Using Accounting Using Accounting InformationInformation

Business Planning ActivitiesBusiness Planning Activities

Individual Point of ViewIndividual Point of View Business Point of ViewBusiness Point of View

– PlanningPlanning

– BudgetingBudgeting

Accounting Information SystemAccounting Information System

Resources and procedures in a Resources and procedures in a businessbusiness

Accounting Information SystemAccounting Information System

Resources and procedures in a Resources and procedures in a business that change economic business that change economic

datadata

Accounting Information SystemAccounting Information System

Resources and procedures in a Resources and procedures in a business that change economic business that change economic data into financial informationdata into financial information

Users of Accounting Users of Accounting InformationInformation

OwnersOwners LendersLenders Labor OrganizationsLabor Organizations CustomersCustomers Society groupsSociety groups Government Regulatory AgenciesGovernment Regulatory Agencies

Entity ConceptEntity Concept

Any organization unit for which we Any organization unit for which we gather and processgather and process

Entity ConceptEntity Concept

Any organization unit for which we Any organization unit for which we gather and process financial and gather and process financial and

economic dataeconomic data

Entity ConceptEntity Concept

Any organization unit for which we Any organization unit for which we gather and process financial and gather and process financial and economic data for the purpose of economic data for the purpose of

decision makingdecision making

Types of OwnershipTypes of Ownership

Single proprietorshipSingle proprietorship PartnershipPartnership CorporationCorporation

Financial StatementsFinancial Statements

Balance SheetBalance Sheet Income StatementIncome Statement Statement of Cash FlowsStatement of Cash Flows

Balance SheetBalance Sheet

Summarizes assets, liabilities, and Summarizes assets, liabilities, and owners’ equities as of a specific moment owners’ equities as of a specific moment in timein time– Assets - economic resources or items of Assets - economic resources or items of

value a business ownsvalue a business owns

– Liabilities - claims against the assets by Liabilities - claims against the assets by nonownersnonowners

– Owners’ equity - claims against the assets by Owners’ equity - claims against the assets by ownersowners

Basic Accounting EquationBasic Accounting Equation

Assets = Liabilities + Owners’ EquityAssets = Liabilities + Owners’ Equity

Income StatementIncome Statement

Presents the results of operations Presents the results of operations for a period of timefor a period of time– Revenues - inflow of assets from Revenues - inflow of assets from

performing services or selling goodsperforming services or selling goods

– Expenses - use of assets or Expenses - use of assets or incurrence of liabilities when earning incurrence of liabilities when earning revenuesrevenues

Statement of Cash FlowsStatement of Cash Flows

Presents the reasons why cash on Presents the reasons why cash on the balance sheet changed from the balance sheet changed from one date to anotherone date to another

Presents cash flows fromPresents cash flows from– Operating activitiesOperating activities

– Investing activitiesInvesting activities

– Financing activitiesFinancing activities

Published Annual ReportsPublished Annual Reports

Letter to stockholdersLetter to stockholders Management’s discussion and Management’s discussion and

analysisanalysis Financial statements and notesFinancial statements and notes The report of the independent The report of the independent

accountantaccountant

Analyzing InformationAnalyzing Information

Common-size statementCommon-size statement– Express each item as a percent of the Express each item as a percent of the

total for that statementtotal for that statement

»Balance sheet - total assetsBalance sheet - total assets

»Income statement - total revenuesIncome statement - total revenues

Balance Sheet AnalysisBalance Sheet Analysis

Are total assets higher or lower?Are total assets higher or lower? What is percent change in total What is percent change in total

assets?assets? Is the percent of total liabilities to Is the percent of total liabilities to

total liabilities plus owner’s equity total liabilities plus owner’s equity increasing or decreasing?increasing or decreasing?

Income Statement AnalysisIncome Statement Analysis

Are revenues higher or lower?Are revenues higher or lower? What is the precentage change in What is the precentage change in

total revenues?total revenues? Is the percentage of total expenses Is the percentage of total expenses

to total revenues increasing or to total revenues increasing or decreasing?decreasing?

Integrative AnalysisIntegrative Analysis

Is the business operating efficiently by Is the business operating efficiently by using the least amount of asset using the least amount of asset investment to generate a given level of investment to generate a given level of total revenues?total revenues?

Calculate Total Asset TurnoverCalculate Total Asset Turnover– Total revenuesTotal revenues

– divided bydivided by

– Average total assetsAverage total assets