ACCT business slides (Final Exam)

ACCT Tagline

accounting is the language of business

what is accounting?

process of collecting, recording, classifying, summarizing, reporting and analyzing financial activities. It results in reports that describe the financial condition of an organization

What is the purpose of EPS on a financial statement?

standardized ability to look at companies’ financial position at the same time and how they equal (standardized) in any way

how do you calculate earnings management?

net income [revenue - expenses] / shares outstanding

What does earnings management calculate

analysts predict earnings per share (EPS) [Q1/Q2/Q3/Q4]

predictions reflected in stock price

What happens if a company doesn’t meet or beat the expectation for their EPS

their stock price will fall

What happens if a company meets or beats the expectation for their EPS

the stock price will rise

Why is having reliable accounting information important? (ON TEST)

-investors rely on it to make decisions; can impact people’s financial futures if the data is wrong

-managers make decisions with it

who prepares financial information

-financial accounts vs bookkeepers

who checks financial information

-company leaders

-external auditors

-internal auditors

-securities & exchange commission

how can we best report desired results VS how can we best report economic reality (the actual results)

You’ll fall into one of these three buckets:

1) you’re gonna be the accountant demonstrating the financial statement of the company

2) you’re an accountant but you’re auditing [looking in from the outside]

3) you’re affected by the financials of a business

What was the Krispy Kreme accounting scandal?

when the company went public, they manipulated the EPS by setting target prices with analysts and beating them by a cent in the earnings report

• led to increased interest in the stock and key reason why stock ballooned early

• executives received $$ bonus for a successful attempt

greed

some accounting scandals have occurred because executive compensation is tied to performance

pressure

there is often a pressure for companies to ‘meet earnings’

what is a financial statement

shows you where a company’s money came from, where it went and where it is now

what are the three different types of financial statements?

-balance sheet

-income statements

-cash flow statement

balance sheet

[OVER A POINT IN TIME] summarizes a firm’s financial position at a specific point in time. It reports the resources of a company (assets), the company’s obligations (liabilities) and the difference between what is owned (assets) and what is owed (liabilities), or owner’s equity

Income Statement (Profit and Loss [P&L])

(OVER A PERIOD IN TIME) summarizes the firm’s revenues and expenses and shows its total profit or loss over a period of time

what is shown in a balance sheet

-assets

-liabilities

-stockholder’s equity (SHE)

-assets = liabilities + SHE

examples of assets in a personal balance sheet

-liquid assets (checking/savings/cash)

-large assets (house, cars, furniture)

-investments (roth IRA, retirement, college accounts)

examples of liabilities in a personal balance sheet

-remaining mortage

-monthly bills

-taxes due

-small credit car balance

what is shown in an income statement

-revenue

-cost of goods sold

-gross profit

-other expenses

-net income (profit)