Notes (Chapter 1, 2) .pptx - BASIC THE ROLE OF ACCOUNTING...

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ACC 310F Foundations of Accounting THE ROLE OF ACCOUNTING IN BUSINESS Chapter 1 (Obj. 1-5) BASIC ACCOUNTING SYSTEMS: CASH BASIS Chapter 2 (Obj. 1- 5)
Accounting is an information system that provides reports to stakeholders about the economic activities and condition of a business to help make informed decisions.
2017 Revenues $22.8B $4.5B Expenses 17.7B 3.3B Net income 5.1B 1.2B Which do you think is better? McDonald’s Burger King Larger Company. Greater Net Income
How Do Businesses Make Money? Generating high revenues while maintaining low costs = high profits Must gain an advantage over their competitors A low-cost strategy Company designs and produces products or service at a lower cost than its competitors A premium-price strategy Company tries to design and produce products or services that serve unique market needs, allowing it to charge premium prices
How Do Businesses Make Money (Class) Example: Apple, Ford, Campbell Soup, Restaurant Manufacturer Buy products, compile it together, package it, and sell it Example: Target, HEB Merchandiser Sell Products Example: Netflix, Law Firm Service Provider Cost per month, must be higher than costs
Financial Statements Income Statement A summary of the revenue and expenses for a specific period of time, such as a month or a year Reports change in financial condition Balance Sheet A list of the assets, liabilities, and stockholder’s equity as of a specific date, usually at the close of the last day of the month or a year Reports financial condition Assets= Liabilities + Stockholders’ Equity Statement of Cash Flows A summary of the cash receipts and cash payments for a specific period of time, such as a month or year Reports change in financial condition Statement of Equity A summary of the changes in the stockholder’s equity in the corporation fir a specific period of time Reports change in financial condition Include common stock + Retained Earnings (portion of corporation's net income retained in the business)
Financial Statements (Class) Income Statement Revenues, Expenses, Net Income Measure Operational Performance (i.e. profits) Did the company make a profit Balance Sheet What is owned, owed, and net worth of the company Statement of Cash Flows (Tracks Money) Cash into and out of company, by type of activity Statement of Equity Changes in net worth of company
Business Activities Financing(reported 3 rd ) Cash receipts from issuing debt or stock, are reported in this section as cash receipts. Likewise, cash payments of debt and dividends are reported in this section. Investing (reported 2 nd ) Investing activities directly impact the operations of the company Purchases of property, plant, and equipment are reported here Expanding companies- negative net cash flows from investing activities Downsizing companies- positive net cash flows from investing activities Operating (reported 1 st ) Primary focus of stakeholders Short term creditors use cash flows from activities to assess whether the company’s

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