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The Role Of Accounting In Business

Discover the essentials of accounting, from financial statements to cash flow analysis. Explore career opportunities in accounting and learn about the functions of financial statements. Dive into the world of management and financial accounting.

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The Role Of Accounting In Business

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  1. The Role OfAccounting In Business

  2. Chapter Objectives • Define accounting and identify uses of its information • Understand the three basic financial statements • Understand cash-basis vs. accrual • Evaluate a company’s performance • Discuss career opportunities in accounting and its future

  3. Stakeholders • “…parties who are interested in the activities of the business because they’re affect by them…

  4. Accounting • “…measuring and summarizing business activities, interpreting financial statements, and communicating the results to management and other decision makers.”

  5. Fields of Accounting • Management Accounting – provides information to decision makers insidethe organization to help operate the business • Financial Accounting – furnishes information to individuals and groups inside/outside the organization to assess the firm’s financial performance

  6. Management Accounting • “…provides… reports… tailored to the needs of individual managers… (in a) relevant, accurate, timely… format… (to aid) in making decisions.”

  7. Financial Accounting • Statements • Income Statement • Balance Sheet • Statement of Cash Flows • Generally Accepted Accounting Principles

  8. Users OfAccounting Information Owners & Managers Government Agencies Investors & Creditors Other Users

  9. The Functionsof Financial Statements • Income Statement – Shows sales/expenses and if made a profit • Balance Sheet – Indicates assets/liabilities and amount invested in company • Statement of Cash Flows – Shows how much cash in and out of firm

  10. Income Statement • Revenues and Expenses • Cost of Goods Sold • Operating Expenses • Gross Profit • Net Income

  11. Stress-BusterIncome Statement

  12. ProposedIncome Statement #1

  13. ProposedIncome Statement #2

  14. Breakeven Analysis • Fixed Costs • Variable Costs • Contribution Margin Per Unit • Breakeven Point In Units • “…total sales revenue must exactly equal all your expenses…”

  15. ProposedIncome Statement #3

  16. Balance Sheet • Assets – Business resources • Liabilities – Debts owed to outside entities • Owner’s Equity – Amount invested • “…tells what you have (and where it came from) at a specific point in time…”

  17. Accounting Equation • Assets = Liabilities + Owner’s Equity

  18. Stress-BusterBalance Sheet

  19. Stress-BusterBalance Sheet #2

  20. Accrual Accounting • “…accountant records a transaction when it occurs…” • Account Receivable • Account Payable • Inventory

  21. Classified Balance Sheet • Assets • Current- Convert to cash within a year • Long-Term- Intend to hold for more than a year • Liabilities • Current- Pay off within a year • Long-Term- Not due for more than a year

  22. College ShopBalance Sheet

  23. College ShopIncome Statement

  24. End-of-YearBalance Sheet

  25. Statement Of Cash Flows • “…tells… where cash came from and where it went.” • Activities: • Operating • Investing • Financing

  26. Cash Flow Statement

  27. ComparativeIncome Statement

  28. Income Statement WithVertical Percentage Analysis

  29. Ratio Analysis • Profit Margin • Management Efficiency • Management Effectiveness • Financial Condition

  30. Gross Profit Margin • Gross Profit • Margin • Gross Profit • Sales • =

  31. Net Profit Margin • Net Profit • Margin • Net Profit • Sales • =

  32. Comparative Balance Sheet

  33. Inventory Turnover • Inventory • Turnover • Sales • Inventory • =

  34. Return On Assets • Return On • Assets • Net Profit • Total Assets • =

  35. Current Ratio • Current • Ratio • Current Assets • Current Liabilities • =

  36. Debt-To-Equity • Total Debt • to Equity • Total Liabilities • Total Equity • =

  37. Interest Coverage Interest Coverage Operating Income Interest Expense =

  38. Basic Things to Succeed • Good profit on each item • Move inventory • Good return on investment • Watch cash

  39. Challenges ToAccounting Profession • Arthur Andersen • Enron • Sarbanes-Oxley Act • Public Accounting Oversight Board

  40. Careers In Accounting • “People Profession” • Skills • Analytical • Interpersonal • Communication • Job Prospects • Certified Public Accountants- Audits • Private Accountants- Controller • Certified Management Accountants

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