ACG 2021 Chapter 1 Power Points S15 After Lecture on 1-20-15

Accounting Information and Decision Making

Chapter 1

Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.1

Participation Questions1. What is the only way to access the Connect Website? 2. When an investor provides money ($) to a corporation for

ownership, what does the corporation issue to the investor/owner in return?

3. A ‘Payable’ is always a liability. T/F4. Which financial statement is always completed first?5. Which financial statement is more like a movie over a

period of time versus a camera picture?2

Announcements – 1/13/15• Connect Enrollment Date closes on 1/25/15 – USE KNIGHTS E-MAIL ADDRESS ONLY

• Dean Jarley’s Leadership Development Program & Ambassador Meeting ~ Friday, January 23, 2015 • Guest Speaker: Mr. Tony Jenkins, Market President, Florida Blue• Times: 1:00-2:00 pm in BA 1 Room 238 and the Ambassador Meeting will immediately follow

• 14 Day free access includes e-book– “Connect” - $81.75 includes no e-book – purchase through Connect Website

• Can also purchase in bookstore for less (limited quantity)– “Connect Plus” - $127.50 includes e-book – purchase through Connect Website

• Welcome to the Major – – January 16 - 9:30 AM to 1:30 PM at the UCF Venue (Arena)

• Assignments– January 20th

• Syllabus Quiz #1 – used for attendance for Federal Student Aid (Webcourses) – 2 attempts– January 25th

• Homework Assignment #1 (Connect) – unlimited attempts• Participation Questions for Chapter #1 questions (Webcourses) – 1 attempt

– February 1st

• Homework Assignment #2 (Connect) – unlimited attempts• Participation Questions for Chapter #2 questions (Webcourses) – 1 attempt• Definitions Quiz (Webcourses) – 2 attempts

3

Announcements – 1/15/15• Connect Enrollment Date closes on 1/25/15 – USE KNIGHTS E-MAIL ADDRESS ONLY


• 14 Day free access includes e-book– “Connect” - $81.75 includes no e-book – purchase through Connect Website

• Can also purchase in bookstore for less (limited quantity)– “Connect Plus” - $127.50 includes e-book – purchase through Connect Website

• Welcome to the Major – – January 16 - 9:30 AM to 1:30 PM at the UCF Venue (Arena)




– February 1st


4

Announcements – 1/20/15• Handouts – pgs. 20 and 21 from Chapter 2 PowerPoints AND Accounting Equation from Webcourses “Tools for Class”

link.

• Connect Enrollment Date closes on 1/25/15 – USE KNIGHTS E-MAIL ADDRESS ONLY – 533 out of 1,000 already signed up


• 14 Day free access to Connect includes e-book




– February 1st


5

Block 1• Introduction to Accounting and Financial Reporting

– Chapter 1• Accounting Cycle – analyze business transactions to

aggregate and construct financial statements for decision makers– Chapter 2 – External transactions– Chapter 3 – Internal transactions

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Overall Question to be answered this semester:

What is financial reporting’s role in today’s American society?

Discussion Posting:If companies could select what information to report and how to report in their financial statements this would greatly change American business. GAAP gives both private and public companies guidelines so they can accurately and honestly report finances. This helps keep these companies from making errors and committing fraud. Basically, keeping the greedy XXX honest.

7

Why Accounting• Bank United

• Suppliers• https://www.sec.gov/cgi-bin/viewer?action=view&cik=1166126&accession_number=0001166126-14-000017&xbrl_type=v#• https://www.sec.gov/cgi-bin/viewer?action=view&cik=1378950&accession_number=0001193125-14-094601&xbrl_type=v#

• Budgets - Sales Manager - EBITDA

8

https://www.sec.gov/cgi-bin/viewer?action=view&cik=1166126&accession_number=0001166126-14-000017&xbrl_type=v





How a corporation begins…

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Corporation and Stock OwnershipA type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.

A holder of stock (a shareholder) has a claim to a part of the corporation's assets and earnings. In other words, a shareholder is an owner of a company. Ownership is determined by the number of shares a person owns relative to the number of outstanding shares. For example, if a company has 1,000 shares of stock outstanding and one person owns 100 shares, that person would own and have claim to 10% of the company's assets.

