fourth edition copyright ©2003 prentice hall, inc. part 5........................ managing...

Fourth EditionFourth Edition

Copyright ©2003 Prentice Hall, Inc.Copyright ©2003 Prentice Hall, Inc.

PART 5 . . . . . . . . . . . . . . . . . . . . . . . .PART 5 . . . . . . . . . . . . . . . . . . . . . . . .Managing InformationManaging Information

Copyright ©2003 Prentice Hall, Inc.Copyright ©2003 Prentice Hall, Inc. 13 - 13 - 22

Chapter 13Chapter 13

Understanding Principles of Accounting

Understanding Principles of Accounting


“I am incredibly nervous that we will implode in a wave of accounting scandals”

~ Sherron Watkins, Enron Vice President,four months prior to Enron’s collapse


Key Topics

The role of public and private accountants

The CPA vision project

The accounting equation and double-entry accounting

Basic financial statements

Key financial ratios

Accounting in international businesses


What Is Accounting?

Business managersBusiness managers

Employees and unionsEmployees and unions

Investors and creditorsInvestors and creditors

Tax authoritiesTax authorities

Government regulatory Government regulatory agenciesagencies

A comprehensive system for A comprehensive system for collectingcollecting, , analyzinganalyzing and and communicatingcommunicating financial financial informationinformation

A comprehensive system for A comprehensive system for collectingcollecting, , analyzinganalyzing and and communicatingcommunicating financial financial informationinformation

Users of accounting information:Users of accounting information:


Financial AccountingFinancial Accounting

Managerial AccountingManagerial Accounting

Accountants and Their Responsibilities

Controller: Managers all of a firm’s accounting activities


Accountants and Their Responsibilities

Certified public accountants (CPAs)

Auditing and GAAP

Tax services

Management advisory services

Non-certified public accountants

Private accountants


The CPA Vision Project

Identifying issues for the future

Global forces as drivers of change

Recommendations

A new directionCore services

Core competencies


Global Forces Impacting the New CPA Profession

Technical ForcesTechnical Forces

Economical ForcesEconomical Forces

Political ForcesPolitical Forces

Social ForcesSocial Forces

Human Resource ForcesHuman Resource Forces

Regulatory ForcesRegulatory Forces


Key Tools of the Accounting Trade

Accounting EquationAccounting Equation

Double-Entry AccountingDouble-Entry AccountingEvery transaction affects two accountsEvery transaction affects two accounts

Double-Entry AccountingDouble-Entry AccountingEvery transaction affects two accountsEvery transaction affects two accounts

Assets = Liabilities + Owners’ EquityAssets = Liabilities + Owners’ Equity

Assets – Liabilities = Owners’ Equity Assets – Liabilities = Owners’ Equity


Financial Statements

Balance Sheets

Income Statements

Statements of Cash Flows


ASSETS

Perfect Posters’

Balance Sheet Example


LIABILITIES & OWNER'S

EQUITY

Perfect Posters’

Balance Sheet Example


Perfect Posters’

Income StatementExample


Statements of Cash Flows

Cash flows from:Cash flows from:

OperationsOperations

InvestingInvesting

FinancingFinancing


Perfect Posters’

Sales Budget Example


Reporting Standards and Practices

Revenue Recognition

Matching

Full Disclosure


Solvency Solvency RatiosRatios

Profitability Profitability RatiosRatios

Activity Activity RatiosRatios

Analyzing Financial Statements


Short Term Solvency Ratios

Current Ratio:Current Ratio:

Current Assets – Current LiabilitiesCurrent Assets – Current Liabilities

Working Capital:Working Capital:

Current Assets Current Assets

Current LiabilitiesCurrent Liabilities


Long-term Solvency Ratios

Debt to Owners’ Equity Ratio:Debt to Owners’ Equity Ratio:

Ability to finance an investment through Ability to finance an investment through borrowed fundsborrowed funds

Leverage:Leverage:

DebtDebt

Owners’ EquityOwners’ Equity


Profitability and Activity Ratios

Return on Equity:Return on Equity:

Earnings Per Share:Earnings Per Share:

Net IncomeNet Income

Total Owners' EquityTotal Owners' Equity

Inventory Turnover Ratio:Inventory Turnover Ratio:

Net IncomeNet Income

# of Shares Outstanding# of Shares Outstanding

Cost of Goods SoldCost of Goods Sold

Average InventoryAverage Inventory


International International Accounting Accounting StandardsStandards

International International TransactionsTransactions

Foreign Foreign Currency Currency ExchangeExchange

International Accounting


Chapter Review

Explain the role of accountants, public and private

Discuss the CPA Vision Project

Explain the accounting equation and double-entry accounting

Describe the three basic financial statements


Chapter Review

Explain how key financial ratios can help analyze the financial strength of a business

Explain some of the special issues facing accountants at firms that do international business

fourth edition copyright ©2003 prentice hall, inc. part 5........................ managing...

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