Using Accounting Information

Business Planning Activities n Individual Point of View n Business Point of View –Planning –Budgeting

Accounting Information System Resources and procedures in a business

Accounting Information System Resources and procedures in a business that change economic data

Accounting Information System Resources and procedures in a business that change economic data into financial information

Users of Accounting Information n Owners n Lenders n Labor Organizations n Customers n Society groups n Government Regulatory Agencies

Entity Concept Any organization unit for which we gather and process

Entity Concept Any organization unit for which we gather and process financial and economic data

Entity Concept Any organization unit for which we gather and process financial and economic data for the purpose of decision making

Types of Ownership n Single proprietorship n Partnership n Corporation

Financial Statements n Balance Sheet n Income Statement n Statement of Cash Flows

Balance Sheet n Summarizes assets, liabilities, and owners’ equities as of a specific moment in time –Assets - economic resources or items of value a business owns –Liabilities - claims against the assets by nonowners –Owners’ equity - claims against the assets by owners

Basic Accounting Equation Assets = Liabilities + Owners’ Equity

Income Statement n Presents the results of operations for a period of time –Revenues - inflow of assets from performing services or selling goods –Expenses - use of assets or incurrence of liabilities when earning revenues

Statement of Cash Flows n Presents the reasons why cash on the balance sheet changed from one date to another n Presents cash flows from –Operating activities –Investing activities –Financing activities

Published Annual Reports n Letter to stockholders n Management’s discussion and analysis n Financial statements and notes n The report of the independent accountant

Analyzing Information n Common-size statement –Express each item as a percent of the total for that statement »Balance sheet - total assets »Income statement - total revenues

Balance Sheet Analysis n Are total assets higher or lower? n What is percent change in total assets? n Is the percent of total liabilities to total liabilities plus owner’s equity increasing or decreasing?

Income Statement Analysis n Are revenues higher or lower? n What is the precentage change in total revenues? n Is the percentage of total expenses to total revenues increasing or decreasing?

Integrative Analysis n Is the business operating efficiently by using the least amount of asset investment to generate a given level of total revenues? n Calculate Total Asset Turnover –Total revenues –divided by –Average total assets