Accounting
Information
System
© Copyrright Doug Hillman 1997
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Major Accounting Bodies
American Institute of Certified Public
Accountants
 Financial Accounting Standards Board
 Government Accounting Standards
Board
 Securities and Exchange Commission
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Ethics
The process that individuals use
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Ethics
The process that individuals use
to evaluate their conduct
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Ethics
The process that individuals use
to evaluate their conduct in light
of moral principles and values
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Assets
Anything of value held by an
organization
 Assets have
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Assets
Anything of value held by an
organization
 Assets have
» Potential usefulness
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Assets
Anything of value held by an
organization
 Assets have
» Potential usefulness
» Future usefulness
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Assets
Anything of value held by an
organization
 Assets have
» Potential usefulness
» Future usefulness
» Economic Value
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Assets
Cost principle
 Going-concern concept
 Objectivity principle
 Stable dollar concept
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Equities
Claims against the total assets of an
organization
 Liabilities
» Claims of nonowners
 Owner's Equity
» Claims of owners
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Retained Earnings

Cumulative total of net income, net loss,
and dividends since start of business
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Revenues
Inflows of assets that result from
performing services or selling goods
 Revenues are realized when
» the service is performed or
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Revenues
Inflows of assets that result from
performing services or selling goods
 Revenues are realized when
» the service is performed or
» the goods are delivered
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Expenses
Outflows of assets or incurrence of
liabilities while earning revenues
 A business incurrs expenses to earn
revenues
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The Accounting Equation
Things of Value = Claims
 Assets = Equities
 Assets = Liabilities + Owner's Equity
 Assets - Liabilities = Net Assets
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Analyzing Transactions
Use accounting equation
 Is there a change in assets?
» Which asset?
» How much was the change?
 Is there another change in assets?
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Analyzing Transactions
Is there a change in liabilities?
» Which liability?
» How much was the change?
 Is there another change in liabilities?
 Is there a change in owners’ equity?
» How much was the change?
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Four Basic Financial
Statements
Income Statement
 Statement of Owners’ Equity
 Classified Balance Sheet
 Statement of Cash Flows
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Income Statement
Reports changes in owners’ equity from
operating activities
 Revenues - Expenses = Net
Income(Loss)
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Statement of Owners’ Equity
Changes in owners’ interest in assets
 Issuances of new stock
 Retained earnings
» Net income or loss
» Dividends
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Classified Balance Sheet
Classification - arrangement of financial
statement items into groupings that have
common basis
 Assets
» Current
» Property, plant, and equipment
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Classified Balance Sheet
Liabilities
» Current
» Long-tern
 Owners’ Equity
» Common stock
» Retained earnings
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Statement of Cash Flows
Reports cash flows during period
 Categories of activities
» Operating activities
» Investing activities
» Financing activities
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Analyzing Information
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Balance Sheet Analysis
Are total assets higher or lower?
 What is percent change in total assets?
 Is the percent of total liabilities to total
liabilities plus owner’s equity increasing
or decreasing?
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Income Statement Analysis
Are revenues higher or lower?
 What is the precentage change in total
revenues?
 Is the percentage of total expenses to
total revenues increasing or decreasing?
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Integrative Analysis
Is the business operating efficiently by
using the least amount of asset
investment to generate a given level of
total revenues?
 Calculate Total Asset Turnover
» Total revenues
» divided by
» Average total assets
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