Chapter 1

jockeyropeInternet και Εφαρμογές Web

2 Φεβ 2013 (πριν από 4 χρόνια και 8 μήνες)

121 εμφανίσεις

Chapter 1


Page 1
-
1


Chapter 1 Outline (pages 2


31
)

Accounting Information and Decision Making


PART A: Accounting as a Measurement/Communication Process


Who uses Accounting Information?
Illustration 1
-
1



Purpose of Accounting:
measure the activities of a company and com
municate it to others, see
Illustration 1
-
2.


BUSINESS ACTIVITIES TO MEASURE


Financing

-
creditors

-
owners


Investing

-
Long term
Assets


Operating

Primary operations of the company

-
Revenue

-
Expenses


Forms of Business Organizations

-
Sole proprietorship

-
Partnerships

-
Corporations


COMMUNICATING THROUGH FINANCIAL STATEMENTS


The Financial Statements

1.

2.

3.

4.

Financial statements
summarize

business activities.

Chapter 1


Page 1
-
2



Financial Statement Heading

NAME OF ENTITY

NAME of FINANCIAL STATEMENT

DATE OF FINANCIAL STA
TEMENT AND PERIOD IT COVERS

UNIT OF MEASURE


The Income Statement (IS)

(p. 1
1
)


Example of a heading for an income statement

A, Inc.

Income Statement

For the Year Ended

June 30, 20
B

(in thousands of dollars)

“Period Ending”


ELEMENTS OF THE INCOME STATEM
ENT


Revenues (R)


Sales

Service revenue


Expenses (E)


Salaries expense

Rent expense


Net Income (NI)

The income statement equation is: (Revenue


Expenses = Net Income or Net Loss) R


E = NI


Practice

Rent expense

4,
500

Wage

expense

2,
65
0

Painting
s
upplies expense

1
,9
5
0

Painting revenue


11
,500

Insurance expense

700


Determine Net income:

$

Chapter 1


Page 1
-
3


The Statement of Stockholders’ Equity (SSE)


The SSE shows increases and decreases to stockholders’ equity accounts over a period of time.


Stockholders’ Eq
uity results from two basic categories:

Common Stock:

(CS)

are amounts invested by the owners.

Retained Earnings:

(RE)
are accumulated earnings minus distributions

to owners


SE = CS + RE


STOCKHOLDERS’ EQUITY


Common Stock

+

Retained Earnings

Beginnin
g Common Stock

+
Issuance of common stock


= Ending Common Stock


Beginning Retained Earnings

+ Net Income or


(Net Loss)

-

Dividends Declared

= Ending Retained Earnings


Practice

At the beginning of the year (January 1), Bennett Drilling has $10,000 of
common stock
outstanding and retained earnings of $7,200. During the year, Bennett reports net income of
$7,500 and pays dividends of $2,200. In addition, Bennett issues additional common stock for
$7,000. (What is ending Common Stock, ending Retained E
arnings and ending Stockholders’
Equity?)


Bennett Drilling

Statement of Stockholders’ Equity

䙯爠Wh攠祥y爠enTeT D散e浢敲 ㌱Ⱐ㈰
C


Common Stock

Retained Earnings

Total Stockholders’ Equity

Beginning balance

$

$

$

+issuance of common stock




+ net inco
me (net loss)




-

dividends




Ending Balance

$

$

$

Chapter 1


Page 1
-
4


The Balance Sheet (BS) (
aka, The statement of Financial Position)

Example of a heading for a balance sheet

A, Inc.


Balance Sheet

At

June 30, 20
B

(
in thousands of dollars
)

“AT”


ELEMENTS OF THE BALANC
E SHEET

Assets (A)


-
Owned by the company as a result of past transactions.

-

Economic resources expected to provide future benefits

to the company

-
Examples: Cash, Equipment, Buildings


Liabilities (L)

-
Owed

by the company as a result of past transactio
ns.

-
Future claims on economic resources (either assets or services) of the company.

-
Examples: Notes payable, Salaries payable


Stockholders’ Equity (SE)

Stockholders’ Equity results from two basic categories:

Common Stock

(CS)

Retained Earnings (RE)


TH
E ACCOUNTING EQUATION

(
Balance Sheet Equation)

A = L + SE


CS + RE

Assets = Liabilities
+
Stockholders’ Equity

Economic resources = Sources of financing

What you have = Where it came from

or

A
-

L = SE

Net assets = Owners’ eq
uity or residual equity

Chapter 1


Page 1
-
5


Practice:

Smith Construction has the following account balances at the end of the year:

Equipment

$21,000

Accounts payable

2,000

Common stock

10,000

Land

13,000

Long
-
term debt

15,000

Cash

5,000

Retained earnings

?


Determine

Retained earnings, Total assets, Total Liabilities and Total Stockholders’ Equity by
preparing the balance sheet at the end of the year.


Smith Construction

Balance Sheet

At
December 31,

20
C

Assets


Liabilities



$


$








Tota
l liabilities

$




Stockholders' Equity





$







Total stockholders’ equity


呯W慬 慳獥as

$

呯W慬 汩慢楬iW楥猠慮T 獴潣oh潬oe牳✠rquiWy

$


The Statement of Cash Flows

Categories:

OPERATING ACTIVITIES

INVESTING ACTIVITIES

FINANCING ACTIVITIES


Co
mbining the three categories of net cash inflows and outflows indicates
the change in CASH

during the period.

