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MGMT 1053: Chapter 14
Transcript of MGMT 1053: Chapter 14
Accounting & Financial Statements
The Nature of Accounting
The recording, measurement and interpretation of financial information, often used in making business decisions. Accounting is NOT bookkeeping.
CPA: Certified Public Accountant
Can express unbiased opinion of financial statement accuracy
Employed by corporations, government agencies, and other organizations to prepare their financial statements.
Uses of Accounting Information
Managerial accounting refers to the internal use of accounting statements by managers in planning and directing the course of the organization.
The Accounting Equation
Assets = Liabilities + Owner's Equity
Owned items of value
Debts owed to others
Funds contributed to the company
Process of collecting, recording, and analyzing raw data, and it occurs constantly through the business’s life.
1. Examine Docs
3. Post Transactions
Income Statement ("the bottom line")
Revenues = total amount of money received (or promised) from the sale of goods or services, as well as from other business activities such as investments.
CoGS = Amount of money a firm spent to buy or produce the products it sold during the period to which the income statement applies.
Net income = Total profit (or loss) after expenses have been deducted from revenues.
Balance Sheet ("snapshot")
Current assets = Short-term assets that can be converted to cash within one year.
Long-term assets = Fixed assets represent a commitment of organizational funds for at least one year,
Accounts receivable = money owed to business by its customers.
Current liabilities = Short-term debts that the business must repay within one year.
Accounts payable = money owed to a company’s suppliers for goods and services purchased with credit.
Owner's Equity = owners’ contributions to their business along with income retained to finance continued growth and product development.
Cash Flow Statement
Explains how the company’s cash changed from the beginning of the accounting period to the end. Change in cash is explained in three categories: 1) cash from operating activities; 2) cash from investing activities; and 3) cash from financing activities.
Ratio analysis refers to calculations that measure an organization’s financial health. Financial ratios are used to weigh and evaluate a firm’s operating performance.
Shows the overall percentage profits earned by the company.
Example: A profit margin of 7.5% means that for every $1 in sales, the business generates 7.5 cents in profits.
Shows how much income is generated by each $1 the owners have invested.
Example: An ROI of 22.5% means that for every $1 invested by stockholders, the company returned 22.5 cents.
=Net income/Owner's Equity
Shows profitability over a period of time