AEM1200-0924ToPost - AEM1200 Introduction to Business...

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Unformatted text preview: AEM1200, Introduction to Business Management. AEM1200, Friday 9/24 Accounting Accounting and accounting standards Financial statements Managerial accounting Accounting The recording, classifying, summarizing, and interpreting of financial events and transactions to provide management and other interested parties the information they need to make good decisions Areas of Accounting Areas Financial Accounting - Tax Accounting Annual Report Private Accountant Public Accountant C.P.A. assists with tax assists collection collection provides a means to provides analyze business analyze Managerial Managerial Accounting Accounting - Inside Organization - C.M.A. - Auditing Financial reports Financial pinpoint problems and opportunities and Accounting Equation Accounting Assets = Liabilities + Owner’s Equity Owned = Owed + Owner’s Claims The “Typical” Balance Sheet The Assets Liabilities Current assets Cash Accounts Receivable Notes Receivable Inventory Current liabilities Accounts Payable Notes Payable Accrued Taxes Accrued Salaries Fixed assets Land Buildings Long-term liabilities Notes payable Bonds payable Depreciation Depreciation Capital equipment Owner’s Equity Stock shares Retained earnings The “Typical” Income Statement The Net Sales Cost of Goods Sold Gross Profit Operating Expenses Net Profit Before Interest and Taxes Interest Taxes Net Profit After Taxes - Accounting Procedures - Examples Accounting Inventories FIFO: First In, First Out LIFO: Last In, First Out Systematic write-off of the cost of a tangible asset Systematic over its estimated useful life over Straight-line Accelerated Depreciation Accounting is not an exact science Accounting not an Accounting Standards Accounting GAAP: Generally Accepted Accounting Principles GAAP: Generally FASB: Financial Accounting Standards Board SEC: Securities and Exchange Commission CPA: Certified Public Accountant IAS: International Accounting Standards IAS: International IASB: International Accounting Standards Board (London) “Pro-forma” accounting A statement of the company's financial activities while excluding statement unusual and nonrecurring expenses when stating how much money the company actually made. company restructuring costs, decline in the value of the company's investments, adjusting the current balance sheet to fix faulty accounting practices in previous years. Objectives of Financial Statement Analysis Objectives Find out how liquid is an enterprise Find liquid Find out how profitable is an enterprise Find profitable Find out how efficient is an enterprise Find efficient Ratio Analysis Ratio Solvency ratios Current ratio: Current assets / Current liabilities Current Current Acid ratio: (Current assets – inventory) / Current liabilities (Current Acid Debt to equity (also leverage): Long term debt / equity Long Debt Return to equity Return to sales Earnings per share Inventory turnover : CGS / Inventory CGS Inventory Accounts receivable turnover : Accounts Accounts receivable / Daily sales Accounts Profitability ratios Efficiency ratios Accounts payable turnover: Accounts payable / Daily CGS How to Read a Corporate Annual Report How r Read management’s discussion of changes in operations. Try to identify strengths or weaknesses. weaknesses. Review the firm’s consolidated balance sheet. (Its assets, liabilities, and owner’s equity.) (Its Analyze the Income Statement. Look beyond the year (Sales drops can spell trouble). the Review the statement of changes in cash flows. Review Review auditor’s opinion. Review r r r r Comparing Financial and Managerial Accounting Financial accounting is Primarily intended to provide information to external stakeholders such as stockholders, creditors, and government regulators; Prepares a standard set of financial statements; Presents financial statements on a predetermined (usually quarterly or annual) schedule; Governed by a set of generally accepted accounting principles. Managerial accounting is Primarily intended to provide information to internal stakeholders such as managers of specific divisions or departments; Prepares customized reports designed to deal with specific problems or issues; Creates reports upon request by management rather than according to a predetermined schedule; Uses procedures developed internally and is not required to follow GAAP Tools of Managerial Accounting Product Costing Activity based costing; Incremental analysis An evaluation and comparison of the financial impact different alternatives would have in a particular decision making situation; Budgeting Take-Aways Take-Aways “Financial information is the heartbeat of Financial competitive business. Accounting keeps the heartbeat stable” heartbeat Reading financial statements and annual reports Reading is a required skill in 21st century U.S. is Accounting is not an exact science. Try to Accounting understand why. understand ...
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