AEM1200-02.25 - AEM1200, Introduction to Business...

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Unformatted text preview: AEM1200, Introduction to Business Management. AEM1200, Friday 2/25 Accounting Accounting and the accounting profession Financial statements: the balance sheet Financial statements: the income statement 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 Financial Statements Balance sheet Financial statement that reports a firm’s financial condition at a specific time and is composed of three major accounts: assets, liabilities, and owners’ equity; The financial statement that shows a firm’s profit after costs, expenses, and taxes; it summarizes all of the resources that have come into the firm (revenue), all the resources that have left the firm, and the resulting net income; Financial statement that reports cash receipts and disbursements related to a firm’s three major activities: operations, investments, and financing. Income statement Statement of cash flows 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 Balance Sheet - Definitions Current Assets Items that can be converted to cash within one year; Items such as land, building and equipment that are relatively permanent; Payments that are due in one year or less; Payments not dues for one year or longer; The value or what stockholders own in a firm Fixed Assets Current liabilities Long-term liabilities Owners’ equity (or stockholders’ equity) 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 - Income Statement - Definitions Revenue Value of what is received from goods sold, services rendered, and other financial sources; Cost of merchandise sold or cost of raw materials or part used for producing items for resale Directly dependent on volume of sales (not revenue) Cost incurred in operating a business Not directly dependent on volume of sales Cost of goods sold (CGS) Operating expenses 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. 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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This note was uploaded on 04/19/2011 for the course AEM 1200 taught by Professor Perez,p.d. during the Spring '06 term at Cornell University (Engineering School).

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