Ch1+Slides - Chapter 1 Financial Statements and Business...

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Chapter 1 Financial Statements and Business Decisions
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The Need for Accounting Hayley’s Mooncake Company Hayley has a dream … she wants to start and operate her own mooncake business. How much money does she need to make this happen? $100 million So, from where can she get the $100 million?
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Hayley’s Mooncake Company $100 Million From Where? Personal savings Family and friends ================================= ==== Loan from a bank (or a syndicate of banks) Private investors Go public!!
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Hayley’s Mooncake Company Going Public!! How can Hayley convince strangers to invest $100 million in her mooncake company?
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Hayley’s Mooncake Company Going Public!! How can Hayley convince strangers to invest $100 million in her mooncake company? Without RELIABLE FINANCIAL STATEMENTS, she can’t.
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Hayley’s Mooncake Company Financial Statements What do these strangers want to know about Hayley’s finances? Note: At this point, it would be Hayley’s financial PLAN … remember, she is just trying to start her mooncake company. List of resources and obligations How much money does the business make?
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Financial Accounting Balance Sheet List of resources and obligations Income Statement How much money does the business make?
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Wal-Mart Balance Sheet (in millions of U.S. dollars) Jan. 31, 2011 Jan. 31, 2010 Resources (Assets) Cash $ 7,395 $ 7,907 Inventories 36,318 32,713 Land 24,386 22,591 Buildings and improvements 79,051 73,657 Fixtures and equipment 38,290 34,035 Transportation equipment 2,595 2,355 Obligations (Liabilities) Accounts payable 33,557 30,451 Accrued liabilities 18,701 18,734 Long-term debt 40,692 33,231
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Wal-Mart Income Statement (in millions of U.S. dollars) Jan. 31, 2011 Jan. 31, 2010 Jan. 31, 2009 Revenues: Net sales $ 418,952 $ 405,132 $ 401,087 Membership and other income 2,897 2,953 3,167 Expenses: Cost of sales 315,287 304,444 303,941 Operating, selling, general and administrative expenses 81,020 79,639 77,546 Interest, net 2,004 1,884 1,900 Income taxes, total 7,579 7,156 7,133 Consolidated net income 16,993 14,883 13,880 For the Year Ended
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Accounting vs. Bookkeeping Example 1 - We buy an airplane for $1 million. It will last 4 years and then we can sell it for $200,000 (residual value). Revenue of $1 million per year. Example 2 – We own a basketball team, and we sign a two-year contract to pay our players $20 million. But we agree to pay them nothing this year and $20 million next year. Revenue of $15 million per year.
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: -Year 1 we have a $1 million expense. Then no more expense for the next 3 years and in the last year, we pick up $200,000 in revenue. -Year 1 we have no salary expense, Year
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Ch1+Slides - Chapter 1 Financial Statements and Business...

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