10

Legal Forms of Business Organization• Sole Proprietorship

– Owned by a single person• Partnership

– Owned by more than one person• Corporation

– Owned by multiple shareholders– Pros – limited liability: stockholders are not personally responsible for

financial obligations of corporation. – Cons –

• Double taxation– Corporate income is taxed– Shareholders taxed on distributions of earnings (dividends)

11

Two Functions of Financial Accounting

To measure business activities of a company and to communicate those measurements to

external parties for decision-making purposes.

12

Types of Accounting

Focus of the Course

Managerial Accounting

Deals with the methods accountants use to provide information to an organization’s internal users; that is, its own managers.

Managerial Accounting

Deals with the methods accountants use to provide information to an organization’s internal users; that is, its own managers.

Financial Accounting

Measures business activities of a company and communicates those measurements to external parties for decision-making purposes.

Financial Accounting

Measures business activities of a company and communicates those measurements to external parties for decision-making purposes.

13

Accounting Information - The Language of Business

14

Make Decisions About

Communicate

information to:Activities Measured by:

People Companies

Accountants

(WHO) Users of Accounting InformationThe two primary users of accounting information for decision-making:

• Investors - for present & potential capital providers

• Creditors - Bonds and Banks for Investment & lending decisions

Other users include: • Customers• Suppliers• Managers• Employees• Competitors• Regulators• Tax authorities

15Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.

15

16

What is Measured? BUSINESS ACTIVITIES

These transaction are from the COMPANY PERSPECTIVE

• Operating Activities– Involves transactions in primary operations of business

• Purchase inventory (lemonade) to sell $1,000• Financing Activities

– Involves funding from external sources• Individual invests $500 in a business in return for company stock.• Bank loan of $1,000.

• Investing Activities– Involves purchase and sale of long-term resources

• Purchased lemonade stand to operate business - $100

16

17

How to Measure Business Activities

The Accounting Equation

*Stockholder’s Equity is also known as “Owner’s Equity17

Company’s resources

Claims to those resources

Assets Liabilities Stockholders’ Equity*= +

Accounting Equation Elements• Resources owned by companyAssets

• Amounts owed to creditorsLiabilities

• Owners claim to resources (stockholders of the corporations)

Stockholders’ Equity

18Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.

Claims on Assets

Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.

19

ASSETS• Cash

• Inventory• Equipment

• Building

AMOUNTS OWED – LIABILITIES• Bank• Supplier• Government• Employees

OWNER’S CLAIMS – OWNER’S (STOCKHOLDER) EQUITY

• Stockholders – common and preferred

Company Profits – Operating Cycle• Amounts earned from selling

products and services to customersRevenue• Cost of providing products and

servicesExpenses• Difference between revenue and

expenseNet Profit20


Net Income (aka “the bottom line)

21

Revenues

Expenses

Net Income

Minus

If expenses exceed

revenues

A net loss results


Net Income and (Net Loss) Examples


2011 2010

Revenues 1,000,000 1,000,000

Expenses 850,000 1,075,000

Net Income/(Net Loss) 150,000 (75,000)

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http://www.google.com/url?sa=i&source=images&cd=&cad=rja&docid=jZVHkULV8QV41M&tbnid=BeqlOSMfirgIdM:&ved=0CAgQjRwwAA&url=http://commons.wikimedia.org/wiki/File:20070509_Apple_Store.JPG&ei=Ll0SUo7MLsji2wWJlICABA&psig=AFQjCNGDn97aKPEjtpTVtqpBA7-LT9XK4w&ust=1377021614923835

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Accounts - Revenues and Expense of Apple Computers

What is an Account – a place to aggregate similar transactions (Chart of Accounts)

What Constitutes Revenue?

What constitutes Expenses?

26

Revenues and Expenses of Apple

What Constitutes Revenue?• Products• Repairs• Itunes• Iphone contracts• Iwatch???

What constitutes Expenses?• Rent• Employee wages• Insurance• Furniture and fixtures• Utilities• Supplies• Marketing

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http://www.sec.gov/cgi-bin/viewer?action=view&cik=320193&accession_number=0001193125-14-383437&xbrl_type=v

The aggregate total costs related to selling a firm's product and services, as well as all other general and administrative expenses. Direct selling expenses (for example, credit, warranty, and advertising) are expenses that can be directly linked to the sale of specific products. Indirect selling expenses are expenses that cannot be directly linked to the sale of specific products, for example telephone expenses, Internet, and postal charges. General and administrative expenses include salaries of non-sales personnel, rent, utilities, communication, etc.



