Bài giảng Financial Accounting - Chapter 1: Introduction

201Lec01.PPTXCHUCK KONKOLOffice: LUB N 328Office hours: M,W 3:30 - 5:30T/As: Rachel, Scott, Tim, MarkSee syllabus/web site for other details.Introduction to Financial Accounting BUS ADM-2011INTRODUCTIONTEXTBOOK: Financial Accounting – Tools for Business Decision Making1Seventh Edition Sixth Edition Fifth Edition2DEFINITION OF ACCOUNTINGAccounting is a process used to record economic (business) activities of an organization in order to generate reports for use by decision makers. 34 - System to accomplish a specific task - Method provides uniform results - Goal is to assemble, aggregate, organize and analyze huge volumes of data Related disciplines: -Information Technology (IT) - Industrial Engineering - Corporate/securities Law - Actuarial ScienceProcess5Process- Objective. Many rules.US rules are created by the Financial Accounting Standards Board (FASB).US rules are called GAAP. (Generally Accepted Accounting Principles)Companies whose stock is publically traded also must follow laws enforced by a US agency named the Securities and Exchange Commission (SEC).Note: International Financial Reporting Standards (IFRS) and GAAP are close but not exactly the same (yet).1- Financing ActivitiesBorrowing creates liabilities (debts) owed to creditors. Notes or Bonds payable(Another liability created in operating businesses is accounts payable.)Issuing or Selling stock creates stockholders’ equityDividends are distributions of profit to owners of stock.6Business Activities 3 types2 - Investing ActivitiesNote: There are other types of assets needed in operating the business (see next slide)CashInventorySupplies not used upAccounts receivablePrepaid Insurance7Business Activities 3 typesObtaining resources or assets needed to run the businessBuildingsEquipment, etcDay to day running the business83 - Operating ActivitiesRevenues are the increases in assets resulting from the sale of a product or serviceExpenses are the cost of assets consumed or services used in generating revenue.AdvertisingCost of goods (inventory) sold to customersPaying employees, utilities, etcOther collect cash on accounts receivable, buy and sell inventory, buy expenses with cash or on accounts payableBusiness Activities 3 typesProprietorshipPartnershipCorporationOwned by two or more persons.Same legal liability to all partners as proprietorship. (joint and several)Separate legal entity owned by stockholdersOwnership divided in shares of stock. Stockholder’s risk limited to their investment in shares of stockIncome tax paid by companyOwned/controlled by one person. (sole proprietorship)Easy to startConsidered a legal extension of ownerOwner personally liable for debts of the business9Forms of Business OrganizationBalance SheetIncome StatementStatement of Cash FlowsRetained Earnings StatementFOUR Reports required by GAAP (called the Financial Statements)* Detailed footnotes also required.10SEC requires audited 10 K annual report & 10 Q quarterly reports be made available to the public.Includes the above plus management comments.Reports operating success or failure for a time period.Net income (profit) if revenues > expenses.Net loss if expenses > revenues.Prepare this statement first.Illustration 1-411First report required by GAAPIncome Statement (or Profit & Loss)Retained Earnings StatementIllustration 1-5Second report required by GAAPFrom income statementShows what a company did with net profit earned in prior periods (reinvest in business or pay out to owners)Also see Stockholders’ equity on Balance Sheet discussed nextPrepare this statement second12Balance SheetIllustration 1-7Third report required by GAAPSpecific date – one point in time!Reports assets owned and claims against assets by:Creditors (liabilities)Owners (stock investment + retained earnings = stockholders’ equity)Ending Retained earnings13More on the Balance SheetFormula of Balance sheet: Assets = Liabilities + Stockholders’ EquityKnown as the “Accounting Equation” 14If you have a million dollars are you a millionaire?An equivalent common view is “Net Worth” Net worth = Assets – LiabilitiesNet worth + Liabilities = Assets Assets = Liabilities + Net WorthStatement of Cash FlowsIllustration 1-8Fourth report required by GAAP15Provides information where a company gets cash and spends cashSummarizes for a time period like an income statement.3 groups: Cash from operating, investing, and financing activities.Common QuestionsUsers and Uses of Financial InformationManagementIndividuals (you and I)MarketingFinanceInternal UsersIRSBankersSECInvestorsCreditorsCustomersExternal Users16Critical Factor: Users must have TRUST in information and need trustworthy help analyzing itINTERNAL Users need:EXTERNAL Users require:Help to evaluate past decisions. Learn from successes and failures. Make better decisions in the future.Analyze and evaluate current options. Assist in choosing best option.Discover new courses of action. Assurance that important options aren’t missed.Help to plan ahead. Set and achieve goals. Anticipate potential problems in the future.17Accurate unbiased data about success or failure of past operations.Provide reasonable basis for believing claims about the future. Disclosure of current financial condition. Is it healthy or in distress?Defense of positions taken. Prove it! Reports as required by law.CSU begins on Jan. 1, 2015For year ended Dec. 31, 2015, prepareIncome statementRetained earnings statementBalance sheetDo It Problem: CSU Corporation In text, page 1818Step 1: Prepare the Income Statement19Do ItCSU CorporationIncome StatementFor the Year Ended December 31, 2015Revenues Service revenue $17,000Expenses Rent expense $9,000 Insurance expense 1,000 Supplies expense 200 Total expenses 10,200Net Income $ 6,800________ ________20Do It ________ ________Step 2: Prepare the Retained Earnings Statement Need net income from previous statement.Do It21CSU CorporationRetained Earnings StatementFor the Year Ended December 31, 2015Retained earnings, January 1 $ 0Add: Net income 6,800 6,800Less: Dividends 600Retained earnings, Dec. 31 $ 6,200Do It22________________________________Step 3: Prepare the Balance Sheet Need ENDING Retained earnings from previous statement!Do It23 CSU CorporationBalance SheetDecember 31, 2015AssetsCash $ 1,400Accounts receivable 1,800Supplies 4,000Equipment 16,000Total Assets $23,200Liabilities and Stockholders’ EquityLiabilities Notes payable $5,000 Accounts payable 2,000 Total liabilities $7,000Stockholders’ equity Common stock $10,000 Retained earnings 6,200 Total stockholders’ equity 16,200Total liabilities and stockholders’ equity $23,200Do It24