1. Copyright 2005 Prentice- Hall, Inc.

2. Understanding Principles of Accounting
Chapter 17
Understanding Principles of Accounting

3. Copyright 2005 Prentice- Hall, Inc.
Chapter Outline
What Is Accounting & Who Uses Accounting Information?
Who Are Accountants & What Do They Do?
Tools Of The Accounting Trade
Financial Statements
Analyzing Financial Statements
International Accounting
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4. Accounting Information System
Collect, Analyze, & Communicate Financial Information
Measures Business Performance
Provides Information For Decisions
Bookkeeping – Records Transactions
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5. Copyright 2005 Prentice- Hall, Inc.
Users Of Accounting
Managers
Employees/Unions
Investors/Creditors
Tax Authorities
Government Regulatory Agencies
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6. Accounting Financial vs. Managerial
Financial- External Information & Users
Managerial- Internal Information & Users
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7. Certified Public Accountant (CPA)
Licensed & Independent
Professional Practice
Individual
Partnership/P.C.
Services
Auditing
Tax
Management Advisory
Noncertified Public Accountants
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8. Other Accounting Professionals
Private Accountant- Salaried Employee Of Firm
Specialize
Budget
Financial Plan
Internal Audit
Payroll
Taxation
Certified Management Accountant
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9. Copyright 2005 Prentice- Hall, Inc.
Issues Of The Future
Public Perception
Respond To Market Needs
More Consulting & Less Accounting/Auditing
Specialization
Global Strategies/Practices
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10. Global Forces On CPA Change
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11. Recommendations For Change
Strategic Thinking
Expand
Knowledge
Education
Experience
Revitalize Education
Increase Opportunities
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12. Copyright 2005 Prentice- Hall, Inc.
Core Service
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13. Copyright 2005 Prentice- Hall, Inc.
Sarbanes-Oxley
Prohibits Personal Loans To Officers/Directors.
CEOs/CFOs Return Incentive-Based Compensation After Erroneous Financial Report.
CEOs/CFOs Must Certify Annual/Quarterly Reports.
Responsibilities For Attorneys/Audit Firms Increased.
Disclosure Requirements For Off-Balance Sheet Transactions Tightened.
Audit Committees Must: Be Independent Directors, Be Responsible For Compensation & Oversight Of Certifying Accountants.
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14. Copyright 2005 Prentice- Hall, Inc.
Core Competencies
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15. Assets = Liabilities + Equity Assets - Liabilities = Equity
Accounting Equation
Generally Accepted Accounting Principles
Assets & Liabilities
Owners’ Equity
Double Entry Accounting
Assets = Liabilities + Equity
Assets - Liabilities = Equity
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16. Copyright 2005 Prentice- Hall, Inc.
Financial Statements
Balance Sheet- Statement of Financial Position
Income Statement- Statement of Revenue and Expenses
Statement of Cash Flows
Budget
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17. Copyright 2005 Prentice- Hall, Inc.
Budget
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18. Copyright 2005 Prentice- Hall, Inc.
Balance Sheet
Assets
Liabilities
Owners’ Equity
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19. Copyright 2005 Prentice- Hall, Inc.
Current Assets
Liquidity
Accounts Receivable
Merchandise Inventory
Prepaid Expenses
Marketable Securities
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20. Copyright 2005 Prentice- Hall, Inc.
Balance Sheet
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21. Copyright 2005 Prentice- Hall, Inc.
Fixed Assets
Long-Term
Depreciation
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22. Copyright 2005 Prentice- Hall, Inc.
Intangible Assets
Monetary Value?
Intellectual Property
Patents
Copyrights
Trademarks
Franchise Fees
Goodwill
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23. Copyright 2005 Prentice- Hall, Inc.
Liabilities
Current
Accounts Payable
Wages & Salaries Payable
Taxes Payable
Long-Term – 1+ Years
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24. Copyright 2005 Prentice- Hall, Inc.
Owners’ Equity
Common Stock
Paid-In Capital
Retained Earnings
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25. Revenue – Expense = Profit (Loss)
Income Statement
Profit & Loss
Revenues
Gross Profit (Gross Margin)
Expense
“Bottom Line”
Revenue – Expense = Profit (Loss)
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26. Copyright 2005 Prentice- Hall, Inc.
Income Statement
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27. Copyright 2005 Prentice- Hall, Inc.
Operating Expenses
Selling Expenses
Sales Force Salaries
Advertising
General & Administrative
Management Salaries
Maintenance Costs
Telephone
Rent
Utilities
Etc.
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28. Statement Of Cash Flows
Cash Flows From Operations
Cash Flows From Investing
Cash Flows From Financing
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29. Copyright 2005 Prentice- Hall, Inc.
Cash Flow
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30. Reporting Standards & Practices
Revenue Recognition
Sale Complete & Product Delivered
Sales Price Collected Or Is Collectible (Accounts Receivable)
Matching Principle
Full Disclosure
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31. Copyright 2005 Prentice- Hall, Inc.
Matching Principle
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32. Copyright 2005 Prentice- Hall, Inc.
Analyzing Statements
Solvency Ratios
Short-Term
Long-Term
Profitability Ratios
Activity Ratios
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33. Short-Term Solvency Ratios
Liquidity
Current Ratio
Working Capital
Current Assets
Current Liabilities
Current Assets – Current Liabilities
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34. Copyright 2005 Prentice- Hall, Inc.
Long-Term Solvency
Debt-to-Owners’ Equity Ratio
Leverage- LBOs
Debt
Owners’ Equity
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35. # Of Common Shares Outstanding
Profitability Ratios
Return On Equity
Earnings Per Share
Net Income
Total Owners’ Equity
Net Income
# Of Common Shares Outstanding
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36. Beginning Inventory + Ending Inventory
Activity Ratios
Measure Efficiency
Inventory Ratio
Average Inventory
Cost Of Goods Sold
Average Inventory
Beginning Inventory + Ending Inventory 2
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37. International Accounting
Foreign Currency Exchange- Weak vs. Strong
International Transactions
International Accounting Standards
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