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Reality Check…____ Assets A. Costs of selling products and services____ Liabilities B. Amounts received from sales of

products or services____ Owner’s Equity C. Amounts owed to creditors____ Revenues D. Owner’s claims to company resources____ Expenses E. Resources owned

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The Basic Financial Statements


The Basic Financial StatementsFiscal or Calendar Year

1.) Income Statement

2.) Statement of Stockholder’s

Equity

4.) Cash Flow Statement

3.) Balance Sheet


Data flows from one financial statement to the other based on the order above.

Income Statement• Revenues – Expenses = Net Income

• Reports how the company performed operationally based on the company’s revenues and expenses over a period of time.– “MOVIE”

• Income Statement flows to Statement of Stockholders’ Equity Flows


Balance Sheet• Shows resources and obligations (account balances) at

ONE point in time.– “SNAPSHOT”

• Summarized using the basic ACCOUNTING EQUATION– Assets = Liabilities + Stockholders’ Equity

• Statement of Stockholders’ Equity Flows to Balance Sheet

ASSETS – Sample of Accounts• Cash – liquid assets• Accounts Receivable – amounts the company expects to collect from

customers.• Notes Receivable – amounts company expects to collect from a party who

has a signed promissory note with company• Inventory – items for sale by company• Supplies – items that will be consumed by the company during the

operation of the business such as office supplies.• Prepaid expenses – prepayments for advertisements, rent, insurance, and

supplies.• Property, plant, and equipment – land, buildings, computers, store fixtures,

manufacturing equipment.

LIABILITIES – Sample of Accounts• Accounts Payable – amounts owed to vendors for the

purchase of materials or services.• Salaries Payable – amounts due employees• Interest Payable - amounts owed to lenders based on

loans• Utilities Payable – amounts owed to utility companies• Notes payable – amounts due to another party for

loaning money to the company

Receivable versus Payable• Receivable – the firm will receive dollars, so it is a

resource to the firm that can be utilized in the future. ALWAYS AN ASSET

• Payable – the firm owes money to creditors, such as suppliers or the bank. ALWAYS AN LIABILITY

STOCKHOLDERS’ EQUITY – Two Primary Accounts

• Paid-in-Capital– Stock – external source

• Amount shareholders have invested in the business• Retained Earnings – internal source

– Cumulative amount of net income earned and kept in business less dividends paid out.


Financial StatementsIncome Statement

• Activity over a period of time (performance)

• One Month• One Quarter• One Year

Balance Sheet

• Resources and obligations at a point in time

• As of a certain date such as December 31, 20XX

ACCOUNTING EQUATION

Assets = Liabilities + Stockholders’ Equity

Paid in Capital (Stock) Retained Earnings

DividendsExpensesRevenue

Statement of Stockholders’ Equity• Summarizes the changes to Stockholders’ Equity over an

interval of time. – Common Stock Account – Retained Earnings Account

• Net income• Dividends

• Net income (or net loss) flows from the Income Statement to Stockholders’ Equity


Components of Common Stock (CS)


Beginning Balance of CS

Issuance of Stock ($

received)

Ending Balance of CS

Plus

Equals

Retained Earnings

• Inflows (outflows) to retained earnings based on the profits retained by the company.

Net Income (Net Loss)

• Outflow of cash from retained earnings.

Dividends


Retained earnings

Net Income Increase

Net Loss decrease

Dividends decrease


Components of Retained Earnings (Example Apple for 2013)


Beginning Balance of RE

Net Income (or Net Loss) for the

Period

Dividends for the Period

Ending Balance of RE

Plus or Minus

Minus

Equals


#




Components of RE – Example 1 Net Income


100,000

Net Income150,000

Dividends50,000

200,000

Plus

Minus

Equals End of Period RE

Beginning of Period RE

Components of RE – Example 2 Net Loss


100,000

Net Loss(250,000)

Dividends0

(150,000)

Minus

Minus

Equals End of Period RE

Beginning of Period RE


The Statement of Cash Flows• Measures cash receipts and cash payments

• Investors & creditors like this statement

• Categorizes into three types of activities:– Operating– Investing– Financing


Cash Flow Categories

Operating• Cash receipts and payments from selling goods and services

Investing• Purchasing & selling long-term assets

Financing• Issuing stock and borrowing


How Do You Use Financial Statements to Evaluate Performance?

Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

1-51

The Basic Financial StatementsFiscal or Calendar Year

1.) Income Statement

2.) Statement of Stockholder’s

Equity

4.) Cash Flow Statement

3.) Balance Sheet


Data flows from one financial statement to the other based on the order above.

Relationships between Financial StatementsIncome Statement

For the year ended December 31, 2010

Revenues $$$,$$$

Expenses ($$,$$$)

Net income $$,$$$

Statement of Stockholders’ EquityFor the year ended December 31, 2010

Beginning retained earnings $$$,$$$

Net income $$,$$$

Cash dividends ($$,$$$)

Ending retained earnings $$,$$$


Statement of Stockholders’ EquityFor the year ended December 31, 2010

Beginning retained earnings $$$,$$$

Net income $$,$$$

Cash dividends ($$,$$$)

Ending retained earnings $$,$$$

Balance SheetDecember 31, 2010

Assets $$$,$$$

Liabilities $$$,$$$

Stockholders’ equity:

Common stock $$$,$$$

Retained earnings $$$,$$$

Total liabilities and equity $$$,$$$


Changes to Common Stock

shown from above

statement also

Statement of Cash FlowsFor the year ended December 31, 2010

Cash flows from operating activities $$$,$$$

Cash flows from investing activities $$,$$$

Cash flows from financing activities $$,$$$

Net cash flows $$,$$$

Cash balance, December 31, 2009 $$,$$$

Cash balance, December 31, 2010 $$,$$$

Balance SheetDecember 31, 2010

Assets $$$,$$$

Liabilities $$$,$$$

Stockholders’ equity:

Common stock $$$,$$$

Retained earnings $$$,$$$

Total liabilities and equity $$$,$$$

Cash from the Asset section of the Balance Sheet equals ending Cash on the Statement of Cash Flows


56

Next four slides show Apple’s

1. Income Statement (Statement of Operations)2.Statement of Stockholder’s Equity3.Balance Sheet4.Statement of Cash Flows

57

Consolidated Statements of Operations (USD $)

In Millions, except Share data in Thousands, unless otherwise

specified

12 Months Ended

Sep. 28, 2013 Sep. 29, 2012 Sep. 24, 2011

Net sales $ 170,910 $ 156,508 $ 108,249

Cost of sales 106,606 87,846 64,431

Gross margin 64,304 68,662 43,818

Operating expenses:

Research and development 4,475 3,381 2,429

Selling, general and administrative 10,830 10,040 7,599

Total operating expenses 15,305 13,421 10,028

Operating income 48,999 55,241 33,790

Other income/(expense), net 1,156 522 415

Income before provision for income taxes 50,155 55,763 34,205

Provision for income taxes 13,118 14,030 8,283

Net income $ 37,037 $ 41,733 $ 25,922

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Consolidated Statements of Shareholders' Equity (USD $)

In Millions, except Share data in Thousands

Total Common

Stock Retained Earnings

Accumulated Other Comprehensive Income/(Loss)

Ending Balance at Sep. 29, 2012 118,210 16,422 101,289 499

Ending Balance (in shares) at Sep. 29, 2012

939,208 939,208

Net income 37,037 0 37,037 0

Other comprehensive income/(loss) (970) 0 0 (970)

Dividends and dividend equivalent rights declared

(10,676) 0 (10,676) 0

Repurchase of common stock (in shares) (46,976)

Repurchase of common stock (22,950) 0 (22,950) 0

Share-based compensation 2,253 2,253 0 0

Common stock issued under stock plans, net of shares withheld for employee taxes (in shares)

6,981

Common stock issued under stock plans, net of shares withheld for employee taxes

(587) (143) (444) 0

Tax benefit from equity awards, including transfer pricing adjustments

1,232 1,232 0 0

Ending Balance at Sep. 28, 2013 $ 123,549 $ 19,764 $ 104,256 $ (471)

Ending Balance (in shares) at Sep. 28, 2013

899,213 899,213

59

Consolidated Balance Sheets (USD $) In Millions, unless otherwise specified

Sep. 28, 2013 Sep. 29, 2012

Current assets:

