the role of accounting

8/6/2019 The Role of Accounting

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The Role ofThe Role ofAccountingAccountingThe Role ofThe Role ofAccountingAccounting


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Businesses pBusinesses providerovide goods andgoods andservicesservices

Businesses maximize profitsBusinesses maximize profits

oo Must gain advantage over competitorsMust gain advantage over competitorsto maximize profitsto maximize profits

How do BusinessesHow do Businesses

Make Money?Make Money?


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- =

REVENUES COSTS PROFITS

Profits

Profits


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StakeholdersStakeholders

Who are the stakeholders and how areWho are the stakeholders and how are

they related to the corporation?they related to the corporation?A business stakeholder is a person orA business stakeholder is a person or

entity that has an interest in theentity that has an interest in the

economic performance and welleconomic performance and well--being ofbeing ofa business.a business.


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StakeholdersStakeholders

Employees/ManagersEmployees/Managers

CustomersCustomers SuppliersSuppliers

Bank, ownersBank, owners

GovernmentGovernment


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Stakeholder

sStakeholder

sStakeholderStakeholder InterestInterest ExamplesExamples

Capital marketsCapital markets

stakeholderstakeholder

Provides financingProvides financing Banks, owners,Banks, owners,

stockholdersstockholders

Product/serviceProduct/service

marketmarket

stakeholdersstakeholders

Buyers ofBuyers of

products, servicesproducts, services

and vendorsand vendors

Customers,Customers,

supplierssuppliers

overnmentovernmentstakeholdersstakeholders

Collects taxes andCollects taxes andfeesfees

ederal, state, cityederal, state, citygovernmentgovernment

InternalInternal

stakeholdersstakeholders

People employedPeople employed

by businessby business

Employees,Employees,

managersmanagers


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Business ActivitiesBusiness Activities


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Financing ActivitiesFinancing Activities Borrowing creates aBorrowing creates a

liabilityliability

Issuing ownershipIssuing ownershipshares creates capitalshares creates capitalstockstock


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Obtaining assets to operateObtaining assets to operatebusinessbusiness

Investing ActivitiesInvesting Activities


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Oper

ating ActivitiesOper

ating Activities

Obtaining assets to operateObtaining assets to operatebusinessbusiness


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Define accounting &Define accounting &describe its role indescribe its role in

business.business.


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ROLEOFACCOUNTING

ROLEOFACCOUNTING

LO 3

Accounting is an informationAccounting is an information

system that provides reportssystem that provides reportsto stakeholders about theto stakeholders about theeconomic activities andeconomic activities and

condition of a business.condition of a business.


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LO 3


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LEARNINGOBJECTIVE

4Describe & illustratethe basic financial

statements & how they

interrelate.


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C

an you name the fourfinancial statementsand their objectives?

LO 4


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Income statement

Retained earnings

Balance sheet

Statement cash flows

4 FINANCIAL

STATEMENTS

LO 4


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FINANCIALFINANCIAL

STATEMENTSSTATEMENTS

Financial StatementFinancial Statement Reporting ObjectiveReporting Objective

Income statementIncome statement Change in financial conditionChange in financial condition

Retained earningsRetained earnings Change in financial conditionChange in financial condition

Balance sheetBalance sheet Financial conditionFinancial condition

Cash flowsCash flows Change in financial conditionChange in financial condition

LO 4


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INCOMESTATEMENTINCOMESTATEMENT

(Slide 1 of 3)(Slide 1 of 3)

Reports change in financialReports change in financial

condition due to operationscondition due to operations

Revenues and expenses for aRevenues and expenses for aperiod of timeperiod of time -- Month, quarter,Month, quarter,

yearyear

LO 4


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INCOMESTATEMENTINCOMESTATEMENT


The income statement uses theThe income statement uses the

Matching ConceptMatching Concept

Expenses for period areExpenses for period are MatchedMatched

against Revenues for same periodagainst Revenues for same period

RevenueRevenue Expenses = Net IncomeExpenses = Net Income

LO 4


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LO 4

EXHIBITEXHIBIT 44


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RETAINEDEARNINGSRETAINEDEARNINGS


Reports changes in financial conditionReports changes in financial conditiondue to changes in retained earningsdue to changes in retained earnings

during a period.during a period.

Retained earnings is the portion of netRetained earnings is the portion of net

income retained by the business.income retained by the business.

