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Unformatted text preview: Tools for Business Decision Making, 4th Edition
Kimmel Weygandt Kieso Financial Accounting: CHAPTER 1
AN INTRODUCTION TO FINANCIAL STATMENTS Prepared by Ellen L. Sweatt Georgia Perimeter College
Edited for classroom use 1/2007 1 11 2 Users of Financial Information Internal Managers who plan organize and run a business Marketing managers Production supervisors Finance unions _______________________________ 2 Users of Financial Information External ______investors__ _____creditors___ ___________others regulatory agencies Tax authorities Customers Labor unions Economic planners Us securities and exchange commission Pcaob IRS Afl-cio 3 11 3 Types of Business Activity Financing Investing Operating
4 Financing Activities Borrowing creates __liabilities__ Bank loans Debt securities Goods on credit or payables Selling stock creates ____stockholders' equity_____ 5 Investing Activities Obtaining resources or assets to operate the business Land, buildings, vehicles, computers, furniture, equipment Assets are resources that can be used for more than a year
6 Operating Activities Primary activity of business
Selling goods Providing services manufacturing Cogs Advertising paying employees Paying utilities P10 Items in blue are definitions P28-29 is chapter glossary 7 Operating Activities Revenues are are the increases in assets resulting from the sale of a product or service Expenses are the cost of assets consumed or services used in generating revenue If revenue > expense = Net Income If revenue < expense = Net Loss!
8 11 4
Content and Purpose of Financial Statements Accountants communicate with users through four financial statements Income statements Retained earnings statement Balance sheet Statement of cash flows
9 Income Statement Reports operating success or faulure for a period Summarizes revenues and expenses for period: month, quarter, year If revenue > expense = NET INCOME
10 Income Statement Heading who what when: company, what form, when it was filled 30% of your first exam, so get to studying 11 Retained Earnings Statement Shows changes in retained earning for period: month, quarter, year Beginning balance Add net income from income statement Deduct dividends papa~TMA Ending balance.
12 Retained Earnings Statement 13 Balance Sheet Reports assets and claims to assets Claims of creditors, liabilities. Claims of stockholders' equity Assets= Liabilities+Stockholders Equity Specific date - one point in time! Rich today, poor tomorrow 14 Balance Sheet Notice $ signs begging and tota <-------------Form retained earnings statement 15 Statement of Cash Flows Provides information about cash receipts and cash payments Summarizes for period: mo qtr yr Cash effects of operating activity 16 Statement of Cash Flows Where did the cash come from? How was cash used during the period? What was the change in the cash balance during the period? A company cannot survive without cash 17 Statement of Cash Flows.. 18 11 5 Assets Resources owned by the business Cash Accounts recievable Inventories Furniture and fixtures Equipment supplies 19 Liabilities Obligations or debts of business
Notes payable Accounts payable Interest payable Salaries payable Unearned revenue 20 Stockholders' Equity Ownership claims on assets Paid in capital pa Common stock Retained earning 21 Basic Accounting Equation Assets = liabilities + Stockholders' Equity
Or a variant algebratic 22 Which of the following is not a correct representation of the accounting equation? a. Assets = Liabilities + Stockholders' Equity b. Assets Liabilities = Stockholders' Equity c. Assets + Stockholders' Equity = Liabilities d. Assets Stockholders' Equity = Liabilities 23 11 6 Supplements to the Financial Statements in an Annual Report Management Discussion and Analysis Notes to Financial Statements Auditor's report 24 Management's Discussion and Analysis covers three items:
1. ________________ 2. ________________ 3. ________________ 25 Notes to Financial Statements Explanatory notes and supplementary schedules Clarifies information in financial statements Expands with additional detail Describes accounting policies Explains uncertainties and contingencies
26 Auditor's Report Certified Public Accountant CPA Auditor (CPA) conducts independent examination of financial statements Fair representation? Follow generally accepted accounting principles (GAAP)? Unqualified opinion
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