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

© Prentice Hall, 2007 Excellence in Business, 3e Chapter 16 - 1

Basic Accounting Basic Accounting ConceptsConcepts


What Is Accounting?What Is Accounting?

FinancialFinancialAccountingAccountingFinancialFinancial

AccountingAccountingManagementManagementAccountingAccounting

ManagementManagementAccountingAccounting

CommunicationCommunication

Mea

surin

gM

easu

ring

InterpretingInterpreting

Decision MakingDecision Making


What Accountants What Accountants DoDo

What Accountants What Accountants DoDo

Tax Tax AccountingAccounting

Tax Tax AccountingAccounting

BookkeepingBookkeepingBookkeepingBookkeeping

FinancialFinancialAnalysisAnalysis

FinancialFinancialAnalysisAnalysis

Cost Cost AccountingAccounting

Cost Cost AccountingAccounting


Ten Most Important Ten Most Important Accounting SkillsAccounting Skills

• AnalyticalAnalytical

• Problem solvingProblem solving

• InterpersonalInterpersonal

• ListeningListening

• CommunicationCommunication

• LeadershipLeadership

• Decision makingDecision making

• Time managementTime management

• TeamworkTeamwork

• ComputerComputer


Types of Types of AccountantsAccountants

PrivatePrivate PublicPublic

InternalAudit

InternalAudit

CPACMA

CPACMA

ExternalAudit

ExternalAuditCPACPA


Typical Finance Typical Finance DepartmentDepartment

Vice PresidentManufacturingVice PresidentManufacturing

Vice PresidentFinance

Vice PresidentFinance

Vice PresidentSales

Vice PresidentSales

PresidentPresident

Board ofDirectorsBoard ofDirectors

ControllerControllerTreasurerTreasurer

Director of CapitalBudgeting

Director of CapitalBudgeting

Credit ManagerCredit

ManagerInventoryManagerInventoryManager

CostAccounting

CostAccounting

TaxDepartment

TaxDepartment

FinancialAccountingFinancial

Accounting


Accounting RulesAccounting Rules

Generally AcceptedGenerally AcceptedAccounting PrinciplesAccounting Principles

(GAAP)(GAAP)

InternationalInternationalAccounting StandardsAccounting Standards

(IAS)(IAS)

Financial AccountingFinancial AccountingStandards BoardStandards Board

(FASB)(FASB)

Securities andSecurities andExchange CommissionExchange Commission

(SEC)(SEC)


Sarbanes-Oxley ActSarbanes-Oxley Act

DisadvantagesDisadvantages

Investor ProtectionInvestor Protection

Authority of AuditorsAuthority of Auditors

Conflict of InterestConflict of Interest

Corporate AccountabilityCorporate Accountability

Enforcement IssuesEnforcement Issues

ImplementationImplementation

Cost of ComplianceCost of Compliance

Reporting RequirementsReporting Requirements

AdvantagesAdvantages


Fundamental Fundamental Accounting ConceptsAccounting Concepts

Accounting Equation

Double-EntryBookkeeping

Matching Principle


Accounting EquationAccounting EquationOwner’s Equity:

Accounting Equation:

Assets = Liabilities + Owner’s Equity

Assets – Liabilities = Owner’s Equity


Maintaining BalanceMaintaining Balance

Matching Matching PrinciplePrinciple

Matching Matching PrinciplePrinciple

CashCashBasisBasis

CashCashBasisBasis

AccrualAccrualBasisBasis

AccrualAccrualBasisBasis

Double-EntryDouble-EntryBookkeepingBookkeepingDouble-EntryDouble-EntryBookkeepingBookkeeping

ExpensesExpensesExpensesExpensesRevenuesRevenuesRevenuesRevenues

LiabilitiesLiabilitiesLiabilitiesLiabilitiesAssetsAssetsAssetsAssets


How Are Financial Statements How Are Financial Statements Used?Used?


Understanding Understanding Financial StatementsFinancial Statements

Income StatementIncome StatementIncome StatementIncome Statement

Balance SheetBalance SheetBalance SheetBalance Sheet

Cash-Flow StatementCash-Flow StatementCash-Flow StatementCash-Flow Statement


The Balance SheetThe Balance Sheet

Statement of Financial PositionStatement of Financial Position

Assets Liabilities Owners’ Equity

CalendarYear

FiscalYear


The Income StatementThe Income Statement

RevenuesRevenues

Cost of Goods SoldCost of Goods Sold

Operating ExpensesOperating Expenses

Net Operating IncomeNet Operating Income

Net Income After TaxesNet Income After Taxes


Cash-Flow Cash-Flow StatementStatement

InvestmentsInvestments

OperationsOperations

FinancingFinancing


Analyzing Analyzing Financial StatementsFinancial Statements

Trend AnalysisTrend Analysis Ratio AnalysisRatio Analysis

Uncover Business ShiftsUncover Business Shifts

Consider ExtraordinaryCircumstances

Consider ExtraordinaryCircumstances

Consider MoreThan One Ratio

Consider MoreThan One Ratio

Check Specific DataCheck Specific Data


Types of Financial Types of Financial RatiosRatios

ProfitabilityProfitabilityProfitabilityProfitability

ActivityActivityActivityActivity

LiquidityLiquidityLiquidityLiquidity

LeverageLeverageLeverageLeverage


Profitability RatiosProfitability RatiosReturn on Sales =

Net Income

Net Sales

Return on Equity =Net Income

Total Owner’s Equity

Earnings per Share =Net Income

Average Shares Outstanding


Liquidity RatiosLiquidity RatiosWorking Capital =

Current Assets –

Current Liabilities

Current Ratio =Current Assets

Current Liabilities

Quick Ratio =Current Assets – Liabilities

Current Liabilities


Activity RatiosActivity Ratios

Inventory Turnover =Cost of Goods SoldAverage Inventory

Receivables Turnover =Sales

Average Accounts Receivable


Leverage RatiosLeverage Ratios

Debt to Equity =Total Liabilities

Total Equity

Debt to Total Assets =Total Liabilities

Total Assets

Documents

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