LO 4


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LO 4

EXHIBITEXHIBIT 55


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BALANCESHEETBALANCESHEET


Reports financial condition as of a point inReports financial condition as of a point intimetime

Accounting equationAccounting equation

Assets = Liabilities + Stockholders EquityAssets = Liabilities + Stockholders Equity

LO 4


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LO 4

EXHIBITEXHIBIT 66


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STATEMENTOFCASHFLOWSSTATEMENTOFCASHFLOWS


Reports change in financial conditionReports change in financial condition

from changes in cash during afrom changes in cash during aperiod that occur due toperiod that occur due to

a)a) Cash flows from operating activitiesCash flows from operating activities

b)b) Cash flows from investing activitiesCash flows from investing activities

c)c) Cash flows from financing activitiesCash flows from financing activities

LO 4


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LO 4

EXHIBITEXHIBIT 77


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Statement of cash flows linked toStatement of cash flows linked to

cash on balance sheetcash on balance sheet

Net income from income statementNet income from income statement

linked to retained earnings statementlinked to retained earnings statement

Retained earnings linked to balanceRetained earnings linked to balance

sheet in stockholders equitysheet in stockholders equity

INTEGRATEDFINANCIALINTEGRATEDFINANCIAL

STATEMENTSSTATEMENTS

LO 4


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Hershey Foods Corp

Balance Sheet 12/31/2004

Assets (Cash 55) = Liabilities + Equity

(RE 3,469)

$3,797 = $2,708 + $1,089CASH FLOWS

Operations $797

Investing

Financing

Decrease

Cash 1/1 115

Cash 12/31 55

INCOME

STATEMENT

Revenues $4, 429

Expenses 3,838

Net Income $ 591

RETAINED

EARNINGS

1/1 $3,469

+NI 591

-Div 386

12/31 $3,674

LO 4

EXHIBITEXHIBIT 88


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LEARNINGOBJECTIVE

5Describe 8accounting concepts

underlying financial

reporting.


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ACCOUNTINGACCOUNTING

CONCEPTSCONCEPTS

ACCOUNTINGACCOUNTING

CONCEPTSCONCEPTSGenerally accepted accountingGenerally accepted accounting

principles (principles (GAAPGAAP))

LO5

Business Entity Concept

Cost Concept

Going Concern

Matching Concept

ObjectivityConcept

Unit of Measure Concept

Adequate DisclosureConcept

Accounting Period Concept


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Applies accounting to a specificApplies accounting to a specificentityentity

HersheyHershey

For profit corporationFor profit corporation

Separate from accounting forSeparate from accounting for

other entitiesother entities

LO5

BUSINESSENTITYBUSINESSENTITY

CONCEPTCONCEPT

BUSINESSENTITYBUSINESSENTITY

CONCEPTCONCEPT


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COSTCONCEPTCOSTCONCEPTCOSTCONCEPTCOSTCONCEPT

Amount initially entered intoAmount initially entered into

accounting records foraccounting records forpurchasespurchases

Cost of Hersheys landCost of Hersheys land

LO5


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GOINGCONCERNGOINGCONCERN

CONCEPTCONCEPT

GOINGCONCERNGOINGCONCERN

CONCEPTCONCEPT

Business expects to continue inBusiness expects to continue inoperations for an indefiniteoperations for an indefinite

period of timeperiod of time

Hershey plans to build on landHershey plans to build on landin futurein future

LO5


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OBJECTIVITYCONCEPTOBJECTIVITYCONCEPTOBJECTIVITYCONCEPTOBJECTIVITYCONCEPT

Entries into accounting recordsEntries into accounting recordsbased on objective evidencebased on objective evidence

Hersheys bank statementsHersheys bank statements

support entries in cashsupport entries in cashaccountaccount

LO5


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UNITOFMEASUREUNITOFMEASURE

CONCEPTCONCEPT

UNITOFMEASUREUNITOFMEASURE

CONCEPTCONCEPT

All economic data recorded inAll economic data recorded in

dollarsdollars

Hershey presents financialHershey presents financialstatements in dollarsstatements in dollars

LO5


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ADEQUATEDISCLOSUREADEQUATEDISCLOSURE

CONCEPTCONCEPT

ADEQUATEDISCLOSUREADEQUATEDISCLOSURE

CONCEPTCONCEPT

Financial statements include allFinancial statements include allrelevant data needed torelevant data needed to

understand financial conditionunderstand financial condition

and performanceand performanceHershey provides otherHershey provides other

disclosures in footnotesdisclosures in footnotes

LO5


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ACCOUNTINGPERIODACCOUNTINGPERIOD

CONCEPTCONCEPT

ACCOUNTINGPERIODACCOUNTINGPERIOD

CONCEPTCONCEPT

Economic data collected for aEconomic data collected for a

period of time in preparation ofperiod of time in preparation of

Hersheys income statementHersheys income statement

Hersheys retained earningsHersheys retained earningsHersheys cash flow statementHersheys cash flow statement

LO5


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RESPONSIBLERESPONSIBLE

REPORTINGREPORTING

Reliability of financial reportingReliability of financial reportingimportantimportant

To economyTo economy

For ability of business to raiseFor ability of business to raisemoney from investorsmoney from investors

StockholdersStockholders

LO5


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THE END


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Questions?Questions?

the role of accounting

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