Chapter 1


Page 1
-
6


Practice:


Lincoln Trade has the following cash transactions for the period.




Identify as (O, I, F)

Cash received from sale of products to cus
tomers

$35,000


Cash received from the bank for long
-
term loan

40,000


Cash paid to purchase factory equipment

(45,000)


Cash paid to merchandise suppliers

(11,000)


Cash received from the sale of an unused warehouse

12,000


Cash paid to workers

(23,0
00)


Cash paid for advertisement

(3,000)


Cash received for sale of services to customers

25,000


Cash paid for dividends to stockholders

(5,000)



Beginning cash balance was
$4,000
. Prepare the Statement of Cash Flows for Lincoln Trade.


Lincoln Trad
e

Statement of Cash Flows

For t
he year ending December 31, 20C

Cash Flows from Operating Activities

Cash inflows:



$





Cash outflows:











Net cash flows from operating activities

$

Cash Flows from Investing Activities







Net cash f
lows from investing activities


Cash Flows from Financing

Activities







Net cash flows from financing activities


Net increase in cash



Cash at the beginning of the year



Cash at the end of the year


$


Chapter 1


Page 1
-
7


THE LINK AMONG FINANCIAL STATEMENTS


Il
lustration 1
-
1
1


Practice:

A company receives cash for services performed. How does this transaction affect the financial
statements?


What happens to the Income Statement?


What happens to the Statement of Stockholders’ Equity?


What happens to the Balan
ce Sheet?


What happens to the Statement of Cash Flows?




Practice:
Solve for the missing amounts:

Income Statement

Statement of Stockholders’ Equity


Revenues

$34,000


Common stock

Retained
earnings

Stockholders’

䕱uiWy

䕸N敮獥猺


B敧楮n楮g

␹ⰰ,0

␶$
〰0

␱㔬5〰

卡污物敳


⡡(

䥳獵慮ce

ㄬ1〰


ㄬ1〰

䅤浩m楳W牡r楶i

㔬5〰

N整

i
nc潭e


⡤(


啴楬楴楥i

㌬3〰

D楶楤enTs


(
㈬2〰
)

⠲ⰰ(〩

呯W慬 數een獥s

⡢(

䕮Ting

␱〬0〰

␹ⰰ,0

␱㤬9〰

N整⁩ec潭e


⡣⤠)





Balance Sheet


Assets


Liabilities

Cash

$3,00
0


Accounts payable

(e)

Office supplies

2,000


Total Liabilities

(f)

Prepaid rent

8,000


Stockholders’ Equity

䕱uip浥湴

㤬9〰


C潭浯n sW潣o

⡧)




剥R慩aeT 敡牮in杳


)




Total Stockholders’ Equity

⡩(

呯W慬 慳獥as

␲㈬2〰


呯W慬 L
楡i楬iW楥i

anT 卅

(
j
)

Chapter 1


Page 1
-
8


Other Information Reported to Outsiders

Management & Discussion Analysis (MD&A)

Management is responsible for the financial statements


The Notes


There are three basic types of notes.

1.

Descriptions of accounting rules applied in the financial state
ments.

2.

Details about line items in the statements.

3.

Disclosures about items not listed in the statements.

PART B: FINANCIAL ACCOUNTING INFORMATION

Importance of Financial Accounting Information

Rules of Financial Accounting

Generally Accepted Accounti
ng Principles (GAAP)

Financial Accounting Standards Board (FASB)

International Accounting Standards Board (IASB)

Securities and Exchange Commission (SEC)


The rules




GAAP

The rule makers



FASB

The rule enforcers



SEC


Financial Statement Responsibil
ity

Management

is responsible for the financial statements

Role of the Auditor

seal of approval

OBJECTIVE
S

OF FINANCIAL ACCOUNTING

1.


Is
useful

to
present and potential
investors

and
creditors

and other users

in
making

rational investment, credit and simila
r
decisions
.

2.

Helps
decision makers
predict
amounts
,
timing
, and
uncertainty

of future
cash flows
.

3.

Provides info about

economic resources
,
claims

to
those
resources, and
effects of
transactions which causes
changes

in

those

resources and claims

to them
.


Pr
imary objective
: provide useful information to investors and creditors in making decisions.



Chapter 1


Page 1
-
9


Part C: Careers in Accounting


Illustration 1
-
1
6

page 2
7
.


APPENDIX

THE CONCEPTUAL FRAMEWORK
:
Foundation for Developing Accounting Standards.


Qualitative Charact
eristics

see Illustration 1
-
17

on page 2
8


Decision Usefulness (
Understandability
)


Relevance

-
predictive value

-
feedback value

-
timeliness


Faithful Representation (aka
Reliability
)

-

verifiable

-

completeness

-
neutral

-
freedom of error


Comparable and Co
nsistent


Constraints

-
Materiality

-
Cost
-
benefit


-
Conservatism

-
industry practice


UNDERLYING ASSUMPTIONS

Economic E
ntity assumption

(“Separate Entity”)

Monetary Unit assumption

currently we don’t take inflation into consideration

Periodicity assumption

Going C
oncern assumption