Cash and Cash Equivalents $ 14,259 $ 10,746

Short-term marketable securities 26,287 18,383

Accounts receivable, less allowances of $99 and $98, respectively

13,102 10,930

Inventories 1,764 791

Deferred tax assets 3,453 2,583

Vendor non-trade receivables 7,539 7,762

Other current assets 6,882 6,458

Total current assets 73,286 57,653

Long-term marketable securities 106,215 92,122

Property, plant and equipment, net 16,597 15,452

Goodwill 1,577 1,135

Acquired intangible assets, net 4,179 4,224

Other assets 5,146 5,478

Total assets 207,000 176,064

Current liabilities:

Accounts payable 22,367 21,175

Accrued expenses 13,856 11,414

Deferred revenue 7,435 5,953

Total current liabilities 43,658 38,542

Deferred revenue - non-current 2,625 2,648

Long-term debt 16,960 0

Other non-current liabilities 20,208 16,664

Total liabilities 83,451 57,854

Commitments and contingencies

Shareholders' equity:

Common stock, no par value; 1,800,000 shares authorized; 899,213 and 939,208 shares issued and outstanding, respectively

19,764 16,422

Retained earnings 104,256 101,289

Accumulated other comprehensive income/(loss)

(471) 499

Total shareholders' equity 123,549 118,210

Total liabilities and shareholders' equity $ 207,000 $ 176,064

60

Consolidated Statements of Cash Flows (USD $)

In Millions, unless otherwise specified

12 Months Ended

Sep. 28, 2013 Sep. 29, 2012 Sep. 24, 2011

Cash and cash equivalents, beginning of the year

$ 10,746 $ 9,815 $ 11,261

Operating activities:

Net income 37,037 41,733 25,922

Adjustments to reconcile net income to cash generated by operating activities:

Depreciation and amortization 6,757 3,277 1,814

Share-based compensation expense 2,253 1,740 1,168

Deferred income tax expense 1,141 4,405 2,868

Changes in operating assets and liabilities:

Accounts receivable, net (2,172) (5,551) 143

Inventories (973) (15) 275

Vendor non-trade receivables 223 (1,414) (1,934)

Other current and non-current assets 1,080 (3,162) (1,391)

Accounts payable 2,340 4,467 2,515

Deferred revenue 1,459 2,824 1,654

Other current and non-current liabilities 4,521 2,552 4,495

Cash generated by operating activities 53,666 50,856 37,529

Investing activities:

Purchases of marketable securities (148,489) (151,232) (102,317)

Proceeds from maturities of marketable securities

20,317 13,035 20,437

Proceeds from sales of marketable securities

104,130 99,770 49,416

Payments made in connection with business acquisitions, net

(496) (350) (244)

Payments for acquisition of property, plant and equipment

(8,165) (8,295) (4,260)

Payments for acquisition of intangible assets

(911) (1,107) (3,192)

Other (160) (48) (259)

Cash used in investing activities (33,774) (48,227) (40,419)

Financing activities:

Proceeds from issuance of common stock

530 665 831

Excess tax benefits from equity awards 701 1,351 1,133

Taxes paid related to net share settlement of equity awards

(1,082) (1,226) (520)

Dividends and dividend equivalent rights paid

(10,564) (2,488) 0

Repurchase of common stock (22,860) 0 0

Proceeds from issuance of long-term debt, net

16,896 0 0

Cash generated by/(used in) financing activities

(16,379) (1,698) 1,444

Increase/(decrease) in cash and cash equivalents

3,513 931 (1,446)

Cash and cash equivalents, end of the year

14,259 10,746 9,815

How Do You Analyze A Transaction?

Smart Touch performs computer training.

1. Smart Touch Learning starts a new business. The company issues $30,000 of Common Stock. How does this impact the Accounting Equation?

2. Next, Smart Touch purchases land for $20,000 cash.3. In Transaction #3, Smart Touch buys $500 of office supplies, offering to pay in 30

days.4. In Transaction #4, Smart Touch provides training services to customers for

$5,500 cash.5. In Transaction #5, Smart Touch performs $3,000 of services for a customer who

will pay in one month.

1-61

Assets = Liabilities + Equity Paid-in-Capital + Retained Earnings

62

Part B

Financial Accounting Information

1-63

Misconceptions about Accounting• It is not an exact science – differing treatments can yield differing results.

