Bus 20

day 2

In accoutning many people belive its black and white, right and wrong


Hans Hoogervist refers to accounting as a bunch of be counters


They have there yes no, but they have a lot more, such as a gray area, a room were people have to decide and will impact the end result


Overvuew for today - Business, accounting systems, intro to four financial statements, account and rule setting, managament and auditors, ownership structure


understaninf business

The players, investors, creditors, managers


Business operations are seperates into 1. purchasing parts and labor, 2. manufacture product 3. sell procuts to customers 4. collect cash from customers and pay creditors


The accounting systems - there are financial accounting reports (external descision makers), managerial accounting reports (internal decision making).


Financial accounting - accounting informaton provided to external users is refered to as financial accounting - the two functions of financial accounting are

  • to measure business activities of a company

  • to communicate those measurements toexternal parties for decision making process

  • Particularly for debtors and creditors


Who needs Accounting Info?

  • managament

    • need to know if they can make moves

  • equity investors

    • use it for making decisions on stocks to purchase or sell

  • creditors

    • need to know if business can be trusuted with that loan or credit

  • tax authorities

    • they want to get there cut

  • Laor unii\ons

    • want pbulishes financials to know how much they make to make sure there employess ghet paid better

  • financial advisors, employess and industry grous also check and should check


Business activities

  • Financing activities

    • transactions the company has with investors and creditors

  • invesitng activities

    • transactiuons involiving purchase and sale of resources that are expects to benefit the company for several yeats

  • operating activities

    • transactions that relayes to the primary operations of the company


The accounting equation

  • Assets = Liabilities + Stockholders equity

  • (resources) = (claims to resources)

    • assets = total resources of the companu

    • liabilties = ammounts pwed to creditors

    • stockholders equity = owners clains to reosurces

  • Assets go up or goes don another thing hoes up or down


Revenues expenses and dividens

  • revunes are the amounts recohnised when the companuy sells products or provides servies to customers

  • expenses are the costs of provifing products and serbices and other busiess activities during the current period

  • net income is the differne beween revenues and expenses other common names are something and something

  • dividends cash payements to stock holders (not expenses)


financial statement

  • reports the companys revenues and expenses over time

    • revenue the ammount reohnizes when the company sells or provides products or services

    • expenses are costs of procinf ais product or service and toher activites in the period

net income is the differnce between revenue and expenses showing profit or lost


Statement of stock holders equity

suammarizes the changes in stocjholders equity over an interval of times

  • stock holders equity - common sotck + retained earning

  • (contributual capital:external source) + (earned capital: Internal source)

  • Change in equity


Balance sheet

It presents the financial psotion foc ompanys on a particular date

  • Finacial positons: Resources = claims to resources

  • Assests = liabilities + stockholders equity

    • Dates matter and will ruins equation

    • changes reflected here up to a certain pount of time

    • PNL is a period and range of dates


statement of cash flows

measures activites involving cash receipts and cash payments over an interval of time

  • Operating cash flows

    • Cash transction involving revenue and expense activities

  • Investin cash flows

    • cash transaction for th epurchase and sale of investments nd long term assets

  • Financing cash flows

    • Xash transaction with lendors and stockholders


Statement of comprehensive income

Measure of changes in euity that arise from non owner sources

  • Gains and lossses asscoiaed with invests in secertain types of debt securities

  • certain types of derriciatives

  • pensuons

  • foreign currenucy translation

  • a payable is always aliability


Profesonslal user oerceptions of finanfial statment us


notes to financial steatements

  • Integral part of the financial statements

  • Statements cannot be adequately interpreted without reading the information in the notes

  • Three basic types of notes

    • Descriptions of accounting rules applied 

    • Details about line items in the statements

    • Disclosures about items not listed in the statements 


Account set rules

The SEC has worked with the acocunting profestion to worj ouit detiled rules known as GAAP

Currently the finanaical accounting standards board FASB is recognized as the body to formulate GAAP

  • GAAP rules

    • Rules most companies must follow

    • Not exact tules - profesional judghemnt is needed

    • not rules for tex returns


Effects of GAAP

Companies incur the cost of preparing the fincnaicl statements and bear the follwoing economics cosequences

  • effects on the selling price of stock

  • effect son the amount of bonuses

    • Recived by managers and other employees

  • Lost of competitive infomation to other companies

    •    (they be snitches in there and reveal moves)


Management responsatbilities and the demand for auditiong

CEO and CFO must sign off on 10k and pe ersoanlly responisble for fraud