acct ppt1

Introduction to Accounting

• Overview of the Topic
  • Today’s Agenda includes:
  • First Top Hat day
  • Definition of Financial Accounting
  • Discussion on Investor needs and accounting information
  • Introduction to the Basic accounting model and financial statements
  • Components of Financial statements
  • Overview of Target’s 2023 annual report

What is Accounting?

• Definition
  • Accounting is referred to as the "language of business."
  • It communicates economic events and provides valuable information regarding a company’s performance and financial position, which is essential for decision-making.
  • Application
  • Accounting is used across various aspects of business operations.

Users of Accounting Information

• Distinctions between Types of Accounting:

  • Financial Accounting
  • Managerial Accounting
  • Tax Accounting

• Categories of Users:

  • External Users: Government and other external stakeholders.
  • Internal Users: Management and employees within the organization.

Oversight of Financial Reporting

• Key Regulatory Organizations:
  • Securities and Exchange Commission (SEC)
  • Financial Accounting Standards Board (FASB)
  • International Accounting Standards Board (IASB)
  • Public Company Accounting Oversight Board (PCAOB)

Annual Report

• Purpose and Components:
  • Prepared primarily for shareholders.
  • Typical annual report includes:
  • Letter to shareholders
  • Charts, graphs, and pictures
  • Comprehensive financial statements and accompanying footnotes
  • Auditor's report
  • Many companies provide a detailed 10-K filing alongside the glossy front end instead of standalone financial statements.
  • Accessing the Report:
  • Found on the company’s website under "Investor Relations" or “2023 Annual Report.”

10-K Filing

• Definition
  • Required SEC filing that offers intricate information extending beyond the annual report.
• How to Access:
  • Available on SEC website (www.sec.gov) by searching "Filings" → "Company Filings Search."
  • Must use the exact company name, e.g., "Target."

Major Financial Statements

• The Core Financial Statements include:
  • Balance Sheet: - Represents financial condition on a specific date.
  • Income Statement: - Assesses performance over a designated period.
  • Statement of Cash Flows: - Explains changes in cash throughout the year.

Types of Company Activities

• Companies engage in three primary activities:
  1. Financing - Acquire necessary funds.
  2. Investing - Establish the business framework.
  3. Operating - Generate revenue through sales.

Financial Statements Overview

• Balance Sheet: - Represents a company's financial position at a specific point in time. It consists of:

  • Assets, Liabilities, and Shareholders’ Equity represented by equation: $A = L + SE$.

• Income Statement: - Illustrates a company’s revenues and expenses over a particular period, leading to Net Income (NI): $Revenue - Expenses = NI$.

• Statement of Cash Flows: - Provides insights on cash inflows and outflows from Operations, Investing, and Financing activities.

Target's 2023 Annual Report Analysis

• Using guiding questions to understand Target's annual report segments.
  • Key sections include pages 0-36, 38-40, 41-45, and 46-67.

Basic Accounting Model or Equation

• Fundamental Equation to Remember:
  • $Assets = Liabilities + Shareholders’ Equity (A = L + SE)$
  • Assets are defined as a present right of an entity to an economic benefit.

Balance Sheet - Components

• Liabilities:
  • Defined as a present obligation of an entity to transfer economic benefits.
• Shareholders’ Equity:
  • Represents the owners’ claim on the business’s assets. It consists of:
  • Contributed Capital
  • Retained Earnings
    • Derived from: $Net Income - Dividends$

Income Statement Definition

• Revenues:
  • Defined as increases in net assets resulting from operating activities.
• **Expenses