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Getting to theBottom Line:

Basic Accounting Concepts

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What is Accounting?

Financial

Management

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What Accountants Do

Bookkeeping

Cost accounting

Tax accounting

Financial analysis

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Ten Most Important

Accounting Skills

Analytical

Problem solving

Interpersonal

Listening

Communication

Leadership

Decision making

Time management

Teamwork

Computer

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Types of Accountants

Private

CMA or CPA

Internal audit

Public

CPAExternal audit

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Typical Finance Department

Vice President

Manufacturing

Vice President

Finance

Vice President

Sales

President

Board of

Directors

ControllerTreasurer

Director

of Capital

Budgeting

Credit

Manager

Inventory

Manager

Cost

Accounting

Tax

Department

Financial

Accounting

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Accounting Rules

Generally Accepted Accounting Principles(GAAP)

Financial Accounting Standards Board(FASB)

International Accounting Standards (IAS)

Securities and Exchange Commission

(SEC)

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Sarbanes-Oxley Act

Advantages

Authority of auditors, conflict of

interest, investor protection,corporate accountability

Disadvantages

Implementation, cost of compliance,

enforcement, reporting requirements

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Fundamental

Accounting Concepts The accounting equation

Double-entry bookkeeping The matching principle

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The Accounting Equation

Owners Equity:

Accounting Equation:

Assets = Liabilities + Owners Equity

AssetsLiabilities = Owners Equity

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Maintaining Balance

Double-entry bookkeeping

Credit purchase

Cash purchase

Matching principle

Accrual basisCash basis

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How Are Financial

Statements Used? A transaction takes place

The transaction is measured and recorded

Journal entries are analyzed and posted to

a ledger

Account data are summarized and used to

prepare budgets, reports, and financial

statements

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Understanding Financial

Statements Balance sheet

Income statement Cash-flow statement

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The Balance Sheet

Assets

Current

Fixed Liabilities and shareholders equity

Current liabilities

Long-term liabilities

Shareholders equity

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The Income Statement

Revenues

Gross Sales

Less Sales Returns and Allowances

Cost of Goods Sold

Beginning Inventory + Net Purchases Ending Inventory

Operating Expenses

Selling Expenses

General Expenses

Net Income After Taxes

Net Income Before Taxes Income Taxes

Income Taxes

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The Cash-Flow Statement

Operations

Investments

Financing

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Analyzing FinancialStatements

Trend Analysis Ratio Analysis

Consider More

Than One RatioUncover Business Shifts

Consider Extraordinary

CircumstancesCheck Specific Data

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Types of Financial Ratios

Profitability

Liquidity

Activity

Leverage

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Profitability Ratios

Return on Sales

Net Income/Net Sales

Return on Equity

Net Income/Total Owners Equity

Earnings per Share

Net Income/Average Shares Outstanding

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Liquidity Ratios

Current Ratio

Current Assets/Current Liabilities

Quick Ratio

Current Assets Inventory/Current Liabilities

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Activity Ratios

Inventory Turnover

Cost of Goods Sold/Average Inventory

Accounts Receivable Turnover

Sales/Average Accounts Receivable

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Leverage Ratios

Debt to Equity

Total Liabilities/Total Equity

Debt to Total Assets

Total Liabilities/Total Assets