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ACCOUNTING ASW SUMMER 2005

ACCOUNTING ASW SUMMER 2005. Mark Lang. OVERVIEW. Overview of ASW - work through syllabus Overview of accounting - goals - structure - major financial statements. Basics. What is a company? Why do companies exist? How large should a company be?.

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ACCOUNTING ASW SUMMER 2005

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  1. ACCOUNTING ASWSUMMER 2005 Mark Lang

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

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

  4. 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.)

  5. 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

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

  7. 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

  8. 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

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

  10. 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

  11. 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 • RE05 = RE04+ NI05- Dividends05 - Other05 • Other often includes share repurchases • I’ll put repurchases and other in dividends for now • Problem 1.22

  12. Income Statement • Derives from the balance sheet - change in net assets due to operations - assets = liabilities + retained earnings + contributed capital - RE05= RE04+ NI05 - Dividends05

  13. Net income = Revenue - Expense • Revenues - Sales - Other • Expenses - Cost of Goods sold: WM—76% of revenues - Selling, Gen. & Admin: WM—18% of rev. - Other: WM—0% of rev. - Income Tax Expense: WM—2% of rev. • Problem 1.19

  14. Statement of Cash Flows • Derives from the balance sheet - Explains change in cash = Cash05 – Cash04 - Generally begins with net income - Sections • Operating • Investing • Financing • Problem 1-29, 1-34

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

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