Financial Accounting
Business 020
Professor Bill O’Brien
Fall 2014
FINANCIAL ACCOUNTING – BUS 020 - FALL 2014
Session 1
Accounting in Action
FINANCIAL ACCOUNTING – BUS 020 - FALL 2014
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
What is Accounting?

Identifying
Recording
Communicating

…business transactions


FINANCIAL ACCOUNTING – BUS 020 - FALL 2014
Financial Accounting Model
Company
(useful &
relevant)
F/S
Financial
Impact
FINANCIAL ACCOUNTING – BUS 020 - FALL 2014
Users
Economic
Decisions
Financial Information
Users

Internal Decision Makers



Managers
Employees
External Decision Makers




Creditors
Customers
Suppliers
Investors
FINANCIAL ACCOUNTING – BUS 020 - FALL 2014
Any Others?
Building Blocks



Ethics
Principles
Assumptions
FINANCIAL ACCOUNTING – BUS 020 - FALL 2014
It All Comes Down to
Ethics!


You will face an ethical challenge
It could impact






Your
Your
Your
Your
Your
job
family
relationships
financial stability
physical well-being
What is. Is!
You have only ONE reputation...
FINANCIAL ACCOUNTING – BUS 020 - FALL 2014
Using Financial
Information

Impact of errors on reporting

Impact of errors on investors

Remember:
What is. Is!
FINANCIAL ACCOUNTING – BUS 020 - FALL 2014
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
Assumptions of
Financial Accounting




Separate Entity
Unit of measure
Going concern
Time period
FINANCIAL ACCOUNTING – BUS 020 - FALL 2014
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
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
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
Financial Statement Tour
Balance Sheet
Current
Assets
Noncurrent
Assets
Current
Liabilities
Longterm
Debt
Income Statement
Statement of Cash Flows
Revenue
Cost of Goods
Sold (COGS)
Gross Margin
Operating Exps.
Equity
Net Income
FINANCIAL ACCOUNTING – BUS 020 - FALL 2014
Operating Cash
Stmt of Owners’ Eq.
Stmt of Ret.Earnings
Beginning R/E
Investing Cash
Financing Cash
Net Income
Changes in Eq.
Change in Cash
Less: Dividends
Beginning Cash
Ending Cash
Ending R/E
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
Standard Setting Flow
Chart
Gov’t
A Political Circle
-Creates SEC 1934
SEC
-Lobbies government
-Delegates standard setting
FASB
standards
-Finances FASB indirectly
FINANCIAL ACCOUNTING – BUS 020 - FALL 2014
Pub. Cos.
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
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
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