– Receivables Allowances– Inventory valuation– Depreciation methods

1-64

LIFO FIFO Revenue 100,000 100,000 Cost of goods sold 33,000 30,000 Gross Profit 67,000 70,000 Less: Expenses 60,000 60,000

Operating Income 7,000 7.0% 10,000 10.0%

The Accounting Profession• Certified Public Accountants – CPA’s are licensed

professional accountants that serve the general public.

• Certified Management Accountants – CMA’s are certified professionals who specialize in accounting and financial management, usually for private industry.

65

The Organizations That Govern Accounting

FASB• Financial Accounting

Standards Board (FASB)• Privately funded• Creates the rules and

standards that govern financial accounting

SEC• Securities and Exchange

Commission (SEC)• Securities Act of 1934• Oversees the US

financial markets• Oversees FASB

Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

1-66

Generally Accepted Accounting Principles (GAAP)

• Issued by the FASB.• Establishes the rules for recording

transactions and preparing financial statements.

• Published online as part of the Accounting Standards Codification.

• Requires that information be useful.

1-67

Relevant = The info allows users to make

a decision.

Faithfully Representative =

The info is complete, neutral, and free

from material error.

Role of Auditors

68

Auditors are trained individuals hired by a company as an independent party to express a professional opinion of the accuracy of that company’s financial statements.

Auditors are trained individuals hired by a company as an independent party to express a professional opinion of the accuracy of that company’s financial statements.

Role of auditors

Help ensure that management has in fact

appropriately applied GAAP in preparing the company’s

financial statements

Help investors and creditors in their decisions by adding credibility to the

financial statements.

1-68

69

Flow of Accounting


Balance Sheet

Accounting Equation: Assets = Liabilities + Owners Equity

GAAP (Rules) formulated by FASB

Income Statement

Statement of Retained Earnings

Statement of Cash Flows

Part C

Careers in Accounting

1-70

Accounting Profession• http://fortune.com/2014/08/06/15-most-profi

table-business-sectors/

• Kramer at work• http://www.youtube.com/watch?v=bU6m5Uq

Lx9M&list=RDXEL65gywwHQ&index=271

http://fortune.com/2014/08/06/15-most-profitable-business-sectors/



http://www.youtube.com/watch?v=bU6m5UqLx9M&list=RDXEL65gywwHQ&index=2

http://www.youtube.com/watch?v=bU6m5UqLx9M&list=RDXEL65gywwHQ&index=2

Careers in Accounting

72

Financial accountants Managerial accountants

Budget analystsInternal auditorsTax preparers

Payroll managers

AuditorsTax preparers/plannersBusiness consultants

Traditional roles:

Your employerCorporationsGovernments

Nonprofit organizationsIndividuals

Clients:(Big 4 and Non-Big 4)

Private AccountingPublic Accounting

Financial accountants Managerial accountants

Budget analystsInternal auditorsTax preparers

Payroll managers

AuditorsTax preparers/plannersBusiness consultants

Traditional roles:

Your employerCorporationsGovernments

Nonprofit organizationsIndividuals

Clients:(Big 4 and Non -Big 4)

Private AccountingPublic Accounting

1-72

Careers in Accounting (cont.)

73

Other career options : Governmental accounting, sole proprietorship, and education.

Information managersManagement advisors

Tax plannersAcquisition specialists

FBI agentsSports agents

Financial plannersInfo. tech. developers

Financial analystsForensic accountants

Information risk managers

Investment bankersEnvironmental accountants

Financial advisorsTax lawyers

Expanding roles:

Other career options : Governmental accounting, sole proprietorship, and education.

Information managersManagement advisors

Tax plannersAcquisition specialists

FBI agentsSports agents

Financial plannersInfo. tech. developers

Financial analystsForensic accountants

Information risk managers

Investment bankersEnvironmental accountants

Financial advisorsTax lawyers

Expanding roles:

