Robert N. West © VEMBA Accounting © The McGraw-Hill Companies, Inc., 1999 Anthony, Hawkins, and Merchant Tenth Edition These electronic slides are intended for the exclusive use by adopters of Irwin/McGraw-Hill accounting textbooks only. Any other use of these presentations without express written permission of Irwin/McGraw-Hill is strictly prohibited. ACCOUNTING: TEXT AND CASES

Robert N. West © VEMBA Accounting This electronic presentation prepared by Douglas Cloud, Professor of Accounting, Pepperdine University

Robert N. West © VEMBA Accounting Task Force Clip Art included in this electronic presentation is used with the permission of New Vision Technology of Nepean Ontario, Canada

Robert N. West © VEMBA Accounting The Nature and Purpose of Accounting © The McGraw-Hill Companies, Inc., Part One: Financial Accounting

Robert N. West © VEMBA Accounting …. Planning is the process of deciding what actions should be taken in the future. Planning Slide 1-1

Robert N. West © VEMBA Accounting  recognizing that a problem or an opportunity exists  specifying and ranking the criteria to be used to determine the best solution  identifying alternative ways of addressing the problem or opportunity  analyzing the consequences of each alternative  comparing these consequences to each other and the criteria so as to decide which is best  recognizing that a problem or an opportunity exists  specifying and ranking the criteria to be used to determine the best solution  identifying alternative ways of addressing the problem or opportunity  analyzing the consequences of each alternative  comparing these consequences to each other and the criteria so as to decide which is best Planning Slide 1-2 Planning involves making decisions. Decisions are arrived at by--

Robert N. West © VEMBA Accounting InformationInformation The Nature and Purpose of Accounting Nonquantitative information Quantitative information Accounting information Nonaccounting information Consists of Operating information Financial accounting Management accounting Tax accounting Consists of Slide 1-3

Robert N. West © VEMBA Accounting Relationship of Management Functions Slide 1-4 Planning

Robert N. West © VEMBA Accounting Relationship of Management Functions Slide 1-5 PlanningImplementation

Robert N. West © VEMBA Accounting Relationship of Management Functions Slide 1-6 PlanningImplementationControl

Robert N. West © VEMBA Accounting Relationship of Management Functions Slide 1-7 PlanningImplementationControl Appropriate action Feedback Plan revision

Robert N. West © VEMBA Accounting The Balance Sheet Slide 1-8 HOLDEN COMPANY Balance Sheet As of December 31, 1999 (000 omitted) Assets Liabilities and Owners’ Equity Current assets:Current liabilities: Cash$ 1,449Accounts payable$ 5,602 Marketable securities246Bank loan payable1,000 Accounts receivable, net9,944Accrued liabilities876 Inventories10,623Estimated tax liability1,541 Prepaid expenses 389Current portion of long- term debt 500 Total current assets $22,651 Total current liabilities $ 9,519 Current Section

Robert N. West © VEMBA Accounting The Balance Sheet Slide 1-9 Assets Liabilities and Owners’ Equity Noncurrent assets:Noncurrent liabilities: Property, plant, equipmentLong-term debt, less at cost$26,946 current portion$ 2,000 Less: AccumulatedDeferred income taxes 824 Depreciation13,534 Total liabilities12,343 Property, plant, equipment net13,412Owners’ equity: Investments1,110Common stock1,000 Patents and trademarks403Additional paid-in capital11,256 Goodwill 663 Total paid-in capital12,256 Retained earnings13,640 Total owners’ equity25,896 Total liabilities and owners’ Total assets$38,239 and owners’ equity$38,239 Noncurrent Section

Robert N. West © VEMBA Accounting Assets are economic resources which are owned by a business and are expected to benefit future operations. The Accounting Equation Slide 1-10 Assets = Liabilities + Owners’ Equity

Robert N. West © VEMBA Accounting The Accounting Equation Liabilities are obligations of the entity to outside parties who have furnished resources Slide 1-11 Assets = Liabilities + Owners’ Equity

Robert N. West © VEMBA Accounting Sales revenue$75,478 Less cost of sales52,227 Gross margin23,251 Less operating expenses10,785 Income before taxes12,466 Provision for income taxes 6,344 Net income$ 6,122 Income Statement HOLDEN COMPANY Income Statement For the Year 2000 (000 omitted) Slide 1-12

