1. ACCOUNTING ASW SUMMER 2007
Mark Lang

2. OVERVIEW Overview of ASW - work through syllabus
Overview of accounting
- goals
- structure
- major financial statements

10. How large should a company be?
Basics
What is a company?
Why do companies exist?
How large should a company be?

11. Role of Accounting The communication problem
- How to condense millions of transactions in a meaningful way
With whom does it communicate?
- Investors--debt and equity
- Employees--CEO, store manager, inventory managers, other employees
- Taxing authorities--state and local
- Others (government, labor, etc.)

12. Financial Accounting Why do investors need information?
- What to invest in
- Performance of management
• separation of ownership and control
What kind of information do they need?
- To forecast:
• the amount
• timing
• uncertainty of future cash flows

13. Investor Communication
Problem:
- atomistic investors
- diversified investors
Answer
- generally accepted accounting principles (GAAP)

14. US GAAP
Congress
Securities and Exchange Commission
Financial Accounting Standards Board
- American Institute of CPAs
- Emerging Issues Task Force, etc.
IASB may change all that

15. Statement of Cash Flows Notes to the Statements Audit Opinion
Basic Statements
Balance Sheet
net worth
Income Statement
change in net worth through firm activities
Statement of Cash Flows
change in cash
Notes to the Statements
Audit Opinion

16. Snap shot of the firm at period-end Most basic financial statement
Balance Sheet
Snap shot of the firm at period-end
Most basic financial statement
- All others derive from it
- Assets
- Liabilities
- Owners’ Equity

17. Assets = Liabilities + Owners’ Equity
Assets--provide future benefits to the firm
- cash or expected to provide cash in future
• current--cash, sold or consumed within year
• noncurrent--held for longer periods

19. Liabilities--creditor claims
- expected to require future cash outflows
• current--due within a year
• noncurrent--due later
Owners’ Equity-- the residual
- contributed capital
- retained earnings
• RE07 = RE06 + NI07 - Dividends07 - Other07
Other often includes share repurchases
I’ll put repurchases and other in dividends for now
Problem 1.19

22. Derives from the balance sheet
Income Statement
Derives from the balance sheet
- change in net assets due to activities
- measures whether the firm was profitable
- assets = liabilities + retained earnings + contributed capital
- RE07 = RE06 + NI Dividends07
• Problem 1.22

24. Net income = Revenue - Expense
Revenues
- Sales
- Other
Expenses
- Cost of Goods sold
- Selling, General and Administrative
- Income Tax Expense

26. Statement of Cash Flows
Derives from the balance sheet
- Explains change in cash = Cash06 – Cash05
- Generally begins with net income
- Sections
• Operating
• Investing
• Financing
Problem 1-29, 1-34

32. Other Disclosures Notes to the financial statements Audit report
accounting policies and details on accounts
Audit report
Management’s discussion and analysis
Segment reporting
geographic and industry segments
Quarterly results
Five-year summary