Financial Statements <ul><li>The Income Statement </li></ul><ul><ul><li>Financial record of a company’s revenues, expenses...
 
Financial Statements <ul><li>The Statement of Cash Flows </li></ul><ul><ul><li>Statement of a firm’s cash receipt and cash...
 
Budgeting <ul><li>Budget —a planning and controlling tool that reflects the firm’s expected sales revenues, operating expe...
<ul><li>Three-Month Cash Budget for Golden Harvest </li></ul>
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Copyright © 2005 by South-Western, a division of Thomson ...

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Copyright © 2005 by South-Western, a division of Thomson ...

  1. 1. Chapter 16 Understanding Accounting and Financial Statements
  2. 2. Users of Accounting Information <ul><li>People both inside and outside and organization rely on accounting information to help them make business decisions </li></ul><ul><li>Accounting —practice of measuring, interpreting, and communicating financial information to support internal and external business decision making. </li></ul>
  3. 3. <ul><li>Users of Accounting Information </li></ul>
  4. 4. Business Activities That Involve Accounting <ul><li>Accountants contribute important information to help managers deal with the competitive and economic environments </li></ul><ul><li>They help others to understand, predict, and react to the technological, regulatory, and social and cultural environments </li></ul><ul><li>Accounting plays a key role in: </li></ul><ul><ul><li>Financing </li></ul></ul><ul><ul><li>Investing </li></ul></ul><ul><ul><li>Operating </li></ul></ul>
  5. 5. Business Activities That Involve Accounting <ul><li>Public accountant : provides accounting services to individuals or business firms for a fee </li></ul><ul><li>Management accountant : accountant employed by a business other than a public accounting firm </li></ul><ul><ul><li>Responsible for collecting and recording financial transactions, and preparing and interpreting financial statements used by the firm’s managers </li></ul></ul>
  6. 6. Business Activities That Involve Accounting <ul><li>Certified Public Accountants —accountants who met specified educational and experiential requirements and passed a comprehensive examination on accounting theory and practice. </li></ul><ul><li>Other Certifications— </li></ul><ul><ul><li>Certified Management Accountants </li></ul></ul><ul><ul><li>Certified Internal Auditor </li></ul></ul>
  7. 7. Business Activities That Involve Accounting <ul><li>Government and Not-for-Profit accountants —work for federal, state, and local governments or not-for-profit organizations—perform professional services similar to those of management accountants </li></ul><ul><ul><li>Instead of an emphasis on measuring profit or loss, they concern themselves with determining how efficiently the organizations accomplish their objectives </li></ul></ul>
  8. 8. The Accounting Process <ul><li>Accounting Process —set of activities involved in converting information about individual transactions into financial statements. </li></ul>
  9. 9. <ul><li>The Accounting Process </li></ul>
  10. 10. The Accounting Process <ul><li>The Impact of Computers and the Internet on the Accounting Process </li></ul><ul><ul><li>Has simplified the process, making it faster and easier than the manual method </li></ul></ul><ul><ul><li>Web-based products and services growing </li></ul></ul><ul><ul><li>Accounting software allows: </li></ul></ul><ul><ul><ul><li>A do-it-once approach </li></ul></ul></ul><ul><ul><ul><li>Numbers can be easily converted into graphs and charts </li></ul></ul></ul><ul><ul><ul><li>Other automatic conversion </li></ul></ul></ul>
  11. 11. The Accounting Process <ul><li>The Foundation of the Accounting System </li></ul><ul><ul><li>Generally Accepted Accounting Principles (GAAP)—guidelines, or standards, that accountants follow to provide reliable, consistent, and unbiased information to decision makers </li></ul></ul><ul><ul><li>Financial Accounting Standards Board (FASB)—responsible for evaluating, setting, or modifying the GAAP </li></ul></ul>
  12. 12. The Accounting Process <ul><li>The Foundation of the Accounting System </li></ul><ul><ul><li>Sarbanes-Oxley Act of 2002 </li></ul></ul><ul><ul><li>Public Company Accounting Oversight Board —five member board created by the Sarbanes-Oxley Act of 2002 to set audit standards and to investigate and sanction accounting firms that certify the books of publicly traded firms; members of the board are appointed by the SEC to serve staggered five-year terms. </li></ul></ul>
  13. 13. The Accounting Process <ul><li>The Accounting Equation </li></ul><ul><ul><li>Asset —anything of value owned or leased by a business. </li></ul></ul><ul><ul><li>Liability —claim against a firms assets by a creditor. </li></ul></ul><ul><ul><li>Owner’s equity —all claims of the proprietor, partners, or stockholders, against the assets of a firm, equal to the excess of assets over liabilities. </li></ul></ul>
  14. 14. The Accounting Process <ul><li>The Accounting Equation </li></ul><ul><ul><li>Relationship that states that assets equal liabilities plus owner’s equity. </li></ul></ul><ul><li>Assets = Liabilities + Owner’s Equity </li></ul>
  15. 15. Financial Statements <ul><li>The Balance Sheet </li></ul><ul><ul><li>Balance sheet —statement of a firm’s financial position - what it owns and the claims against its assets - at a particular point in time. </li></ul></ul><ul><ul><ul><li>Similar to a photograph of the firm’s assets together with its liabilities and owners’ equity at a specific moment in time </li></ul></ul></ul>
  16. 18. Financial Statements <ul><li>The Income Statement </li></ul><ul><ul><li>Financial record of a company’s revenues, expenses, and profits over a period of time. </li></ul></ul>
  17. 20. Financial Statements <ul><li>The Statement of Cash Flows </li></ul><ul><ul><li>Statement of a firm’s cash receipt and cash payments that presents information on its sources and uses of cash. </li></ul></ul><ul><ul><ul><li>Accrual accounting —accounting method that records revenue and expenses when they occur, not necessarily, when cash actually changes hands. </li></ul></ul></ul>
  18. 22. Budgeting <ul><li>Budget —a planning and controlling tool that reflects the firm’s expected sales revenues, operating expenses, and cash receipts and outlays </li></ul><ul><ul><li>Quantifies the firm’s plans for a specified future period </li></ul></ul><ul><ul><li>Serves as a financial blueprint </li></ul></ul><ul><ul><li>Standard for comparison against actual performance </li></ul></ul><ul><li>Cash Budget </li></ul>
  19. 23. <ul><li>Three-Month Cash Budget for Golden Harvest </li></ul>

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