1. © Prentice Hall, 2007 Excellence in Business, 3eChapter 16 - 1 Basic Accounting Concepts

2. © Prentice Hall, 2007 Excellence in Business, 3eChapter 16 - 2 What Is Accounting? FinancialAccountingFinancialAccountingManagementAccountingManagementAccountingCommunicationMeasuring Interpreting Decision Making

3. © Prentice Hall, 2007 Excellence in Business, 3eChapter 16 - 3 What Accountants Do TaxAccountingTaxAccounting BookkeepingBookkeeping FinancialAnalysisFinancialAnalysis CostAccountingCostAccounting

4. © Prentice Hall, 2007 Excellence in Business, 3eChapter 16 - 4 Ten Most Important Accounting Skills AnalyticalAnalytical Problem solvingProblem solving InterpersonalInterpersonal ListeningListening CommunicationCommunication LeadershipLeadership Decision makingDecision making Time managementTime management TeamworkTeamwork ComputerComputer

5. © Prentice Hall, 2007 Excellence in Business, 3eChapter 16 - 5 Types of Accountants PrivatePublic Internal Audit Internal Audit CPA CMA CPA CMA External Audit External Audit CPA

6. © Prentice Hall, 2007 Excellence in Business, 3eChapter 16 - 6 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

7. © Prentice Hall, 2007 Excellence in Business, 3eChapter 16 - 7 Accounting Rules Generally Accepted Accounting Principles (GAAP) International Accounting Standards (IAS) Financial Accounting Standards Board (FASB) Securities and Exchange Commission (SEC)

8. © Prentice Hall, 2007 Excellence in Business, 3eChapter 16 - 8 Sarbanes-Oxley Act Disadvantages Investor Protection Authority of Auditors Conflict of Interest Corporate Accountability Enforcement Issues Implementation Cost of Compliance Reporting Requirements Advantages

9. © Prentice Hall, 2007 Excellence in Business, 3eChapter 16 - 9 Fundamental Accounting Concepts Accounting Equation Double-Entry Bookkeeping Matching Principle

10. © Prentice Hall, 2007 Excellence in Business, 3eChapter 16 - 10 Accounting Equation Owner’s Equity: Accounting Equation: Assets = Liabilities + Owner’s Equity Assets – Liabilities = Owner’s Equity

11. © Prentice Hall, 2007 Excellence in Business, 3eChapter 16 - 11 Maintaining Balance MatchingPrincipleMatchingPrincipleCashBasisCashBasisAccrualBasisAccrualBasisDouble-EntryBookkeepingDouble-EntryBookkeepingExpensesExpensesRevenuesRevenues LiabilitiesLiabilitiesAssetsAssets

12. © Prentice Hall, 2007 Excellence in Business, 3eChapter 16 - 12 How Are Financial Statements Used?

13. © Prentice Hall, 2007 Excellence in Business, 3eChapter 16 - 13 Understanding Financial Statements Income Statement Balance Sheet Cash-Flow Statement

14. © Prentice Hall, 2007 Excellence in Business, 3eChapter 16 - 14 The Balance Sheet Statement of Financial Position AssetsLiabilitiesOwners’ Equity Calendar Year Fiscal Year

15. © Prentice Hall, 2007 Excellence in Business, 3eChapter 16 - 15 The Income Statement Revenues Cost of Goods Sold Operating Expenses Net Operating Income Net Income After Taxes

16. © Prentice Hall, 2007 Excellence in Business, 3eChapter 16 - 16 Cash-Flow Statement Investments Operations Financing

17. © Prentice Hall, 2007 Excellence in Business, 3eChapter 16 - 17 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

18. © Prentice Hall, 2007 Excellence in Business, 3eChapter 16 - 18 Types of Financial Ratios ProfitabilityProfitability ActivityActivity LiquidityLiquidity LeverageLeverage

19. © Prentice Hall, 2007 Excellence in Business, 3eChapter 16 - 19 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

20. © Prentice Hall, 2007 Excellence in Business, 3eChapter 16 - 20 Liquidity Ratios Working Capital = Current Assets – Current Liabilities Current Ratio = Current Assets Current Liabilities Quick Ratio = Current Assets – Liabilities Current Liabilities

21. © Prentice Hall, 2007 Excellence in Business, 3eChapter 16 - 21 Activity Ratios Inventory Turnover = Cost of Goods Sold Average Inventory Receivables Turnover = Sales Average Accounts Receivable

22. © Prentice Hall, 2007 Excellence in Business, 3eChapter 16 - 22 Leverage Ratios Debt to Equity = Total Liabilities Total Equity Debt to Total Assets = Total Liabilities Total Assets