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ENGR 3360U Winter 2014

Unit 17

Introduction to Accounting

Dr. J. Michael Bennett, P. Eng., PMP,

UOIT,

Version 2014-I-01

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Unit 17 Introduction to Accounting

Extrapolation Estiating

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)*ange Record

2014!I!01 Initial )reation

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)ourse +utline

1# Engineering Econoics

2# General Econoics

1# %icroeconoics

2# %acroeconoics

3# %one, and t*e &an- o.)anada

3# Engineering Estiation

4# Interest and E/uialence

# (resent Wort* Anal,sis

6# Annual )as* lo

7# Rate o. Return Anal,sis

# (ic-ing t*e &est )*oice

5# +t*er )*oosing ec*ni/ues

10# Uncertaint, and Ris-

11# Incoe and "epreciation

12# A.ter!tax )as* los

13# Replaceent Anal,sis

14# In.lation1# %ARR election

16# (u8lic ector Issues

17# W*at Engineers s*ould -no

a8out Accounting

1# (ersonal Econoics .or t*e

Engineer


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Unit 17 Road %ap

17#1 Eleents o. Accounting

17#2 *e &alance *eet

17#3 *e Incoe tateent

17#4 raditional )ost Accounting

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1!. " 2014-I-01

Managerial Accounting is concerned it* costs and 8ene.its o. actiities o. an enterprise in proiding suc* to

anagers in decision!a-ing

Financial Accounting is concerned it* recording 9

anal,:ing t*e .inancial data o. a 8usiness it* o8;ectie o. proiding in.oration to internal anageent and external

parties *o is* to a-e decisions a8out an enterprise suc*

as %anagers' inestors and creditors#

(ro;ect Accounting is concerned it* anaging t*e .lo o.one, t*roug* a pro;ect

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1!. ! 2014-I-01

*e .lo o. one, in a copan, is uc* li-e t*e .lo o. aterin a netor- o. pipes=

Through variables= *ese aria8les are easured it* respectto tie >e#g#' incoe stateent?

Across variables= *ese aria8les are easured at a point intie# >e#g#' 8alance s*eet?

The Balance Sheet= is a snaps*ot o. a .ir

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1!. # 2014-I-01

Eer, organi:ation *as assets and liabilities >a8le 6#2?

Assets @ ia8ilities is Owners’ Equit >copan, alue?

Balance Sheet is a snaps*ot o. its .inancial position# It suari:es assets'

lia8ilities and oners< e/uit,#

Assets! ites to *ic* t*e organi:ation *as legal title "urrent assets can 8e conerted into cas* it*in one ,ear# Fi#e$ assets >capital assets? *ae a li.e greater t*an one ,ear#

o %iabilities= de8t oed >suppliers' eplo,ees' goernent?

"urrent %iabilities de8t norall, paid it*in a ,ear >accounts pa,a8le' taxes' ages pa,a8le' 8an- loan pa,a8leB?

%ong&term liabilities de8t norall, paid 8e,ond current ,ear

17#2 *e &alance *eet

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1!. $2014-I-01

a8le 1 &alance *eet o. a )opan,


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1!. 10 2014-I-01

Owners’ Equit= *e di..erence 8eteen assets andlia8ilities is a eans o. easuring *at t*eorgani:ation is ort* @ ite#g#a sole proprietor' partners*ip or s*are*olders?

#2 *e &alance *eet >cont

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1!. 11 2014-I-01

a8le 2 &alance *eet o. a )opan,


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1!. 12 2014-I-01

igure 1 )as* lo Relations*ip &eteen t*e

)opan,

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Exaple

)ount Accountant .orgot to include a D10loan used to purc*ase a D2 test stand

>*ic* *e .orgot to include?# W*at c*anges

s*ould *e a-e to t*e &F


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1!. 14 2014-I-01

"eltas to t*e &alance *eet

D10

D2

!D1


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1!. 1% 2014-I-01

Income Statement suari:es reenues and expenses

oer a speci.ied accounting period#

%a;or coponents= 'evenue' E#enses) *ro+its

'evenues increase oners< e/uit, usuall, .ro sales o. goods9serices >8ut ot*ers?

