The McGraw-Hill Companies, Inc., 1999

1. These electronic slides are intended for the exclusive use by adopters of Irwin/McGraw-Hill accounting textbooks only. Any other use of these presentations without express written permission of Irwin/McGraw-Hill is strictly prohibited. Anthony, Hawkins, and Merchant ACCOUNTING: TEXT AND CASES Tenth Edition • The McGraw-Hill Companies, Inc., 1999

2. This electronic presentation prepared by Douglas Cloud, Professor of Accounting, Pepperdine University

3. included Task Force Clip Art in this electronic presentation is used with the permission of New Vision Technology of Nepean Ontario, Canada

4. 1 The Nature and Purpose of Accounting Part One: Financial Accounting • The McGraw-Hill Companies, Inc., 1999

5. Planning Slide 1-1 …. Planning is the process of deciding what actions should be taken in the future.

6. Planning Slide 1-2 Planning involves making decisions. Decisions are arrived at by-- • recognizing that a problem or an opportunity exists • specifying and ranking the criteria to be used to determine the best solution • identifying alternative ways of addressing the problem or opportunity • analyzing the consequences of each alternative • comparing these consequences to each other and the criteria so as to decide which is best

7. Nonquantitative information Quantitative information Consists of Nonaccounting information Accounting information Consists of Operating information Financial accounting Management accounting Tax accounting The Nature and Purpose of Accounting Slide 1-3 Information

8. Relationship of Management Functions Slide 1-4 Planning

9. Relationship of Management Functions Slide 1-5 Planning Implementation

10. Relationship of Management Functions Slide 1-6 Planning Implementation Control

11. Relationship of Management Functions Slide 1-7 Planning Implementation Control Appropriate action Feedback Plan revision

12. The Balance Sheet Slide 1-8 HOLDEN COMPANY Balance Sheet As of December 31, 1999 (000 omitted) Assets Liabilities and Owners’ Equity Current assets: Current liabilities: Cash $ 1,449 Accounts payable $ 5,602 Marketable securities 246 Bank loan payable 1,000 Accounts receivable, net 9,944 Accrued liabilities 876 Inventories 10,623 Estimated tax liability 1,541 Prepaid expenses 389 Current portion of long- term debt 500 Total current assets $22,651 Total current liabilities $ 9,519 Current Section

13. The Balance Sheet Slide 1-9 Assets Liabilities and Owners’ Equity Noncurrent assets: Noncurrent liabilities: Property, plant, equipment Long-term debt, less at cost $26,946 current portion $ 2,000 Less: Accumulated Deferred income taxes 824 Depreciation 13,534 Total liabilities 12,343 Property, plant, equipment net 13,412 Owners’ equity: Investments 1,110 Common stock 1,000 Patents and trademarks 403 Additional paid-in capital 11,256 Goodwill 663 Total paid-in capital 12,256 Retained earnings 13,640 Total owners’ equity 25,896 Total liabilities and owners’ Total assets $38,239 and owners’ equity $38,239 Noncurrent Section

14. The Accounting Equation Slide 1-10 Assets = Liabilities + Owners’ Equity Assetsare economic resources which are owned by a business and are expected to benefit future operations.

15. The Accounting Equation Slide 1-11 Assets = Liabilities + Owners’ Equity Liabilitiesare obligations of the entity to outside parties who have furnished resources

16. Income Statement Slide 1-12 HOLDEN COMPANY Income Statement For the Year 1999 (000 omitted) Sales revenue $75,478 Less cost of sales 52,227 Gross margin 23,251 Less operating expenses 10,785 Income before taxes 12,466 Provision for income taxes 6,344 Net income $ 6,122

17. Financial Statement Objectives Slide 1-13 • Useful to present and potential investors and creditors in making rational investment and credit decisions • Comprehensible to those who have a reasonable understanding of business and economic activities and are willing to study the information with reasonable diligence • About the economic resources of an enterprise, the claims to those resources, and the effects of transactions and events that change resources and claims to those resources • About an enterprise’s financial performance during a period Financial reporting should provide information:

