The McGraw-Hill Companies, Inc., 1999

Robert N. West © VEMBA Accounting© The McGraw-Hill Companies, Inc., 1999

Anthony, Hawkins, and Merchant

Tenth Edition

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ACCOUNTING: TEXT AND CASES

Robert N. West © VEMBA Accounting

This electronic presentation

prepared by Douglas Cloud, Professor of

Accounting, Pepperdine University


Task Force Clip Art includedin this electronic presentationis used with the permission of

New Vision Technology ofNepean Ontario, Canada


The Nature and Purpose of Accounting

© The McGraw-Hill Companies, Inc., 1999

1Part One: Financial Accounting


….

PlanningPlanning is the is the process of process of

deciding what deciding what actions should be actions should be

taken in the taken in the future.future.

PlanningPlanning is the is the process of process of

deciding what deciding what actions should be actions should be

taken in the taken in the future.future.

Planning Slide 1-1


recognizing that a problem or an opportunity exists

specifying and ranking the criteria to be used to determine the best solution

identifying alternative ways of addressing the problem or opportunity

analyzing the consequences of each alternative comparing these consequences to each other and

the criteria so as to decide which is best

recognizing that a problem or an opportunity exists

specifying and ranking the criteria to be used to determine the best solution

identifying alternative ways of addressing the problem or opportunity

analyzing the consequences of each alternative comparing these consequences to each other and

the criteria so as to decide which is best

Planning Slide 1-2

Planning involves making decisions. Decisions are arrived at by--


InformationInformationInformationInformation

The Nature and Purpose of Accounting

Nonquantitative Nonquantitative informationinformation

Nonquantitative Nonquantitative informationinformation

Quantitative Quantitative informationinformation

Quantitative Quantitative informationinformation

Accounting Accounting informationinformation

Accounting Accounting informationinformation

Nonaccounting Nonaccounting informationinformation

Nonaccounting Nonaccounting informationinformation

Consists of

Operating Operating informationinformation

Operating Operating informationinformation

Financial Financial accountingaccounting

Financial Financial accountingaccounting

Management Management accountingaccounting

Management Management accountingaccounting

Tax Tax accountingaccounting

Tax Tax accountingaccounting

Consists of

Slide 1-3


Relationship of Management Functions Slide 1-4

Planning



Planning Implementation



Planning Implementation Control



Planning Implementation Control

Appropriate action

Feedback

Plan revision


The Balance Sheet Slide 1-8

HOLDEN COMPANYBalance Sheet

As of December 31, 1999(000 omitted)

Assets Liabilities and Owners’ EquityCurrent assets: Current liabilities:Cash $ 1,449 Accounts payable $ 5,602Marketable securities 246 Bank loan payable 1,000Accounts receivable, net 9,944 Accrued liabilities 876Inventories 10,623 Estimated tax liability 1,541Prepaid expenses 389 Current portion of long- term debt 500 Total current assets $22,651 Total current liabilities $ 9,519

Current SectionCurrent SectionCurrent SectionCurrent Section


The Balance Sheet Slide 1-9

Assets Liabilities and Owners’ EquityNoncurrent assets: Noncurrent liabilities:Property, plant, equipment Long-term debt, less at cost $26,946 current portion $ 2,000 Less: Accumulated Deferred income taxes 824 Depreciation 13,534 Total liabilities 12,343Property, plant, equipment net 13,412 Owners’ equity:Investments 1,110 Common stock 1,000Patents and trademarks 403 Additional paid-in capital 11,256Goodwill 663 Total paid-in capital 12,256

Retained earnings 13,640Total owners’ equity 25,896Total liabilities and owners’

Total assets $38,239 and owners’ equity $38,239

Noncurrent SectionNoncurrent SectionNoncurrent SectionNoncurrent Section


Assets are economic resources which are owned by a business

and are expected to benefit future operations.

Assets are economic resources which are owned by a business

and are expected to benefit future operations.

The Accounting Equation Slide 1-10

Assets = Liabilities + Owners’ Equity


The Accounting Equation

Liabilities are obligations of the entity to outside

parties who have furnished resources

Liabilities are obligations of the entity to outside

parties who have furnished resources

Slide 1-11

Assets = Liabilities + Owners’ Equity


Sales revenue $75,478Less cost of sales 52,227

Gross margin 23,251Less operating expenses 10,785

Income before taxes 12,466Provision for income taxes 6,344

Net income $ 6,122

Income Statement

HOLDEN COMPANYIncome StatementFor the Year 2000

(000 omitted)

Slide 1-12


Useful to present and potential investors and creditors in Useful to present and potential investors and creditors in making rational investment and credit decisionsmaking rational investment and credit decisions

Comprehensible to those who have a reasonable Comprehensible to those who have a reasonable understanding of business and economic activities and are understanding of business and economic activities and are willing to study the information with reasonable diligencewilling to study the information with reasonable diligence

About the economic resources of an enterprise, the claims About the economic resources of an enterprise, the claims to those resources, and the effects of transactions and to those resources, and the effects of transactions and events that change resources and claims to those resourcesevents that change resources and claims to those resources

About an enterprise’s financial performance during a About an enterprise’s financial performance during a periodperiod

Useful to present and potential investors and creditors in Useful to present and potential investors and creditors in making rational investment and credit decisionsmaking rational investment and credit decisions

Comprehensible to those who have a reasonable Comprehensible to those who have a reasonable understanding of business and economic activities and are understanding of business and economic activities and are willing to study the information with reasonable diligencewilling to study the information with reasonable diligence

About the economic resources of an enterprise, the claims About the economic resources of an enterprise, the claims to those resources, and the effects of transactions and to those resources, and the effects of transactions and events that change resources and claims to those resourcesevents that change resources and claims to those resources

About an enterprise’s financial performance during a About an enterprise’s financial performance during a periodperiod

Financial Statement Objectives

Financial reporting should provide information:

Slide 1-13


A “Package” of Accounting Reports Slide 1-14

Condensed Balance SheetAs of December 31, 1999

Assets

Current assets $22,651Building and equip. 13,412Other assets 2,176Total assets $38,239

Liabilities and Owners’ EquityLiabilities $12,343 Owners’ EquityPaid-in capital 12,256Retained earnings 13,640Total liabilities and owners’ equity $38,239



Income StatementFor the Year 2000


Gross margin 23,351Less operating exp. 10,785

Income before taxes 12,466Provision for taxes 6,344

Net income, 1999 $ 6,122


Assets









Net income, 1999 $ 6,122

Statement of Retained Earnings

Retained earnings $13,640Add net income 6,122

19,762Less dividends 4,390Retained earnings $15,372


Assets









Net income, 1999 $ 6,122





Assets








Current assets $24,062Building and equip. 14,981Other assets 3,207Total assets $42,250 Liabilities and Owners’ EquityLiabilities $14,622 Owners’ EquityPaid-in capital 12,256Retained earnings 15,372Total liabilities and owners’ equity $42,250


Assets






Current assets $24,062Building and equip. 14,981Other assets 3,207Total assets $42,250 Liabilities and Owners’ EquityLiabilities $14,622 Owners’ EquityPaid-in capital 12,256Retained earnings 15,372Total liabilities and owners’ equity $42,250


Assets


Operating information, which has to do with the details of operations

Management accounting information, which is used internally for planning, implementation, and control

Financial accounting information, which is used both by management and external parties

Tax accounting information, which is used to file tax returns with taxing authorities

Summary Slide 1-20

An organization has four types of accounting information:


Chapter 1

The End

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The McGraw-Hill Companies, Inc., 1999