BUS110 Chap 17 - Accounting and Finance
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Accounting and Finance
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BUS110 Chap 17 - Accounting and Finance
- 1. * * Chapter Seventeen Understanding Accounting and Financial Information Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin
- 3. The ACCOUNTING SYSTEM * * What is Accounting? LG1 17-
- 4. ACCOUNTANTS’ RESPONSIBILITIES * * What is Accounting? LG1 17-
- 6. USERS of ACCOUNTING INFORMATION * * Managerial Accounting LG2 17- Users Type of Report Government tax authority Tax reports Government regulatory agencies Required reports People interested in the organization’s income Financial statements found in annual reports Managers of the firm Financial statements and internally distributed financial reports
- 28. Review Only
- 34. STEPS to CONTROL ACCOUNTING PRACTICES * * Financial Accounting LG2 17-
Hinweis der Redaktion
- See Learning Goal 1: Demonstrate the role financial information and accounting plays for a business and for its stakeholders.
- See Learning Goal 1: Demonstrate the role financial information and accounting plays for a business and for its stakeholders. The Accounting System For students who are not taking an accounting class this slide can help them understand an accounting system from a production perspective: *Inputs - Sales documents, purchasing documents, payroll records travel expenses, etc. *Processing – Entries are made to journals; then transferred into ledgers; and finally summarized and reviewed to compile a trial balance. *Outputs – Development of financial statements such as the balance sheet, income statement, and statement of cash flows, prepared for management personnel within the company as well as interested parties outside the company. It is very important for students to understand the importance of integrity when calculating numbers. Generally Accepted Accounting Principles (GAAP) outlines procedures that are generally accepted in the accounting field. This would be a good time to ask the students what role questionable accounting procedures played with Enron, Fannie Mae, and World Com.
- See Learning Goal 1: Demonstrate the role financial information and accounting plays for a business and for its stakeholders. Accountants’ Responsibilities One of the biggest uses of accountants by business is taxes and auditing. Explain to the class that the theme of “integrity of numbers” is critical for business. In addition to the reasons listed on the slide, accountants can offer businesses the following value-added services: Getting complete visibility of processes Seeing the true cost of a process or part of a process Seeing the cost of process changes, volume changes, headcount, wastage, scrap, rejects, non-conformance, downtime Seeing costs by job and by department Seeing and comparing costs of outsourcing Mapping business processes, organization-wide or job specific Using scenario analysis to see how re-engineering will affect resources such as costs and headcounts (Source: Activemodeler.com)
- See Learning Goal 2: Identify the different disciplines within the accounting profession.
- See Learning Goal 2: Identify the different disciplines within the accounting profession. This slide gives the student an overview of the importance of accounting information when managing a business. Accounting procedures are the foundation for controlling mechanisms that businesses put in place to measure performance and plan for the future. Accounting influences decisions for managers in the following ways: Understanding cost behavior and perform cost-volume profit analysis Using cost allocation in planning and control Using job-order-costing and process-costing to track the flow of costs to products Using relevant information to make marketing and production decisions Using capital budgeting techniques to make long-term capital investment decisions Accounting information can improve a company’s ability to compete by: Using competitor information and sales analysis to bring new concepts to the financial planning process Learning to spot financial trends to predict strategic business decisions Learning how to integrate technology into decision-making Explain to the students the most important point of using accounting information to influence decision-making is to make sure you have the RIGHT information, at the RIGHT time and in the RIGHT format.
- See Learning Goal 2: Identify the different disciplines within the accounting profession.
