Session 2 - Actg 500: Intro to Financial Accounting Meeting...

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Unformatted text preview: Actg 500: Intro to Financial Accounting Meeting #2: Wealth Statements B/S and I/S Professor Ryan Casey College of Business Administration University of Illinois at Chicago Actg500f07 MTKirschenheiter Lect 2, slide 2 Overview of Meeting #1 Lecture Review Wealth Statements Balance Sheet accounts/presentation Income Statement role of different line items Other measures EBIT and Free Cash flow Ben and Jerry Case steps toward reconciling wealth and cash flows Actg500f07 MTKirschenheiter Lect 2, slide 3 Summary of Meeting #1 Lecture Value of financial reporting depends on users, it links cash flow to wealth creation. Four statements summarize activity (B/S, I/S, CF/S and OE/S); articulation means how F/S are related (i.e., accounting box). Transactions are events recorded in F/S using B/S equation. Actg500f07 MTKirschenheiter Lect 2, slide 4 The Basic Structure of Accounting Resource beg - Oblig beg = Wealth beg Activity /Use of Net Resources Change in Net Resources Change in Wealth [& Capital Changes] = Resource end - Oblig end = Wealth end Actg500f07 MTKirschenheiter Lect 2, slide 5 Articulation of Financial Statements Table 1: F/S Diagram Balance Sheet at 12/31/19x1: A = L + OE Balance Sheet at 12/31/19x2: A = L + OE Cashflow Statement for Period Ending 12/31/19x2 Statement of Change in Owners Equity (includes Income Statement) for Period Ending 12/31/19x2 Actg500f07 MTKirschenheiter Lect 2, slide 6 The Balance Sheet: Purpose/Presentation Purpose: Presents resources (assets) obligations (liabilities) and wealth (equity) at a specific point in time. Presentation: Assets: Current (cash, accounts receivable, inventory etc.) , Non-current (PPE, intangibles, etc.) Liabilities: Current (accts payable, st debt, accrued liab. Etc.) Non-current (long term debt, leases, etc.) Equities: (R/E, CS, TS, other comprehensive income) Actg500f07 MTKirschenheiter Lect 2, slide 7 The Balance Sheet Identity (in U.S.) Assets Liabilities Owners Equity = Actg500f07 MTKirschenheiter Lect 2, slide 8 Income Statement: Purpose/Presentation Purpose: Presents the wealth creation activities for a firm over a specific period of time. Presentation: Revenues: (represents gross wealth creation) , Less Expenses (measure the benefits used to create this revenue) Equals Net income (measures the net wealth created) Some consistency in presenting expenses Actg500f07 MTKirschenheiter Lect 2, slide 9 I/S: Expense Line items Operating Expenses COGS (product costs) results in gross profit Other operating expense (SG&A, Unusual items, etc) results in operating profit Non-operating expense (interest income/expense, gains and losses, etc.) results in pretax income Tax provision, results in net income Other above line (minority interest, equity income) Other Below line (extraord. items, discont., acctg changes) Actg500f07 MTKirschenheiter Lect 2, slide 10 Types of Operating Expenses Two kinds of costs: Product (direct ?) CostsProduct (direct ?...
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Session 2 - Actg 500: Intro to Financial Accounting Meeting...

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