© Prentice Hall, 2005Excellence in Business, Revised Edition Chapter Accounting

© Prentice Hall, 2005Excellence in Business, Revised Edition Chapter What is Accounting? Financial Management

© Prentice Hall, 2005Excellence in Business, Revised Edition Chapter What Accountants Do Bookkeeping Cost accounting Tax accounting Financial analysis

© Prentice Hall, 2005Excellence in Business, Revised Edition Chapter Ten Most Important Accounting Skills Analytical Problem solving Interpersonal Listening Communication Leadership Decision making Time management Teamwork Computer

© Prentice Hall, 2005Excellence in Business, Revised Edition Chapter Types of Accountants Private –CMA or CPA –Internal audit Public –CPA –External audit

© Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 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, 2005Excellence in Business, Revised Edition Chapter The Role of Auditors Financial statements –Integrity –Reliability Stakeholders –Internal –External

© Prentice Hall, 2005Excellence in Business, Revised Edition Chapter Accounting Rules Generally Accepted Accounting Principles (GAAP) Financial Accounting Standards Board (FASB) International Accounting Standards (IAS) Securities and Exchange Commission (SEC)

© Prentice Hall, 2005Excellence in Business, Revised Edition Chapter How Strict is GAAP? Conservative interpretation Aggressive interpretation Financial performance pressure –Employee-shareholders –Executives –Wall Street analysts

© Prentice Hall, 2005Excellence in Business, Revised Edition Chapter Fundamental Accounting Concepts The accounting equation Double-entry bookkeeping The matching principle

© Prentice Hall, 2005Excellence in Business, Revised Edition Chapter The Accounting Equation Owner’s Equity: Accounting Equation: Assets = Liabilities + Owner’s Equity Assets – Liabilities = Owner’s Equity

© Prentice Hall, 2005Excellence in Business, Revised Edition Chapter Basic Accounting Concepts Double-entry bookkeeping –Credit purchase –Cash purchase Matching principle –Accrual basis –Cash basis

© Prentice Hall, 2005Excellence in Business, Revised Edition Chapter How Are Financial Statements Used? A transaction takes place The transaction is measured and recorded Journal entries are analyzed and posted to a ledger Account data are summarized and used to prepare budgets, reports, and financial statements

© Prentice Hall, 2005Excellence in Business, Revised Edition Chapter Understanding Financial Statements Balance sheet Income statement Cash-flow statement

© Prentice Hall, 2005Excellence in Business, Revised Edition Chapter The Balance Sheet Assets –Current –Fixed Liabilities and shareholder’s equity –Current liabilities –Long-term liabilities –Shareholder’s equity

© Prentice Hall, 2005Excellence in Business, Revised Edition Chapter The Income Statement 4Revenues Gross Sales Less Sales Returns and Allowances 4Cost of Goods Sold Beginning Inventory + Net Purchases – Ending Inventory 4Operating Expenses Selling Expenses General Expenses 4Net Income After Taxes Net Income Before Taxes – Income Taxes 4Income Taxes

© Prentice Hall, 2005Excellence in Business, Revised Edition Chapter The Cash-Flow Statement Operations Investments Financing

© Prentice Hall, 2005Excellence in Business, Revised Edition Chapter Analyzing Financial Statements Trend Analysis Ratio Analysis Consider More Than One Ratio Uncover Business Shifts Consider Extraordinary Circumstances Check Specific Data

© Prentice Hall, 2005Excellence in Business, Revised Edition Chapter Types of Financial Ratios Profitability Liquidity Activity Leverage

© Prentice Hall, 2005Excellence in Business, Revised Edition Chapter Profitability Ratios 4Return on Sales Net Income/Net Sales 4Return on Equity Net Income/Total Owner’s Equity 4Earnings per Share Net Income/Average Shares Outstanding

© Prentice Hall, 2005Excellence in Business, Revised Edition Chapter Liquidity Ratios 4Current Ratio Current Assets/Current Liabilities 4Quick Ratio Current Assets – Inventory/Current Liabilities

© Prentice Hall, 2005Excellence in Business, Revised Edition Chapter Activity Ratios 4Inventory Turnover Cost of Goods Sold/Average Inventory 4Accounts Receivable Turnover Sales/Average Accounts Receivable

© Prentice Hall, 2005Excellence in Business, Revised Edition Chapter Leverage Ratios 4Debt to Equity Total Liabilities/Total Equity 4Debt to Total Assets Total Liabilities/Total Assets