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Financial Accounting

Financial Accounting. Business 020 Professor Bill O’Brien Fall 2014. Session 1 Accounting in Action. Today’s Topics. What is Accounting? Accounting’s Building Blocks The Accounting Equation Using the Equation Financial Statement Overview. What is Accounting?. Identifying Recording

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Financial Accounting

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  1. Financial Accounting Business 020 Professor Bill O’Brien Fall 2014 FINANCIAL ACCOUNTING – BUS 020 - FALL 2014

  2. Session 1Accounting in Action FINANCIAL ACCOUNTING – BUS 020 - FALL 2014

  3. Today’s Topics • What is Accounting? • Accounting’s Building Blocks • The Accounting Equation • Using the Equation • Financial Statement Overview FINANCIAL ACCOUNTING – BUS 020 - FALL 2014

  4. What is Accounting? • Identifying • Recording • Communicating • …business transactions FINANCIAL ACCOUNTING – BUS 020 - FALL 2014

  5. (useful & relevant) Company Users F/S Financial Impact Economic Decisions Financial Accounting Model FINANCIAL ACCOUNTING – BUS 020 - FALL 2014

  6. Financial Information Users • Internal Decision Makers • Managers • Employees • External Decision Makers • Creditors • Customers • Suppliers • Investors Any Others? FINANCIAL ACCOUNTING – BUS 020 - FALL 2014

  7. Building Blocks • Ethics • Principles • Assumptions FINANCIAL ACCOUNTING – BUS 020 - FALL 2014

  8. It All Comes Down to Ethics! • You will face an ethical challenge • It could impact • Your job • Your family • Your relationships • Your financial stability • Your physical well-being • You have only ONE reputation... What is. Is! FINANCIAL ACCOUNTING – BUS 020 - FALL 2014

  9. Using Financial Information • Impact of errors on reporting • Impact of errors on investors • Remember: What is. Is! FINANCIAL ACCOUNTING – BUS 020 - FALL 2014

  10. Principles of Financial Accounting • Historical cost • Revenue recognition • Collection is assured • Delivery has taken place • Evidence of a customer arrangement • Fixed price • Matching principle • Full disclosure FINANCIAL ACCOUNTING – BUS 020 - FALL 2014

  11. Assumptions of Financial Accounting • Separate Entity • Unit of measure • Going concern • Time period FINANCIAL ACCOUNTING – BUS 020 - FALL 2014

  12. Statement of Financial Accounting Concepts #1 (1978)Objectives of Financial Reporting • Useful information for users • Information about future cash flows • Information about the firm’s economic resources FINANCIAL ACCOUNTING – BUS 020 - FALL 2014

  13. The Accounting Equation • Assets = Liabilities + Equity or • What you own = What you owe + What is left over for owners • Let’s examine pps. 16-22 to see this equation in action FINANCIAL ACCOUNTING – BUS 020 - FALL 2014

  14. Financial Statement Components • Balance Sheet • Income Statement • Statement of Retained Earnings or Statement of Shareholders’ Equity • Statement of Cash Flows • Footnotes • Report of Independent Accountants • Management’s Discussion & Analysis • Management Report FINANCIAL ACCOUNTING – BUS 020 - FALL 2014

  15. Financial Statement Tour Stmt of Owners’ Eq. Stmt of Ret.Earnings Balance Sheet Income Statement Statement of Cash Flows Current Assets Non- current Assets Revenue Cost of Goods Sold (COGS) Gross Margin Operating Exps. Net Income Current Liabilities Long- term Debt Equity Operating Cash Investing Cash Financing Cash Change in Cash Beginning Cash Ending Cash Beginning R/E Net Income Changes in Eq. Less: Dividends Ending R/E FINANCIAL ACCOUNTING – BUS 020 - FALL 2014

  16. Standard Setting Process • SEC (Securities and Exchange Commission) • AICPA (Am. Institute of CPA’s) • FASB (Financial Acctg. Stds. Board) • Sarbanes-Oxley Bill of 2002 FINANCIAL ACCOUNTING – BUS 020 - FALL 2014

  17. Gov’t SEC FASB Standard Setting Flow Chart A Political Circle -Creates SEC 1934 -Lobbies government -Delegates standard setting Pub. Cos. standards -Finances FASB indirectly FINANCIAL ACCOUNTING – BUS 020 - FALL 2014

  18. High Quality Financial Reporting • Generally Accepted Accounting Principles--GAAP • Who is responsible? • Management • The Board of Directors • The Auditors FINANCIAL ACCOUNTING – BUS 020 - FALL 2014

  19. Accounting Careers • Certified Public Accountant--CPA • Assurance, tax and consulting • Private industry • Internal audit • Non-profit organizations • Government service • Academia FINANCIAL ACCOUNTING – BUS 020 - FALL 2014

  20. Key Terms and Ratios • Terms • Assets • Liabilities • Equity • Revenue • Expenses • Accounting Equation…A = L + E • Ratios • P/E Ratio…market price/net income FINANCIAL ACCOUNTING – BUS 020 - FALL 2014

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