AK/ADMS 1500:WINTER 2007
An Introduction to Accounting: The Analysis
and Use of Financial Information
Instructor: Professor Aziz M. Alwathnani
Office: Tel Building Room 2044
Email: wathnani@yorku.ca
Textbook:
Accounting for Non-Financial Managers:
John Parkinson with Charles Draimin:
2006 –2nd Edition
Chapter 1
 Who needs accounting?
 Almost all mangers need to know accounting
 To present themselves as well-informed
members of the management team
 To understand budgetary planning & control
 To support decision making: to deal with the
financial implications of their financial
proposals
Accounting as Score-Keeping
 All
firms provide general purpose financial
statements to external users:
 Income
statement (revenues, expenses, gains,
losses, and net income [profits] for a year)
 Balance sheet (assets, liabilities, and equity at the
end of the year)
 Statement of owners’ equity (changes in owners’
equity)
 Cash flow statement (sources, uses, and changes
in cash)
Accounting for Planning & Control
 Budgets
 Define
are used for Planning & Control
the organizational objectives
 Make plans to achieve objectives (a budget)
 Carry out the activities in the plan
 Measure the results of operations (score-keeping)
 Compare the results with the plan (B. Control);
 If the objectives have been achieved, move on
 Or if the objectives have not been achieved take a
corrective action, then move on.
Decision Making

Decision Making (a financial dimension)
 Define
the problem or decision
 Identify possible solutions to the problem
 Gather relevant information about these
solutions
 Evaluate these solutions and select the best
possible of them
 Implement the solution (decision)
 Evaluate
the outcome
Accounting Areas
 Types
of Accounting
 Financial
accounting (for external users)
 Management accounting (for internal users)
 Auditing (to ensure compliance with rules)
 Personal financial planning (applications to
personal issues)
Chapter 1: Discussions

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Who needs to know about accounting?
Why is accounting called the language of business?
Why does an investor need score-keeping
information?
What role does accounting have in the planning
process?
How control is made possible by accounting?
What steps should be involved in decision making?
What are the main distinctions between financial
accounting and management accounting?
What is the role of the auditor?
Chapter 2
The
 The
Objectives of Financial Reporting
objectives of financial reporting as specified in
Statement of Financial Accounting Concepts (SFAC)
No. 1 are to provide information that is:
 Useful in investment and credit decisions.
 Useful in assessing the amount, timing, and
uncertainty of cash flow prospects.
 About enterprise resources, claims to those
resources and changes in these resources.
The Accounting Equation
 Assets
= Liabilities + Owners’ Equity
 Assets
are probable future economic benefits
owned by a particular entity
 Liabilities are probable future sacrifices of
economic benefits arising from present
obligations to transfer assets or provide services
to other entities in the future
 Owners’ Equity (net assets) is the residual interest
in the assets of an entity that remains after
deducting its liabilities
Financial Statements
 The
balance sheet
 A list
of a firm’s assets, liabilities, and owners’
equity at a point in time.
 The
income statement
 Revenues,
 The
statement of retained earnings
 B.R.E.,
 The
expenses and net income for a year.
Income, dividends, and E.R.E.
cash flow statement
 Sources
and uses of cash and cash balances
Assessing Profitability
$ Return on assets (ROA)
 Operating income/average total assets
 $100,000/$500,000 = 20%
 How well did the company use the assets under
its control?
$ Return on equity (ROE)
 Net income/average shareholders’ equity
 $65,000/$260,000 = 25%
 How many dollars were earned for each dollar
invested by shareholders?
Qualitative Characteristics of
Accounting Information
 Primary qualities
Relevance
Timeliness
Predictive
value
Feedback value
Reliability
Verifiability
Representational
faithfulness
Neutrality (unbiased)
Characteristics of Accounting
Information….cont.
 Secondary qualities
Comparability
The same accounting methods
 Facilitate comparability

Consistency
Following the same accounting method from
one period to another
 Facilitate comparability across time

Accounting Concepts
 Assumptions
 Economic entity
 Going concern
 Monetary unit
 Periodicity
Accounting Concepts ….cont.
 Principles
 Historical Cost
 Revenue recognition
 Matching principle
 Full disclosure
Accounting Concepts ….cont
 Constraints
 Cost benefit
 Materiality
 Industry practices
 Conservatism