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Mercy College Accounting and Budgeting for the Human Resource Professional HR530 Distance Learning Dr. Norman Foy, CMA,

Mercy College Accounting and Budgeting for the Human Resource Professional HR530 Distance Learning Dr. Norman Foy, CMA, CFM, SPHR. Selected Slides for use with Course Materials. Differing Perspectives. Financial Accounting Managerial Accounting Tax Accounting. Basic Accounting Principles.

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Mercy College Accounting and Budgeting for the Human Resource Professional HR530 Distance Learning Dr. Norman Foy, CMA,

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  1. Mercy College Accounting and Budgeting for the Human Resource ProfessionalHR530 Distance LearningDr. Norman Foy, CMA, CFM, SPHR Selected Slides for use with Course Materials

  2. Differing Perspectives • Financial Accounting • Managerial Accounting • Tax Accounting

  3. Basic Accounting Principles • Matching • Conservatism • Materiality

  4. The Rules of Accounting • For Profit • SEC: Authority to Set GAAP • FASB • Private For Profit • Not-For-Profit • Government • State/Local • Federal Public

  5. How A Balance Sheet Changes Owner's Equity Liabilities Assets Assets 1/1/9X = + +/- Changes +/- Changes +/- Changes +/- Changes + = Owner's Equity 12/31/9X Assets + Liabilities =

  6. Components of Owner’s Equity • Owner’s Equity = • Paid In Capital (PIC) • + • Retained Earnings (RE)

  7. Changes in Owner's Equity • Beginning Retained Earnings+ Revenue- Costs/Expenses= Profit- Dividends= Ending Retained Earnings • Beginning Paid in Capital (PIC)+ New PIC- Redeemed PIC= Ending PIC

  8. Types of Accounting • Cash • “If it’s cash it counts” • Accrual • Attempts to match revenues and the costs to produce those revenues • Which one to use? • Tax law & business you are in

  9. Owner's Equity Assets Assets Liabilities Double Entry Bookkeeping Keeping the Equation in Balance = + +/- Changes +/- Changes +/- Changes +/- Changes + = But: How do you do this without subtraction? (15th century workers lacked strong skills!!!! Increases in Assets Increases in Liabilities or Owner's Equity Decreases in Liabilities or Owner's Equity Decreases in Assets Debit (Dr.) Credit (Cr.)

  10. HR needs 500 things-- requisition 1 The Accounting Transaction Process Order 3 PO-0001 500 things x $1 =$500 Thing Mfg. Company 2 Accounting Entries: 3 Receiving 3 Accounting (Acct. Pay)

  11. HR needs 500 things-- requisition 1 The Accounting Transaction Process Shipment/Receipt 3 3 PO-0001 500 things x $1 =$500 Thing Mfg. Company 2 Accounting Entries: Ships 4 3 Receiving 500 things + packing list referencing PO-0001 Matches & sends 5 6 3 Accounting (Acct. Pay) Matches

  12. HR needs 500 things-- requisition 1 The Accounting Transaction Process Payment 3 3 PO-0001 500 things x $1 =$500 Thing Mfg. Company 2 Accounting Entries: Ships 4 3 Receiving 500 things + packing list referencing PO-0001 Matches & sends 5 6 3 7 Accounting (Acct. Pay) Invoice for $500 referencing PO-0001 and ship/delivery 8 Matches & Pays

  13. Inventory Valuation 1 2 3 4 4 • Sell Tables 1 and 3 Price = $200/ea Commission = $25 total • Physical Movement = Always "First in First out" when possible. • Specific Identification • Inventory 2 & 4 = $275 Profit = $400 - $265 = $135 • FIFO • Inventory 3 & 4 = $290 Profit = $400 - $250 = $150 • LIFO • Inventory 1 & 2 = $225 Profit = $400 - $315 = $85 • Weighted Average • ($100 + $125 + $140 + $150 = $515 / 4 = $128.75 • Inventory= $128.75 x 2 = $257.50 • Profit = $400 - $282.50 ($25 + $257.50) = $117.50 1/1 $100 2/1 $125 3/1 $140 4/1 $150 4/1 $150

