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The Role Of Accounting In Business

The Role Of Accounting In Business. Chapter Objectives. Define accounting and identify uses of its information Understand the three basic financial statements Understand cash-basis vs. accrual Evaluate a company’s performance Discuss career opportunities in accounting and its future.

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The Role Of Accounting In Business

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  1. The Role OfAccounting In Business

  2. Chapter Objectives • Define accounting and identify uses of its information • Understand the three basic financial statements • Understand cash-basis vs. accrual • Evaluate a company’s performance • Discuss career opportunities in accounting and its future

  3. Stakeholders • “…parties who are interested in the activities of the business because they’re affect by them…

  4. Accounting • “…measuring and summarizing business activities, interpreting financial statements, and communicating the results to management and other decision makers.”

  5. Fields of Accounting • Management Accounting – provides information to decision makers insidethe organization to help operate the business • Financial Accounting – furnishes information to individuals and groups inside/outside the organization to assess the firm’s financial performance

  6. Management Accounting • “…provides… reports… tailored to the needs of individual managers… (in a) relevant, accurate, timely… format… (to aid) in making decisions.”

  7. Financial Accounting • Statements • Income Statement • Balance Sheet • Statement of Cash Flows • Generally Accepted Accounting Principles

  8. Users OfAccounting Information Owners & Managers Government Agencies Investors & Creditors Other Users

  9. The Functionsof Financial Statements • Income Statement – Shows sales/expenses and if made a profit • Balance Sheet – Indicates assets/liabilities and amount invested in company • Statement of Cash Flows – Shows how much cash in and out of firm

  10. Income Statement • Revenues and Expenses • Cost of Goods Sold • Operating Expenses • Gross Profit • Net Income

  11. Stress-BusterIncome Statement

  12. ProposedIncome Statement #1

  13. ProposedIncome Statement #2

  14. Breakeven Analysis • Fixed Costs • Variable Costs • Contribution Margin Per Unit • Breakeven Point In Units • “…total sales revenue must exactly equal all your expenses…”

  15. ProposedIncome Statement #3

  16. Balance Sheet • Assets – Business resources • Liabilities – Debts owed to outside entities • Owner’s Equity – Amount invested • “…tells what you have (and where it came from) at a specific point in time…”

  17. Accounting Equation • Assets = Liabilities + Owner’s Equity

  18. Stress-BusterBalance Sheet

  19. Stress-BusterBalance Sheet #2

  20. Accrual Accounting • “…accountant records a transaction when it occurs…” • Account Receivable • Account Payable • Inventory

  21. Classified Balance Sheet • Assets • Current- Convert to cash within a year • Long-Term- Intend to hold for more than a year • Liabilities • Current- Pay off within a year • Long-Term- Not due for more than a year

  22. College ShopBalance Sheet

  23. College ShopIncome Statement

  24. End-of-YearBalance Sheet

  25. Statement Of Cash Flows • “…tells… where cash came from and where it went.” • Activities: • Operating • Investing • Financing

  26. Cash Flow Statement

  27. ComparativeIncome Statement

  28. Income Statement WithVertical Percentage Analysis

  29. Ratio Analysis • Profit Margin • Management Efficiency • Management Effectiveness • Financial Condition

  30. Gross Profit Margin • Gross Profit • Margin • Gross Profit • Sales • =

  31. Net Profit Margin • Net Profit • Margin • Net Profit • Sales • =

  32. Comparative Balance Sheet

  33. Inventory Turnover • Inventory • Turnover • Sales • Inventory • =

  34. Return On Assets • Return On • Assets • Net Profit • Total Assets • =

  35. Current Ratio • Current • Ratio • Current Assets • Current Liabilities • =

  36. Debt-To-Equity • Total Debt • to Equity • Total Liabilities • Total Equity • =

  37. Interest Coverage Interest Coverage Operating Income Interest Expense =

  38. Basic Things to Succeed • Good profit on each item • Move inventory • Good return on investment • Watch cash

  39. Challenges ToAccounting Profession • Arthur Andersen • Enron • Sarbanes-Oxley Act • Public Accounting Oversight Board

  40. Careers In Accounting • “People Profession” • Skills • Analytical • Interpersonal • Communication • Job Prospects • Certified Public Accountants- Audits • Private Accountants- Controller • Certified Management Accountants

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