Introduction to Financial Accounting Business 1A

1. Introduction to Financial Accounting Business 1A “Those who recognize the value of accounting information and learn how to use it to make better decisions have a competitive advantage over those who don’t.” –Steve Albrecht

2. Today's Objectives Define purpose of financial accounting Topic organization Major student deliverables & expectations Student resources Learning the basics of the most popular business performance report in existence.

3. 1 Define accounting purpose

4. Accounting is “the language of business.” • Financial Accounting is designed to provide information to people who make decisions: • Measures business activity in monetary terms • Processes the data into reports • Communicates the results to decision makers • Decisions are made, and the process repeats Business Activity Measures & processes Financial Reports Decision Making

5. Internal Users Their uses? Who are the Decision Makers, and how do they use financial information? External Users Their uses? Kenneth I. Chenault

6. We focus on Financial Accounting Financial Accounting Managerial Accounting Focuses on information for internal decision makers Performance planning Resource allocation Creating the future Provides information for external decision makers • Past performance • Financial standing • Reporting the past Business 1B focuses on Managerial Accounting

7. Can financial information explain why Sonic’s value is down while McDonalds’ is up?

8. Earning your competitive advantage • To really know how to read accounting information, we need to know how it is prepared. • It takes practice to learn the mechanical processes of accounting. • It takes even more work to understand it, communicate it, and use it in making decisions. • The payoff is your competitive advantage which you will hold for the rest of your life

9. 2 Topic Organization

10. The fundamentals • The accounting cycle • 1/3 of the class. • Reporting core business activities – sales, etc • Reporting & safeguarding business possessions • Reporting amounts that the business owes • Reporting owners’ equity & related transactions • Reporting cash flows • Reading the story • You as the analyst Topic Organization

11. 3 Major Student Deliverables & Expectations

12. Major Student Deliverables • Homework – due on time • Read chapter & homework before lecture • Homework is submitted online • Practice Set links chapters 1 through 4 • Quizzes • In-class early in semester, must be here for the points • Mid terms and final exam • 1st the accounting cycle • 2nd covers the following 1/3 of the class • Final, covers last section of class and is comprehensive • Analysis cases • Analysis of financial statements and decision making • Tied to the topics of study at hand • In class work • Opportunities will arise for work time in class leading to direct points and/or participation points. Attendance is required to earn these points.

13. Student Expectations • Study progress, and topic progression • Class preparation & participation • Timeliness • Responsibility • Plagiarism, cheating, ethics • Etiquette

14. 4 Student Resources

15. Student Resources

16. Student Resources • Your instructor • Office hours M-Th @ 9:00am, Friday @ 10:00am • Email works great too! jmikkelsen@mpc.edu • Call 831-646-4072 • Your peers • Get the “how to”, not just the “what is” • Find people who match your style & schedule • The internet • Class website, YouTube, Accounting sites galore • Your book &

17. Student Resources • Using your book • Use it, a lot • Read it before class • Learning objectives, review before reading • Summary problems, pause for review • Demo Doc, detailed demonstrations • Vocabulary, know all of it • Homework: Short, Exercises, Problems, More • ‘ • Homework, practice, feedback, help, more

18. Accounting progress: Integrity makes a comeback “New from accounting, sir. Two and two is four again.”

19. What does the business world really need from you? • Analytical skills -- To prepare and analyze financial data, identify and explain discrepancies and variations. • Teamwork -- To work effectively with team members and clients to complete projects and build relationships. • Communication -- To interact with clients to discuss issues and obtain and share information in a professional manner. • Organization/time management -- To prioritize and juggle various tasks, and to identify and manage time constraints. • Flexibility -- To adapt to changing clients, schedules and working hours. www.vault.com

20. 5 The most popular business performance report in existence.

21. Net Income: Wealth created by the business • Businesses create wealth by selling goods & services to customers for more than the cost to provide those goods & services. • Buy ice cream sandwiches for 50¢, sell for $1.00 • Hire a mechanic for $30/hour, bill at $90/hour • Hire programmers for $50/hour, and rake in $1.2Billion to advertise on your site. + Net income(loss) + Revenues - Expenses Retained earnings - Dividends Net Loss: Wealth lost by the business

22. Revenues: Goods & Services Provided • Amounts earned by delivering goods or services to customers • Sales revenue • Service revenue • Revenue • Sales • Or any similar terms used to convey the concept of supplying goods or services • Aka “The Top Line”

23. Expenses: Resources Consumed • Decrease in equity that occurs from using assets or increasing liabilities in the course of delivering goods or services to customers • The cost of the merchandise that was sold • Store or rent expense • Salary expense • Advertising expense • Utilities expense • Interest expense • Property tax expense

24. Income Statement

25. Income Statement Evaluation • www.yahoo.com/finance • Shout out a company about which you care • Help read and analyze their income statement • Judge a few companies based solely on their I.S. • Who is doing well? Fair? Poorly?

26. Let’s make some of this stick! • Mastering the basics of the income statement • Pair up • Blind drill to master • Switch • Repeat • Content: • Header • Three body items: • Category labels • Definitions • Mathematical relationship Date formatting? Label? Label? Label? Math relationship?

27. Next Time! • Read all of chapter 1 before class. You review key terms. You familiarize yourself with the assignments • Lecture covers chapter 1 content • We Review the income statement • We hammer on the balance sheet • We work with profitability and financial standing • Another quiz likely

28. Income Statement Quiz! • Write out an income statement template as follows: • Main title, including proper time frame characteristics • List the three main categories on an income statement. • Describe each in terms that have meaning to you. • Show their mathematical relationship.