  14. Income Statement (Profit and Loss Statement) • Revenue- Cost of Goods Sold= Gross Profit- Expenses+/- Other Income & Expenses= Earnings Before Interest & Taxes (Operating Income)- Interest= Earnings Before Taxes (NEBT or NBT)- Taxes= Earnings After Taxes (NEAT or NAT)

  15. Gross Profit or Gross Profit Margin • Revenue- Cost of Goods Sold= Gross Profit

  16. Gross Profit Margin % • Key Measure of Efficiency • Manufacturing • Service • CalculationGross Profit RevenueGross Profit Margin % =

  17. Income & Expense Details • Revenue- Cost of Goods Sold= Gross Profit- G & A / Sales- Research/Development/Engineering+/- Other Income= Net Earnings Before Taxes- Taxes= Net Earnings After Taxes

  18. Earnings Per Share • Calculation: Net Income After Taxes Number of Shares

  19. Reinvested Earnings • Net Earnings After Taxes (Net Profit)- Dividends= Reinvested Earnings (Increase/Decrease to Retained Earnings

  20. HR Management Information System • Cost = $10,000 • Hardware & Software • Obsolete in 4 years....$400 Salvage value • Straight Line Depreciation • Sum of the Years Digits Depreciation • Double Declining Balance Depreciation Depreciation Example

  21. Balance Sheet Components Liabilities & Owner’s Equity Assets Current Liabilities Current Assets Long-Term Liabilities Long-Term Assets Owner’s Equity

  22. Return on Equity • Calculation: Net Earnings After Taxes Stockholder's Equity

  23. Return on Assets • Calculation: Net Earnings After Taxes Assets (Beginning or Avg.)

  24. Profit Margin % • Calculation: Net Earnings After Taxes Revenue

  25. Asset Turnover • Calculation: Revenue________ Assets (Beginning or Avg.)

  26. Return on Assets • Calculation: Revenue (T/O) Assets (Beginning or Avg.) X X Net Earnings After Taxes (Profit Revenue Margin %)

  27. Return on Assets (ROA) High Margin Low Turnover Org. ROA (Margin x T/O) Better Profit Margin Low Margin High Turnover Org. Worse Turnover

  28. Working Capital Ratios • Working Capital • Current Assets - Current Liabilities • Current Ratio • Current Assets / Current Liabilities • Quick or Acid Test Ratio • Current Assets w/o Inventory / Current Liabilities

  29. Simple Cash Flow Cycle Produce Invest (Buy) Cash Sell

  30. Simple Cash Flow Cycle Produce WIP Inv. Invest (Buy) Fixed Equip. R&D Inventory Labor FG Inv. Accts Rec. Sell Cash

  31. Statement of Cash FlowsIndirect • Net Earnings after Taxes • +Depreciation • + or - Non-Financial Working Capital • = Cash Flow from Operations • + or - Investing Activities • + or - Financing Activities • = Net Change in Cash

  32. Working Capital & Cash • Description Cash? • Inventory 1/1/2001 0 0 • 12/31/2001 50 -50 • 12/31/2002 75 -25 • 12/31/2003 75 0 • 12/31/2004 60 +15

  33. Working Capital Rules • Any Current Asset (except cash) that goes: • UP Cash Goes DOWN • DOWN Cash Goes UP • Any Current Liability that goes: • UP Cash Goes UP • DOWN Cash Goes DOWN

  34. Financial Leverage • The extent a firm uses debt to finance its assets • Magnifies good news…..and bad news • Increases Risk • Leverage = Total Assets / Equity

  35. The Benquick Company • Your HR Group spends $75,000 per year to process benefits paperwork. The Benquick Company says they will do it for $50,000 per year for 4 years, but they want $75,000 now in order to set up the process. You are impressed with the quality of their work. • The appropriate interest rate is 10%. From a financial perspective, should you accept their proposal?

  36. Introduction to Management Accounting • Fixed Costs • Variable Costs • Contribution Margin

  37. National Pencil Co. • Sales $2,700,000- Variable Costs 1,040,000= Contribution Margin 1,660,000- Fixed Costs 590,000= Profit $1,070,000

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