Robert N. West © VEMBA Accounting  Useful to present and potential investors and creditors in making rational investment and credit decisions  Comprehensible to those who have a reasonable understanding of business and economic activities and are willing to study the information with reasonable diligence  About the economic resources of an enterprise, the claims to those resources, and the effects of transactions and events that change resources and claims to those resources  About an enterprise’s financial performance during a period  Useful to present and potential investors and creditors in making rational investment and credit decisions  Comprehensible to those who have a reasonable understanding of business and economic activities and are willing to study the information with reasonable diligence  About the economic resources of an enterprise, the claims to those resources, and the effects of transactions and events that change resources and claims to those resources  About an enterprise’s financial performance during a period Financial Statement Objectives Financial reporting should provide information: Slide 1-13

Robert N. West © VEMBA Accounting A “Package” of Accounting Reports Slide 1-14 Condensed Balance Sheet As of December 31, 1999 Assets Current assets$22,651 Building and equip.13,412 Other assets 2,176 Total assets$38,239 Liabilities and Owners’ Equity Liabilities$12,343 Owners’ Equity Paid-in capital12,256 Retained earnings13,640 Total liabilities and owners’ equity$38,239

Robert N. West © VEMBA Accounting A “Package” of Accounting Reports Slide 1-15 Income Statement For the Year 2000 Sales revenue$75,478 Less cost of sales52,222 Gross margin23,351 Less operating exp.10,785 Income before taxes12,466 Provision for taxes 6,344 Net income, 1999$ 6,122 Condensed Balance Sheet As of December 31, 1999 Assets Current assets$22,651 Building and equip.13,412 Other assets 2,176 Total assets$38,239 Liabilities and Owners’ Equity Liabilities$12,343 Owners’ Equity Paid-in capital12,256 Retained earnings13,640 Total liabilities and owners’ equity$38,239

Robert N. West © VEMBA Accounting A “Package” of Accounting Reports Slide 1-16 Income Statement For the Year 2000 Sales revenue$75,478 Less cost of sales52,222 Gross margin23,351 Less operating exp.10,785 Income before taxes12,466 Provision for taxes 6,344 Net income, 1999$ 6,122 Statement of Retained Earnings Retained earnings $13,640 Add net income 6,122 19,762 Less dividends 4,390 Retained earnings$15,372 Condensed Balance Sheet As of December 31, 1999 Assets Current assets$22,651 Building and equip.13,412 Other assets 2,176 Total assets$38,239 Liabilities and Owners’ Equity Liabilities$12,343 Owners’ Equity Paid-in capital12,256 Retained earnings13,640 Total liabilities and owners’ equity$38,239

Robert N. West © VEMBA Accounting A “Package” of Accounting Reports Slide 1-17 Income Statement For the Year 1999 Sales revenue$75,478 Less cost of sales52,222 Gross margin23,351 Less operating exp.10,785 Income before taxes12,466 Provision for taxes 6,344 Net income, 1999$ 6,122 Statement of Retained Earnings Retained earnings $13,640 Add net income 6,122 19,762 Less dividends 4,390 Retained earnings$15,372 Condensed Balance Sheet As of December 31, 1999 Assets Current assets$22,651 Building and equip.13,412 Other assets 2,176 Total assets$38,239 Liabilities and Owners’ Equity Liabilities$12,343 Owners’ Equity Paid-in capital12,256 Retained earnings13,640 Total liabilities and owners’ equity$38,239

Robert N. West © VEMBA Accounting A “Package” of Accounting Reports Slide 1-18 Statement of Retained Earnings Retained earnings $13,640 Add net income 6,122 19,762 Less dividends 4,390 Retained earnings$15,372 Current assets$24,062 Building and equip.14,981 Other assets 3,207 Total assets$42,250 Liabilities and Owners’ Equity Liabilities$14,622 Owners’ Equity Paid-in capital12,256 Retained earnings15,372 Total liabilities and owners’ equity$42,250 Condensed Balance Sheet As of December 31, 2000 Assets

Robert N. West © VEMBA Accounting A “Package” of Accounting Reports Slide 1-19 Statement of Retained Earnings Retained earnings $13,640 Add net income 6,122 19,762 Less dividends 4,390 Retained earnings$15,372 Current assets$24,062 Building and equip.14,981 Other assets 3,207 Total assets$42,250 Liabilities and Owners’ Equity Liabilities$14,622 Owners’ Equity Paid-in capital12,256 Retained earnings15,372 Total liabilities and owners’ equity$42,250 Condensed Balance Sheet As of December 31, 2000 Assets

Robert N. West © VEMBA Accounting  Operating information, which has to do with the details of operations  Management accounting information, which is used internally for planning, implementation, and control  Financial accounting information, which is used both by management and external parties  Tax accounting information, which is used to file tax returns with taxing authorities Summary Slide 1-20 An organization has four types of accounting information:

Robert N. West © VEMBA Accounting Chapter 1 The End