1-1 Financial Accounting

1-2 This course is an introduction to the basic concepts and standards underlying financial accounting systems. It emphasizes the construction and interpretation of the basic financial accounting statements, the income statement, statement of cash flows and balance sheet.

1-3 Text Book : Financial & Managerial Accounting Fourteenth Edition By Williams Haka Bettner Carcello Final score Assessment Mid term exam or assignments 30% Final exam 60% Attendance 10%

1-4 Chapter 01 Accounting: Information for Decision Making Accounting: Information for Decision Making

1-5 Accounting Information The Accounting Process Decision Makers Economic Activities Actions (decisions) Accounting links decision makers with economic activities  and with the results of their decisions. Reported Results of Actions (decisions)

1-6 Types of Accounting Information Financial Management Tax

1-7 Accounting Systems An accounting system consists of the personnel, procedures, technology, and records used by an organization to develop accounting information and to communicate this information to decision makers.

1-8 Information Users  Investors  Creditors  Managers  Owners  Customers  Employees  Regulators -SEC -IRS -FTC Information Users  Investors  Creditors  Managers  Owners  Customers  Employees  Regulators -SEC -IRS -FTC Decisions Supported  Performance evaluations  Stock investments  Tax strategies  Labor relations  Resource allocations  Lending decisions  Borrowing Decisions Supported  Performance evaluations  Stock investments  Tax strategies  Labor relations  Resource allocations  Lending decisions  Borrowing Information System Financial Information Provided  Profitability  Financial position  Cash flows Financial Information Provided  Profitability  Financial position  Cash flows

1-9 Although much accounting information clearly is essential to business operations, management still has many choices as to the types and amount of accounting information to be developed. Determining Information Needs

1-10 Basic Functions of an Accounting System  Summarize and communicate information to decision makers.  Classify similar transactions into useful reports.  Interpret and record business transactions.

1-11 Components of Internal Control Control Environment Risk Assessment Control Activities Information and Communication Monitoring

1-12 External Users of Accounting Information Owners Creditors Potential investors Labor unions Governmental agencies Suppliers Customers Trade associations General public

1-13 Provide specific information about economic resources, claims to resources, and changes in resources and claims. Provide information useful in assessing amount, timing and uncertainty of future cash flows. Provide general information useful in making investment and credit decisions. Objectives of External Financial Reporting

1-14 Objectives of External Financial Reporting The primary financial statements. Balance Sheet Statement of Cash Flows Income Statement

1-15 Characteristics of Externally Reported Information A Means to an End Broader than Financial Statements Historical in Nature Results from Inexact and Approximate Measures Based on General- Purpose Assumption Usefulness Enhanced via Explanation

1-16 Users of Internal Accounting Information Board of directors Chief executive officer (CEO) Chief financial officer (CFO) Vice presidents Business unit managers Plant managers Store managers Line supervisors

1-17 Typical Simple Organization Chart Plant Accountants Plant Managers Plant Accountants Plant Managers Business Unit Managers V.P. Human Resources V.P. Information Services Chief Financial Officer (CFO) Chief Executive Officer (CEO) Board of Directors Owners V.P Ethics ControllerTreasurer 1-17

1-18 Objectives of Management Accounting Information To help achieve goals and missions To help evaluate and reward decision makers

1-19 Characteristics of Management Accounting Information Timeliness Identify Decision Maker Oriented Toward Future Measures of Efficiency and Effectiveness A Means to an End

1-20 Institutional Features  Generally Accepted Accounting Principles (GAAP)  Financial Accounting Standards Board  International Accounting Standards Board  Securities and Exchange Commission  Public Company Accounting Oversight Board  Audits of Financial Statements  Legislation

1-21 Professional Organizations  American Institute of Certified Public Accountants  Institute of Management Accountants  Institute of Internal Auditors  American Accounting Association  Committee of Sponsoring Organizations of the Treadway Commission (COSO)

1-22 Competence, Judgment and Ethical Behavior  Certified Public Accountant (CPA)  Certified Management Accountant (CMA)  Certified Internal Auditor (CIA) Ethical behavior is the cornerstone of the accounting profession.

1-23 Careers in Accounting  Public Accounting  Management Accounting  Governmental Accounting  Accounting Education

1-24 What About Bookkeeping? Bookkeeping is the clerical side of accounting— the recording of routine transactions and day-to- day record keeping. Professional accountants are involved more with the interpretation and use of accounting information than with its actual preparation.

1-25 I’m Not An Accounting Major Accounting is the language of business, and trying to run a business without understanding accounting information is analogous to trying to play sports without understanding the rules.

1-26 Ethics, Fraud & Corporate Governance Corporate governance entails corporate structures and processes for overseeing the company’s affairs to ensure that the company is being managed with the best interests of shareholders in mind.