18. Condensed Balance Sheet As of December 31, 1999 Assets Current assets $22,651 Building and equip. 13,412 Other assets 2,176 Total assets $38,239 Liabilities and Owners’ Equity Liabilities $12,343 Owners’ Equity Paid-in capital 12,256 Retained earnings 13,640 Total liabilities and owners’ equity $38,239 A “Package” of Accounting Reports Slide 1-14

19. Condensed Balance Sheet As of December 31, 1999 Assets Current assets $22,651 Building and equip. 13,412 Other assets 2,176 Total assets $38,239 Liabilities and Owners’ Equity Liabilities $12,343 Owners’ Equity Paid-in capital 12,256 Retained earnings 13,640 Total liabilities and owners’ equity $38,239 A “Package” of Accounting Reports Slide 1-15 Income Statement For the Year 1999 Sales revenue $75,478 Less cost of sales 52,222 Gross margin 23,351 Less operating exp. 10,785 Income before taxes 12,466 Provision for taxes 6,344 Net income, 1999 $ 6,122

20. Condensed Balance Sheet As of December 31, 1999 Assets Current assets $22,651 Building and equip. 13,412 Other assets 2,176 Total assets $38,239 Liabilities and Owners’ Equity Liabilities $12,343 Owners’ Equity Paid-in capital 12,256 Retained earnings 13,640 Total liabilities and owners’ equity $38,239 A “Package” of Accounting Reports Slide 1-16 Income Statement For the Year 1999 Sales revenue $75,478 Less cost of sales 52,222 Gross margin 23,351 Less operating exp. 10,785 Income before taxes 12,466 Provision for taxes 6,344 Net income, 1999 $ 6,122 Statement of Retained Earnings Retained earnings $13,640 Add net income 6,122 19,762 Less dividends 4,390 Retained earnings $15,372

21. Condensed Balance Sheet As of December 31, 1999 Assets Current assets $22,651 Building and equip. 13,412 Other assets 2,176 Total assets $38,239 Liabilities and Owners’ Equity Liabilities $12,343 Owners’ Equity Paid-in capital 12,256 Retained earnings 13,640 Total liabilities and owners’ equity $38,239 A “Package” of Accounting Reports Slide 1-17 Income Statement For the Year 1999 Sales revenue $75,478 Less cost of sales 52,222 Gross margin 23,351 Less operating exp. 10,785 Income before taxes 12,466 Provision for taxes 6,344 Net income, 1999 $ 6,122 Statement of Retained Earnings Retained earnings $13,640 Add net income 6,122 19,762 Less dividends 4,390 Retained earnings $15,372

22. Condensed Balance Sheet As of December 31, 2000 Assets Current assets $24,062 Building and equip. 14,981 Other assets 3,207 Total assets $42,250 Liabilities and Owners’ Equity Liabilities $14,622 Owners’ Equity Paid-in capital 12,256 Retained earnings 15,372 Total liabilities and owners’ equity $42,250 A “Package” of Accounting Reports Slide 1-18 Statement of Retained Earnings Retained earnings $13,640 Add net income 6,122 19,762 Less dividends 4,390 Retained earnings $15,372

23. Condensed Balance Sheet As of December 31, 2000 Assets Current assets $24,062 Building and equip. 14,981 Other assets 3,207 Total assets $42,250 Liabilities and Owners’ Equity Liabilities $14,622 Owners’ Equity Paid-in capital 12,256 Retained earnings 15,372 Total liabilities and owners’ equity $42,250 A “Package” of Accounting Reports Slide 1-19 Statement of Retained Earnings Retained earnings $13,640 Add net income 6,122 19,762 Less dividends 4,390 Retained earnings $15,372

24. Summary Slide 1-20 An organization has four types of accounting information: • Operating information, which has to do with the details of operations • Management accounting information, which is used internally for planning, implementation, and control • Financial accounting information, which is used both by management and external parties • Tax accounting information, which is used to file tax returns with taxing authorities

25. Chapter 1 TheEnd