Accounting Tools

Sherwin M. ArcipeDiscussantStrategic Management in Engineering Enterprise

Jo B. Bitonio, DPAProfessor

A service activity whose function is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decisions.

ACCOUNTING

ACCOUNTING

In general sense, ACCOUNTING is an information system that provides reports to stakeholders about economic activities and condition of the organisation.

InformationRaw Data

ACCOUNTING INFORMATION SYSTEM

Process

ACCOUNTING INFORMATION SYSTEM

Accounting Summary

Financial Statements /

Reports

Financial Statements

Financial Position

Income Statement

Changes in Equity Cash Flow Notes

How we are going to use this accounting information as a tool?

Organisation

Financial Statements

Decision Making

Financial Statements

Unaudited Management

Audited Stakeholders

USERS

Accounting is the tool for providing financial information to various stakeholders

Why Accounting?

Management

Financial Statement is a tool to measure the Efficiency and Effectiveness of management.

Efficiency Effectiveness

Management

RevenueIf actual exceeds

budget

FAVORABLE

ExpensesIf actual exceeds

budget

UNFAVORABLE

Example

Audited Financial Statement

San Miguel Corporation and Subsidiaries

Consolidated Financial Statements December 31, 2011, 2010 and 2009

Financial Position

It shows the financial structure of the business

Current assets are directly used for and are accordingly managed to impact the operating activities

The noncurrent assets represent the long term commitment of the business to carry on its long term objectives.

Financial Position

All assets account represent investment allocated by management for a purpose to give a fair return.

Liabilities represent obligation and capital provided by third party (in general)

Equity represents permanent capital provided by owners/stockholders itself.

Financial Position

Assets Liabilities Equity

P 829,800 P 266,825P 562,9752010

P 438,491 P 240,938P 197,5532009

P 890,536 P 299,100P 591,4362011

Financial Position Analysis

Debt Ratio Total Liabilities Total Assets

2010

68%

2009

45%

2011

66%

YEARASSETS (in millions)

Current Noncurrent Total

2009 P298,113 P140,378 P438,491

2010 P279,538 P550,262 P829,800

Increase (decrease) (P18,575) P409,884 P391,309

2011 P308,179 P582,357 P890,536

Increase P28,641 P32,095 P60,736

YEARLIABILITES (in millions)

Current Noncurrent Total

2009 P94,029 P103,524 P197,553

2010 P178,224 P384,751 P562,975

Increase P84,195 P281,227 P365,422

2011 P190,830 P400,606 P591,436

Increase P12,606 P15,855 P28,461

2010 2009

Statement of Financial Position

Current Asset

Current Liabilities

Working Capital

Statement of Financial Position

Current Asset Current Liabilities Current ratio

ROI Net Income

Average Investment

YEARNET

INCOMEAVE.

INVESTMENTROI

2009 60,629 388,932 16%

2010 24,056 634,145 4%

2011 28,504 860,168 3%

RETURN ON INVESTMENT

IRR ROI

Is the breakeven rate of return

Minimum required rate of return

Useful in making decision whether to accept or reject some projects

If the IRR is higher than the cost of capital or ROI the project is acceptable

INTERNAL RATE OF RETURN

INTERNAL RATE OF RETURN

Is the breakeven rate of return

Minimum required rate of return

Useful in making decision whether to accept or reject some projects

If the IRR is higher than the cost of capital or ROI the project is acceptable

Very important tool in capital budgeting whether to accept or reject certain project.

INTERNAL RATE OF RETURN

INTERNAL RATE OF RETURN

Very important tool in capital budgeting whether to accept or reject certain project.

Statement of Cash flows

Provide information about the movement of cash with the following 3 activities;

Operating Investing Financing

References: PFRS (Philippine Financial Reporting Standard) IFRS (International Financial Reporting

Standard) Financial Reporting (Theory and Practice) 2012

Edition Volume 1; Zues Vernon B. Milan Management Advisory Services 2012 Edition

(Franklin Agamata) www.sanmiguel.com.ph

THANK YOU FOR LISTENING

by: SHERWIN ARCIPE