- See Learning Goal 2: Identify the different disciplines within the accounting profession. How to Read an Annual Report This slide presents the key areas to read when analyzing a company’s annual report. It is important that students understand that the annual report is more than a balance sheet but contains different areas which are just as important. The auditor’s opinion is a critical area for students to understand. Basically there are four different types of opinion letters that can be submitted. They are: Unqualified opinion - An unqualified opinion letter involves a certification made by the independent CPA firm that the company's financial statements were prepared in conformity with Generally Accepted Accounting Principles [GAAP], and fairly represented the firm's financial condition on the statement date. Qualified opinion - A qualified auditor's opinion letter is one in which the CPA has included one or more specific qualifications to its assurance that the customer's financial statements follow GAAP. This means that one or more irregularities were found, and that the customer could not or would not correct these irregularities. Adverse opinion – This is the most serious of all the opinion letters that can accompany a customer's financial statements. When a CPA firm discovers information during the course of its audit that demonstrates material noncompliance with GAAP accounting rules, the CPA may choose to submit an adverse opinion letter to accompany the financial statements of the company under review. Disclaimer of opinion - Due to scope limitations, a CPA may be unwilling to express any opinion about the accuracy of a customer's financial statements. A disclaimer of opinion letter means the CPA does not assume responsibility for the accuracy of the company's financial statements. (Source: www.encyclopediaofcredit.com)
- See Learning Goal 3: List the steps in the accounting cycle, distinguish between accounting and bookkeeping, and explain how computers are used in accounting. With this slide students are provided with the step-by-step progression of the accounting cycle. Place particular emphasis on the accounting cycle to give the student an overview of reporting requirements. To start a discussion with students ask the following questions before showing the next few slides: Can you explain the differences between accounting and bookkeeping? What’s the difference between an accounting journal and a ledger? Why does a bookkeeper prepare a trial balance?
- See Learning Goal 3: List the steps in the accounting cycle, distinguish between accounting and bookkeeping, and explain how computers are used in accounting. Student’s often do not understand that financial statements are more than a balance sheet but incorporate the income statement and statement of cash flows.
- See Learning Goal 4: Explain how the major financial statements differ. See Figure 17.5 in the text for a sample Balance Sheet for Very Vegetarian.
- See Learning Goal 4: Explain how the major financial statements differ.
- See Learning Goal 4: Explain how the major financial statements differ. Assets are divided into three categories according to how fast they can be converted into cash.
- See Learning Goal 4: Explain how the major financial statements differ.
- See Learning Goal 4: Explain how the major financial statements differ.
- See Learning Goal 4: Explain how the major financial statements differ.
- See Learning Goal 4: Explain how the major financial statements differ. See Figure 17.7 in the text for a sample Income Statement for Very Vegetarian.
- See Learning Goal 4: Explain how the major financial statements differ.
- See Learning Goal 4: Explain how the major financial statements differ. While depreciation is an expense, it is a non-cash expense for the company.
- See Learning Goal 4: Explain how the major financial statements differ. See Figure 17.8 in the text for a sample Statement of Cash Flows for Very Vegetarian.
- See Learning Goal 4: Explain how the major financial statements differ.
- See Learning Goal 4: Explain how the major financial statements differ.
- See Learning Goal 5: Demonstrate the application of ratio analysis in reporting financial information. Ratio analysis provides an assessment of the firm’s financial condition. It can be extremely useful when results of a ratio analysis are compared to industry peers.
- See Learning Goal 5: Demonstrate the application of ratio analysis in reporting financial information. The acid-test ratio is sometimes referred to as the quick ratio.
- See Learning Goal 5: Demonstrate the application of ratio analysis in reporting financial information.
- See Learning Goal 5: Demonstrate the application of ratio analysis in reporting financial information.
- See Learning Goal 5: Demonstrate the application of ratio analysis in reporting financial information.
- See Learning Goal 5: Demonstrate the application of ratio analysis in reporting financial information.
- See Learning Goal 5: Demonstrate the application of ratio analysis in reporting financial information. Timeline for the Move to IFRS This slide profiles the timeline for the move to International Financial Reporting Standards International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that is becoming the global standard for the preparation of public company financial statements. Ask the students: What are some of the benefits of international accounting standards? If time permits have students explore the IFRS website (www.ifrs.com) and review some of the accounting case studies that the website presents.
- What’s the primary purpose of performing ratio analysis using the firm’s financial statements? Ratio analysis is the assessment of a firm’s financial condition, using calculations and financial ratios. Financial ratios are especially useful in comparing the company’s performance to its financial objectives and to the performance of others in the industry. What are the four main categories of financial ratios? The four main categories are as follows: liquidity, leverage, profitability and activity.
