Lamar Van Dusen is explaining here about Who Uses Accounting Information with legal illegal ways. He is a professional with accounts stuff.

1. Lamar Van Dusen
Who Uses Accounting Information

2. Learning Objectives
1. Explain why accounting information and audited
financial statements are important.
2. Identify the people who use accounting information
and possible careers in the accounting industry.
3. Discuss the accounting process.
4. Read and interpret a balance sheet.
5. Read and interpret an income statement.
6. Describe business activities that affect a firm’s cash
flow.
7. Summarize how managers evaluate the financial
health of a business.
17| 2

3. Outline
– Why Accounting Information Is Important
• Recent Accounting Problems for Corporations and
Their Auditors
• Why Audited Financial Statements Are Important
• Reform: The Sarbanes-Oxley Act of 2002
– Who Uses Accounting Information?
• The People Who Use Accounting Information
• Different Types of Accounting
• Careers in Accounting
– The Accounting Process
• The Accounting Equation
• The Accounting Cycle
17| 3

4. Outline (cont’d)
– The Balance Sheet
• Assets
• Liabilities and Owners’ Equity
– The Income Statement
• Revenues
• Cost of Goods Sold
• Operating Expenses
• Net Income
– The Statement of Cash Flows
17| 4

5. Outline (cont’d)
– Evaluating Financial Statements
• Using Annual Reports to Compare Data for
Different Accounting Periods
• Comparing Data with Other Firms’ Data
• Profitability Ratios
• Short-Term Financial Ratios
• Activity Ratios
• Debt-to-Owners’ Equity Ratio
• Northeast’s Financial Ratios: A Summary
17| 5

6. Why Accounting Information
Is Important
• Recent accounting problems for corporations
and their auditors
– Pressure on corporate executives to look good
to analysts and investors
• Why audited financial statements are
important
– Bankers, creditors, investors, and government
agencies rely on an auditor’s opinion
17| 6

7. Why Accounting Information Is
Important (cont’d)
• What is an audit?
• Reform: The Sarbanes-Oxley Act of 2002
17| 7

8. Who Uses Accounting Information
• The people who use accounting information
– Managers are primary users
– Lenders require financial information before
lending
– Stockholders want to know whether to invest or
how well their investment is doing
– Government agencies require a variety of
information
17| 8

9. Careers in Accounting
• Qualities to be successful in accounting
– Be responsible, honest, ethical
– Have a strong background in financial
management
– Know how to use a computer and accounting
software
– Be able to communicate with people who need
accounting information
17| 9

10. Careers in Accounting (cont’d)
• Private Accountant
– Employed by a specific organization
– Services performed for the employer
• General accounting (recording transactions and
preparing statements)
• Budgeting (for sales and operating
expenses)
• Cost accounting (determining costs of producing
products and services)
• Tax accounting (planning strategy and preparing
returns)
• Internal auditing (reviewing finances and
operations against goals)
17| 10

11. Careers in Accounting (cont’d)
• Public Accountant
– Provides services to clients on a fee basis
– Self-employed or employee of an accounting firm
• Certified Public Accountant (CPA)
– Has met state requirements for accounting
education and experience and has passed a
rigorous two-day accounting examination
prepared by the AICPA
– Participates in continuing-education programs to
maintain certification
17| 11

12. The Accounting Process
• The accounting equation
Assets = Liabilities + Owners’ equity
– Assets—the resources that a business owns (e.g., cash,
inventory, equipment, and real estate)
– Liabilities—the firm’s debts
– Owners’ equity—the difference between assets and liabilities
(what would be left for the owners if the firm’s assets were
sold and the money used to pay off its liabilities)
Double-entry bookkeeping system: Each financial transaction
is recorded as two separate accounting entries to maintain the
balance of the accounting equation
17| 12

13. The Accounting Process (cont’d)
• The accounting cycle
– Done on a regular basis
• Done at the end of the period
– Preparing the trial balance of all general
ledger accounts
– Preparing financial statements and closing the
books
17| 13

14. The Accounting Cycle
1. Analyzing
source
documents
2. Recording
transactions
4. Preparing the
trial balance
3. Posting
transactions
5. Preparing
financial
statements
17| 14

15. The Balance Sheet
• A summary of the dollar amounts of a firm’s
assets, liabilities, and owners’ equity
accounts at the end of a specific accounting
period (also called statement of financial
position)
• Assets
• Liabilities
• Owners’ or stockholders’ equity
17| 15

16. The Income Statement
• A summary of a firm’s revenues and
expenses during a specified accounting
period
– Profit (cash surplus)
– Loss (cash deficit)
• Revenues
17| 16

17. The Income Statement (cont.)
• Cost of goods sold
– The dollar amount equal to beginning
inventory plus net purchases less ending
inventory
Cost of
goods sold
Beginning
inventory
Net
purchases
Ending
inventory
= + –
• Gross profit
– A firm’s net sales less the cost of goods
sold
17| 17

18. The Income Statement (cont.)
• Operating expenses
• Net income
• Net loss
17| 18

19. The Statement of Cash Flows
• Illustrates how the operating, investing, and
financing activities of a company affect cash
during an accounting period
17| 19

20. Evaluating Financial Statements
• Identify trends in sales, profits, borrowing,
and other business variables
• Determine whether the firm is on track to
meet long-term goals
17| 20

21. Comparing Data with Other Firms’ Data
• Comparisons are possible because of GAAP
• Managers can get a general idea of a firm’s
relative effectiveness and its standing within
the industry
• Data are available from annual reports of
public corporations
• Industry averages are available from Dun &
Bradstreet, Standard & Poor’s, industry trade
associations
17| 21

22. Financial Ratios
• Numbers that show the relationship between
two elements of a firm’s financial statements
• Can be compared with
– The firm’s own past ratios
– Ratios of competitors
– Industry averages
• Information to calculate ratios is found on a
firm’s balance sheet and income statement
17| 22

23. Thanks
17| 23