1 © Copyrright Doug Hillman 1997 Accounting Information System

2 © Copyrright Doug Hillman 1997 Major Accounting Bodies l American Institute of Certified Public Accountants l Financial Accounting Standards Board l Government Accounting Standards Board l Securities and Exchange Commission

3 © Copyrright Doug Hillman 1997 Ethics The process that individuals use

4 © Copyrright Doug Hillman 1997 Ethics The process that individuals use to evaluate their conduct

5 © Copyrright Doug Hillman 1997 Ethics The process that individuals use to evaluate their conduct in light of moral principles and values

6 © Copyrright Doug Hillman 1997 Assets l Anything of value held by an organization l Assets have

7 © Copyrright Doug Hillman 1997 Assets l Anything of value held by an organization l Assets have » Potential usefulness

8 © Copyrright Doug Hillman 1997 Assets l Anything of value held by an organization l Assets have » Potential usefulness » Future usefulness

9 © Copyrright Doug Hillman 1997 Assets l Anything of value held by an organization l Assets have » Potential usefulness » Future usefulness » Economic Value

10 © Copyrright Doug Hillman 1997 Assets l Cost principle l Going-concern concept l Objectivity principle l Stable dollar concept

11 © Copyrright Doug Hillman 1997 Equities l Claims against the total assets of an organization l Liabilities » Claims of nonowners l Owner's Equity » Claims of owners

12 © Copyrright Doug Hillman 1997 Retained Earnings l Cumulative total of net income, net loss, and dividends since start of business

13 © Copyrright Doug Hillman 1997 Revenues l Inflows of assets that result from performing services or selling goods l Revenues are realized when » the service is performed or

14 © Copyrright Doug Hillman 1997 Revenues l Inflows of assets that result from performing services or selling goods l Revenues are realized when » the service is performed or » the goods are delivered

15 © Copyrright Doug Hillman 1997 Expenses l Outflows of assets or incurrence of liabilities while earning revenues l A business incurrs expenses to earn revenues

16 © Copyrright Doug Hillman 1997 The Accounting Equation l Things of Value = Claims l Assets = Equities l Assets = Liabilities + Owner's Equity l Assets - Liabilities = Net Assets

17 © Copyrright Doug Hillman 1997 Analyzing Transactions l Use accounting equation l Is there a change in assets? »Which asset? »How much was the change? l Is there another change in assets?

18 © Copyrright Doug Hillman 1997 Analyzing Transactions l Is there a change in liabilities? »Which liability? »How much was the change? l Is there another change in liabilities? l Is there a change in owners’ equity? »How much was the change?

19 © Copyrright Doug Hillman 1997 Four Basic Financial Statements l Income Statement l Statement of Owners’ Equity l Classified Balance Sheet l Statement of Cash Flows

20 © Copyrright Doug Hillman 1997 Income Statement l Reports changes in owners’ equity from operating activities l Revenues - Expenses = Net Income(Loss)

21 © Copyrright Doug Hillman 1997 Statement of Owners’ Equity l Changes in owners’ interest in assets l Issuances of new stock l Retained earnings »Net income or loss »Dividends

22 © Copyrright Doug Hillman 1997 Classified Balance Sheet l Classification - arrangement of financial statement items into groupings that have common basis l Assets »Current »Property, plant, and equipment

23 © Copyrright Doug Hillman 1997 Classified Balance Sheet l Liabilities »Current »Long-tern l Owners’ Equity »Common stock »Retained earnings

24 © Copyrright Doug Hillman 1997 Statement of Cash Flows l Reports cash flows during period l Categories of activities »Operating activities »Investing activities »Financing activities

25 © Copyrright Doug Hillman 1997 Analyzing Information

26 © Copyrright Doug Hillman 1997 Balance Sheet Analysis l Are total assets higher or lower? l What is percent change in total assets? l Is the percent of total liabilities to total liabilities plus owner’s equity increasing or decreasing?

27 © Copyrright Doug Hillman 1997 Income Statement Analysis l Are revenues higher or lower? l What is the precentage change in total revenues? l Is the percentage of total expenses to total revenues increasing or decreasing?

28 © Copyrright Doug Hillman 1997 Integrative Analysis l Is the business operating efficiently by using the least amount of asset investment to generate a given level of total revenues? l Calculate Total Asset Turnover »Total revenues »divided by »Average total assets