© Prentice Hall, 2007 Excellence in Business, 3eChapter Basic Accounting Concepts

© Prentice Hall, 2007 Excellence in Business, 3eChapter What Is Accounting? FinancialAccountingFinancialAccountingManagementAccountingManagementAccountingCommunicationMeasuring Interpreting Decision Making

© Prentice Hall, 2007 Excellence in Business, 3eChapter What Accountants Do TaxAccountingTaxAccounting BookkeepingBookkeeping FinancialAnalysisFinancialAnalysis CostAccountingCostAccounting

© Prentice Hall, 2007 Excellence in Business, 3eChapter Ten Most Important Accounting Skills AnalyticalAnalytical Problem solvingProblem solving InterpersonalInterpersonal ListeningListening CommunicationCommunication LeadershipLeadership Decision makingDecision making Time managementTime management TeamworkTeamwork ComputerComputer

© Prentice Hall, 2007 Excellence in Business, 3eChapter Types of Accountants PrivatePublic Internal Audit Internal Audit CPA CMA CPA CMA External Audit External Audit CPA

© Prentice Hall, 2007 Excellence in Business, 3eChapter Typical Finance Department Vice President Manufacturing Vice President Manufacturing Vice President Finance Vice President Finance Vice President Sales Vice President Sales President Board of Directors Board of Directors Controller Treasurer Director of Capital Budgeting Director of Capital Budgeting Credit Manager Credit Manager Inventory Manager Inventory Manager Cost Accounting Cost Accounting Tax Department Tax Department Financial Accounting Financial Accounting

© Prentice Hall, 2007 Excellence in Business, 3eChapter Accounting Rules Generally Accepted Accounting Principles (GAAP) International Accounting Standards (IAS) Financial Accounting Standards Board (FASB) Securities and Exchange Commission (SEC)

© Prentice Hall, 2007 Excellence in Business, 3eChapter Sarbanes-Oxley Act Disadvantages Investor Protection Authority of Auditors Conflict of Interest Corporate Accountability Enforcement Issues Implementation Cost of Compliance Reporting Requirements Advantages

© Prentice Hall, 2007 Excellence in Business, 3eChapter Fundamental Accounting Concepts Accounting Equation Double-Entry Bookkeeping Matching Principle

© Prentice Hall, 2007 Excellence in Business, 3eChapter Accounting Equation Owner’s Equity: Accounting Equation: Assets = Liabilities + Owner’s Equity Assets – Liabilities = Owner’s Equity

© Prentice Hall, 2007 Excellence in Business, 3eChapter Maintaining Balance MatchingPrincipleMatchingPrincipleCashBasisCashBasisAccrualBasisAccrualBasisDouble-EntryBookkeepingDouble-EntryBookkeepingExpensesExpensesRevenuesRevenues LiabilitiesLiabilitiesAssetsAssets

© Prentice Hall, 2007 Excellence in Business, 3eChapter How Are Financial Statements Used?

© Prentice Hall, 2007 Excellence in Business, 3eChapter Understanding Financial Statements Income Statement Balance Sheet Cash-Flow Statement

© Prentice Hall, 2007 Excellence in Business, 3eChapter The Balance Sheet Statement of Financial Position AssetsLiabilitiesOwners’ Equity Calendar Year Fiscal Year

© Prentice Hall, 2007 Excellence in Business, 3eChapter The Income Statement Revenues Cost of Goods Sold Operating Expenses Net Operating Income Net Income After Taxes

© Prentice Hall, 2007 Excellence in Business, 3eChapter Cash-Flow Statement Investments Operations Financing

© Prentice Hall, 2007 Excellence in Business, 3eChapter Analyzing Financial Statements Trend Analysis Ratio Analysis Uncover Business Shifts Consider Extraordinary Circumstances Consider Extraordinary Circumstances Consider More Than One Ratio Consider More Than One Ratio Check Specific Data

© Prentice Hall, 2007 Excellence in Business, 3eChapter Types of Financial Ratios ProfitabilityProfitability ActivityActivity LiquidityLiquidity LeverageLeverage

© Prentice Hall, 2007 Excellence in Business, 3eChapter Profitability Ratios Return on Sales = Net Income Net Sales Return on Equity = Net Income Total Owner’s Equity Earnings per Share = Net Income Average Shares Outstanding

© Prentice Hall, 2007 Excellence in Business, 3eChapter Liquidity Ratios Working Capital = Current Assets – Current Liabilities Current Ratio = Current Assets Current Liabilities Quick Ratio = Current Assets – Liabilities Current Liabilities

© Prentice Hall, 2007 Excellence in Business, 3eChapter Activity Ratios Inventory Turnover = Cost of Goods Sold Average Inventory Receivables Turnover = Sales Average Accounts Receivable

© Prentice Hall, 2007 Excellence in Business, 3eChapter Leverage Ratios Debt to Equity = Total Liabilities Total Equity Debt to Total Assets = Total Liabilities Total Assets