E#enses decrease oners< e/uit,#

cost o. goods sold) rent' insurance' ages' depreciation

*ro+its be+ore Ta#es is Reenue ! Expenses

A.ter deducting taxes e arrie at ,et *ro+it

17#3 *e Incoe tateent


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1!. 1" 2014-I-01

Incoe tateent .or t*e )opan,


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1!. 1! 2014-I-01

inancial stateents are o.ten estiates @ t*e, a, not re.lectar-et alues @ use cost rincile o+ accounting

Assets are alued on t*e 8asis o. t*eir cost >8oo- alue?

%an$ is listed at t*e price paid' not its ar-et alue

*lant an$ equiment is listed at t*e price paid less accuulateddepreciation#

"epreciation on e/uipent coputed using depreciation odel

Stoc- or Shares are listed at par value >issue price?#

Finishe$ goo$s inventor @ anu.acturing cost

%ost .irs include t*eir accounting et*ods9assuptions it*in periodic reports to aid interpretation o. stateents

#1 Estiated Halues in inancial tateents


i 1 d i A i

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1!. 1# 2014-I-01

"ecision a-ers >inside and outside? need to -no general*ealt*J o. a .ir

)an use 8alance s*eet9incoe stateents to assess

Financial 'atio Analsis -e, per.orance indicators

t*ese per.orance easures are +inancial ratios calculated .roites on t*e incoe stateent and 8alance s*eet#

In interpreting ratios anal,sts s*ould calculate t*e ratios oer anu8er o. periods to do a tren$ analsis

Ratios s*ould also 8e copared to in$ustr stan$ar$s

Industr, standards routinel, pu8lis*ed 8, coercial and

goernent e8sites9pu8lications >Statistics Canada)

#2 inancial Ratio Anal,sis


U i 17 I d i A i

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1!. 1$ 2014-I-01

%iqui$it ratios assess .ir

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)RC )A9)


4314

245

)RC1#73>2011?

U it 17 I t d ti t A ti

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A C LA9)


431245

245

A C 1#17

U it 17 I t d ti t A ti

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/ebt management ratios ! extent .ir relies on de8t Equit ratio C otal e/uit,9>otal lia8ilities otal e/uit,?

C otal e/uit,9otal assets saller t*e ratio' t*e ore dependent a .ir is on de8t and t*e *ig*er

t*e ris- o. not 8eing a8le to anage de8t coparison to industr, nors9trend anal,sis necessar,

E++icienc ratios assess e..icienc, o. use o. its assets#

Inventor turnover ratio C ales9Inentories *ro+itabilit ratios ! productiel, assets *ae 8een eplo,ed

in producing a pro.it# 'eturn on assets C Net incoe9otal assets 'eturn on equit C Net incoe9otal e/uit,

inancial Ratios >cont

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ERC+E9>+E?


ERC 3319256C0#40

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R+ACN(&MI9A


R+AC719256C5#4


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R+ECN(&MI9E


R+AC719331C2#3


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U%%ARO o*!o* +P!N+Q



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1!. 2# 2014-I-01

uar, o. inancial Ratios and "e.inition



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17#4 raditional )ost Accounting

)ost accounting= @ Used to deelop product costsS deterine t*e ix o. la8our'

aterials' and ot*er costs in a production settingS and

ealuate outsourcing and su8contracting possi8ilities#

"irect costs= @ Actiities directl, associated it* t*e .inal product

>aterials' design' etc#?

Indirect costs= @ )osts not easil, lin-ed directl, to a pro;ect >ac*ine

depreciation' anageent9sales9adinistration costs etc#?


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raditional )ost Accounting' contA&)?*ere actiities are lin-ed to speci.ic costs and in t*is

a, oer*ead is potentiall, inii:ed#


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2014-I-01

Eleents o. inancial Accounting*e &alance *eet

*e Incoe tateent

Estiated Halues in inancial tateentsinancial Ratio Anal,sis

uar,

" $ % & ( E (%( ENGR 3360U E E

Documents

3360 UNIT 17 2014-I-01