- See Learning Goal 2: Identify the different disciplines within the accounting profession. This slide helps highlight the difference in public and private accounting. This may be a good time to discuss what accounting or finance careers will do for students: Develop them into a well rounded business executives Help them learn how to analyze and forecast financial goals through utilization of historical data, competitor information and financial data/information Make an impression at a multi-billion dollar corporation See the company increase its financial vitality by being a part of the financial planning and reporting process (Source: Retailology.com)
- See Learning Goal 2: Identify the different disciplines within the accounting profession. Steps to Control Accounting Practices This slide charts the four key steps to controlling the accounting practice. If the events of the last ten years have taught us anything it is that accurate financial data is critical for creditors, investors and managers to make informed decisions. The federal government has reacted with the passage of Sarbanes-Oxley. This law which went into effect in 2002 has five major components: Section 302 - Periodic statutory financial reports are to include certifications that: The signing officers have reviewed the report; the report does not contain any material untrue statements or material omission or be considered misleading; the financial statements and related information fairly present the financial condition and the results in all material respects; the signing officers are responsible for internal controls and have evaluated these internal controls within the previous ninety days and have reported on their findings; a list of all deficiencies in the internal controls and information on any fraud that involves employees who are involved with internal activities; and any significant changes in internal controls or related factors that could have a negative impact on the internal controls Section 401 - Financial statements published by issuers are required to be accurate and presented in a manner that does not contain incorrect statements. Section 404 - Issuers are required to publish information in their annual reports concerning the scope and adequacy of the internal control structure and procedures for financial reporting. Section 409 - Issuers are required to disclose to the public, on an urgent basis, information on material changes in their financial condition or operations. Section 802 - Imposes penalties or fines and/or up to 20 years imprisonment for altering, destroying, mutilating, concealing, falsifying records, documents or tangible objects with the intent to obstruct, impede or influence a legal investigation. (Source: www.soxlaw.com)
- See Learning Goal 2: Identify the different disciplines within the accounting profession.
- See Learning Goal 3: List the steps in the accounting cycle, distinguish between accounting and bookkeeping, and explain how computers are used in accounting.
- See Learning Goal 3: List the steps in the accounting cycle, distinguish between accounting and bookkeeping, and explain how computers are used in accounting.
- See Learning Goal 4: Explain how the major financial statements differ.
- See Learning Goal 2: Identify the different disciplines within the accounting profession.
- See Learning Goal 2: Identify the different disciplines within the accounting profession.
- What’s the key difference between managerial and financial accounting? Managerial accounting provides information and analysis to the managers inside the organization and helps them make better informed decisions. Managerial accounting is concerned with measuring and reporting cost of production, marketing, and other functions such as preparing budgets; making sure business units stay within their budgets and designing strategies to minimize taxes. Financial accounting differs from managerial accounting in that financial accounting generates information for people primarily outside the organization. How’s the job of a private accountant different from that of a public accountant? The private accountant works for a single firm, government agency, or nonprofit organization. While public accountants work for accounting firms that provide accounting services for a fee. Public accountants provide services to individuals or businesses that include designing an accounting system, selection of software to run the accounting system. and analyzing an organization’s financial performance. What’s the job of an auditor? Auditors are responsible for examining the financial health of the organization as well as looking into the operational effectiveness and efficiencies of the organization.
- What do we call the formula for the balance sheet? What three accounts does it include? The formula for the balance sheet is referred to as the fundamental accounting equation. This equation includes the following three accounts: assets, liabilities and owners equity. What does it mean to list assets according to liquidity? Assets on the balance sheet are listed according to how quickly they can be converted to cash. Therefore as you move down the balance sheet it becomes more difficult to convert the assets into “liquid” cash. What’s included in the liabilities account on the balance sheet? Liabilities are what the business owes to others. The liability account is divided into current and long-term liabilities. Common liability accounts include: accounts payable, notes payable and bonds payable. What’s owners’ equity and how do we determine it? Owners’ equity is the amount of the business that belongs to the owners, minus any liabilities the business owes. The formula for owners’ equity is assets minus liabilities.