1-73

The Audit - Monty Python's The Flying Circus

• https://www.youtube.com/watch?v=cFW7yTOmRM8

• $1.00 = 1.50 British pound currency• 1 shilling = $0.08 today

74

https://www.youtube.com/watch?v=cFW7yTOmRM8



Chapter 1 Practice Set from ConnectDescriptions Account Classifications

Amounts earned from sale of products or services

Owners’ claims to resources

Distributions to shareholders

Amounts owed to creditors

Costs of selling products or services

Resources owned

75

1. Assets2. Revenues3. Dividends4. Liabilities5. Expenses6. Stockholders’ Equity

Financial Statements

76

1. Balance Sheet2. Statement of Cash Flows3. Income Statement4. Statement of Stockholders’ Equity

Descriptions Financial Statements

Change to Owners’ claim to resources

Profitability of the company

Change in cash as a result of operating, investing, and financing activities

Resources equal creditors’ and owners’ claims to the resources

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Accounts Balances

Cash $4,370 Salaries expense 1,590 Accounts payable 2,390 Retained earnings 3,610 Utilities expense 970 Supplies 12,250 Service revenue 8,560 Common stock 4,620

Cowboy Law Firm

Income Statement

Service Revenue

Expenses:

Total expense

Net income (loss)

78

Accounts Balances

Cash $4,370 Salaries expense 1,590 Accounts payable 2,390 Retained earnings 3,610 Utilities expense 970 Supplies 12,250 Service revenue 8,560 Common stock 4,620

Cowboy Law Firm

Income Statement

Service Revenue $8,560

Expenses:

Salaries expense $1,590

Utilities expense 970

Total expense 2,560

Net income (loss) $6,000

79

Eagle Corp. operates Magnetic Resonance Imaging (MRI) clinics throughout the Northeast. At the end of the current period, the company reports the following amounts:

Assets = $41,900Liabilities = $21,100Dividends = $2,100Revenues = $11,100Expenses = $8,200. Net Income = ?

80

At the beginning of the year (January 1), Buffalo Drilling has $9,400 of common stock outstanding and retained earnings of $7,100. During the year, Buffalo reports net income of $7,400 and pays dividends of $2,340. In addition, Buffalo issues additional common stock for $6,800.

Buffalo Drilling

Statement of Stockholders’ Equity

Common StockRetained Earnings

Total Stockholders’ Equity

Beginning Balance

Issuance of Common Stock

Add: Net Income

Less: Dividends

Ending Balance

81

At the beginning of the year (January 1), Buffalo Drilling has $9,400 of common stock outstanding and retained earnings of $7,100. During the year, Buffalo reports net income of $7,400 and pays dividends of $2,340. In addition, Buffalo issues additional common stock for $6,800.

Buffalo Drilling

Statement of Stockholders’ Equity

Common StockRetained Earnings


Beginning Balance $9,400 $7,100 $16,500

Issuance of Common Stock 6,800 6,800

Add: Net Income 7,400 7,400

Less: Dividends (2,340) (2,340)

Ending Balance $16,200 $12,160 $28,360

82

Accounts and Balances at Year End Equipment $21,300 Service revenue 30,800 Accounts payable (A/P) 2,060 Cash 10,920 Salaries expense 26,300 Retained earnings ? Common stock 16,200 Land 14,150 Notes payable (N/P) 15,950

Buffalo DrillingBalance Sheet

Assets Liabilities

Total Liabilities

Stockholders’ Equity


Total Assets Total Liabilities and Stockholders’ Equity

83

Wolfpack ConstructionBalance Sheet

Assets LiabilitiesCash $10,920 Accounts Payable $2,060

Land 14,150 Notes Payable 15,950

Equipment 21,300 Total Liabilities 18,010

Stockholders’ Equity Common Stock 16,200

Retained Earnings 12,160

Total Stockholders’ Equity 28,360

Total Assets $46,370 Total Liabilities and Stockholders’ Equity $46,370

Accounts and Balances at Year End Equipment $21,300 Service revenue 30,800 Accounts payable (A/P) 2,060 Cash 10,920 Salaries expense 26,300 Retained earnings ? Common stock 16,200 Land 14,150 Notes payable (N/P) 15,950

84

During its first five years of operations, Red Raider Consulting reports net income and pays dividends as follows.

Calculate the balance of retained earnings at the end of each year of Red Raider Consulting. Note that retained earnings will always equal $0 at the beginning of year 1.

Year Net Income Dividends Retained Earnings

1 $1,100 $500

2 1,900 400

3 2,150 1,050

4 3,450 1,100

5 4,150 850

Documents

ACG 2021 Chapter 1 Power Points S15 After Lecture on 1-20-15