Accounting and Finance

Vocabulary Liabilities: O bligations of the firm to outsiders or claims against its assets by outsiders (debts of the firm). Assets: R esources of the firm that are expected to increase or cause future cash flows (everything the firm owns) Owners’ Equity :The residual interest in, or remaining claims against, the firm’s assets after deducting liabilities (rights of the owners) Accounting : A process of identifying, recording, summarizing, and reporting economic information to decision makers in the form of financial statements. Annual report : A document prepared by management and distributed to current and potential investors to inform them about the company’s past performance and future prospects.

Accounting and Finance Accounting information is useful to anyone who makes decisions that have economic results.  MANAGERS  OWNERS  INVESTORS  CREDITORS  GOVERNMENT REGULATORS

Accounting and Finance The Balance Sheet The balance sheet equation: Assets = Liabilities + Owners’ Equity or Owners’ Equity = Assets - Liabilities In Accounting, An Itemized Statement of What one owns, What one owes, What one s worth is called a Balance Sheet

Accounting and Finance Balance Sheet Reports What a Business: Owns – Assets Owes – Liabilities Worth – Owners Equity

Accounting and Finance Income Statement reports How much you earned Last Year  Revenue  Expense  Profit

Accounting and Finance What is the need for Accounting & Finance in a Business: Assess Monitor Forecast Future

Accounting and Finance Expense Tangible Financial Statements Balance Sheet profitable. Intangible For a business enterprise, all the relevant financial information is presented in a structured format that is easy to understand. These are called ________. There are several important financial statements. Managers want to know if a new product will be _____________ An outflow of cash or other valuable assets from a person or company to another person or company is an ___________ In Accounting, An Itemized Statement of What one owns, What one owes, What one s worth is called a _______________ ________ assets are physical things, for example machines and property. ________ assets are not physical in nature, for example a company's reputation.

Accounting and Finance Match the balance sheet items on the left to their definition on the right: 1. Accounts receivable A. Borrowed money which the company must pay back within a year. 2. Prepaid expenses B. The money owed to a business by its clients 3. Account payable C. Intangible assets like a company’s brand name and established relationships with its suppliers 4. Stock / Inventory D. Costs paid in advance such as rent and interest 5. Plant & Equipment E. The money a company has received from outside investors for its shares 6. Share capital F. The money owed by a business to its suppliers 7. Goodwill G. The goods and materials that a business holds for the purpose of resale 8. Short-term debt H. What a company owns and uses to produce goods, such as factory and machinery.