the role of accounting in business
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The Role of Accounting in Business. CHAPTER 1. Learning Objectives. After studying this chapter, you should be able to: Describe the types and forms of businesses, how businesses make money, and business stakeholders - PowerPoint PPT PresentationTRANSCRIPT
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
The Role of Accounting in Business
CHAPTER 1
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Learning Objectives
After studying this chapter, you should be able to:•Describe the types and forms of businesses, how businesses make money, and business stakeholders•Describe the three business activities of financing, investing, and operating•Define accounting and describe its role in business•Describe and illustrate the basic financial statements and how they interrelate•Describe eight accounting concepts underlying financial reporting•Financial Analysis: Describe and illustrate how the rate of return on assets can be used to analyze and assess a company’s financial performance
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Describe the types and forms of businesses, how businesses make money, and business stakeholders
Learning Objective 1
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Types of Businesses_____ businesses provide services rather than products to customers. Delta Air Lines (transportation services) The Walt Disney Company (entertainment services)
_____ businesses sell products they purchase from other businesses to customers. Walmart (general merchandise) Amazon.com (books, music, videos)
_____ businesses change basic inputs into products that are sold to customers. General Motors Corporation (cars, trucks, vans) Dell Inc. (personal computers)
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Forms of Business
• __________• __________• __________• __________
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Differences in Forms of Business
Organizational Form
Ease of Formation
Legal Liability Taxation
Limitation on Life of
EntityAccess to
CapitalProprietorship Simple _________ _________ Yes __________
Partnership Simple _________ _________ Yes __________
Corporation Complex _________ _________ No __________
Limited Liability Company
Moderate _________ _________ Yes __________
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How do Businesses Make Money?
• By providing goods and services to customers so that they can make a _____
• To maximize their profits, companies may use one of the following two strategies:• __________• __________
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How do Businesses Make Money?
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Business Stakeholders
Business Stakeholder Interest in the Business Examples____________ Providers of major financing
for the businessBanks, owners,
stockholders
_____________ Buyers of products or services and vendors to the business
Customers and suppliers
______________ Collect taxes and fees from the business and its employees
Federal, state, and city governments
______________ Individual employed by the business
Employees and managers
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Business Stakeholders
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Learning Objective 2
Describe the three business activities of financing, investing, and operating
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Business Activities
• _______________
_______________ _______________ _______________
• _______________ _______________• ______________ _______________
• _______________
_______________•
_______________ _______________
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Learning Objective 3
Define accounting and describe its role in business
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Objectives of Financial Accounting
• Sometimes called the “___________________”, accounting is an information system that provides reports to stakeholders about the economic activities and condition of a business
• Essentially, it summarizes the financial performance of the firm for external users
• The two major objectives of financial accounting are:• To report the financial condition of a business at a
point in time• To report changes in the financial condition of a
business over a period of time
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Two Major Objectives of Financial Accounting
Financial ConditionAs at a _______________
Financial ConditionOver a _______________
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Learning Objective 4
Describe and illustrate the basic financial statements and how they interrelate
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Financial Statements
• ______________________• ______________________• ______________________• ______________________
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Income Statement
• Summary of revenue and expenses for a specific period of time (e.g., month, quarter, or year)
• Reports the change in financial condition due to the operations of a business
• Uses the _____ concept: Expenses for the period are matched against revenues for the same period
_____________ – ___________ = ________________
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Retained Earnings Statement
• Reports changes in financial condition due to changes in retained earnings during a period
• Retained earnings is the portion of ________ retained by the business
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Balance Sheet
• Reports financial condition at a point in time• Measured by total assets and claims to those assets:
_________ = ____________ + _________
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Balance Sheet – Preparation
• Step 1: Each asset is listed and added to arrive at total assets
• Step 2: Each liability is listed and added to arrive at total liabilities
• Step 3: Each stockholders’ equity item is listed and added to arrive at total stockholders’ equity
• Step 4: Total liabilities and total stockholder’s equity are added together
• Step 5: __________ must equal total liabilities and stockholders’ equity
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Statement of Cash Flows
• Reports the change in financial condition due to the changes in cash during a period
— Net change in operating cash flows— Net change in investing cash flows— Net change in financing cash flows
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Statement of Cash Flows – Operating Activities
• Net cash flows from operating activities is reported first
• Cash flow from operating activities is a focus of stakeholders
• Operating activities are transactions that involve the acquisition or production of products and services and the sale of those products or services to customers
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Statement of Cash Flows – Investing Activities
• Net cash flows from investing activities is reported second
• Cash receipts from selling property, plant, and equipment are reported in this section
• Cash used to purchase property, plant, and equipment is also reported in this section
• Negative cash flow from investing activities is normal for an expanding company
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Statement of Cash Flows – Financing Activities
• Net cash flows from financing activities is reported third
• Any cash receipts from issuing debt or stock are reported in this section
• Cash payments on debt and dividends are also reported in this section
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Integrated Financial Statements
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Integrated Financial Statements
• Net income from the income statement is linked to the ____________
• Retained earnings is linked to the stockholders’ equity in the ____________
• Cash balance from the ____________ is linked to cash in the balance sheet
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Learning Objective 5
Describe eight accounting concepts underlying financial reporting
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The Accounting “Rules”
GAAP - G_____ A_____ A_____ P_____
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Eight Accounting Concepts
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Financial History of a Company
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Accounting Frauds
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Guidelines for Ethical Conduct
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Learning Objective 6
Financial Analysis: Describe and illustrate how the rate of return on assets can be used to analyze and assess a company’s financial performance
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Rate of Return on Assets
• A measure of a company’s profitability
• Expressed as a percentage or as an amount per dollar invested• For example: a 12% rate of return on assets
could also be expressed as $0.12 return per $1 invested
_____ _____ ______
Rate of Return on Assets
___ ____ ____ ___ ___ ____ _____=
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Rate of Return on Assets
• Apple is 3.8 (38.1% 4 10.7%) times more profitable than Dell Inc.
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End of Chapter 1