Fourth Edition
PART 5 . . . . . . . . . . . . . . . . . . . . . . . .
Managing Information
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Chapter 13
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“I am incredibly nervous that we will implode in a wave of accounting scandals”
~ Sherron Watkins, Enron Vice President, four months prior to Enron’s collapse
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Key Topics
The role of public and private accountants
The CPA vision project
The accounting equation and double-entry accounting
Basic financial statements
Key financial ratios
Accounting in international businesses
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What Is Accounting?
A comprehensive system for collecting , analyzing and communicating financial information
Users of accounting information:
Business managers
Employees and unions
Investors and creditors
Tax authorities
Government regulatory agencies
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Accountants and Their Responsibilities
Controller:
Managers all of a firm’s accounting activities
Financial Accounting
Managerial Accounting
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Accountants and Their Responsibilities
Certified public accountants (CPAs)
Auditing and GAAP
Tax services
Management advisory services
Non-certified public accountants
Private accountants
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The CPA Vision Project
Identifying issues for the future
Global forces as drivers of change
Recommendations
A new direction
Core services
Core competencies
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Global Forces Impacting the New CPA
Profession
Technical Forces
Economical Forces
Political Forces
Social Forces
Human Resource Forces
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Regulatory Forces
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Key Tools of the Accounting Trade
Accounting Equation
Assets = Liabilities + Owners’ Equity
Assets – Liabilities = Owners’ Equity
Double-Entry Accounting
Every transaction affects two accounts
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Financial Statements
Balance Sheets
Income Statements
Statements of Cash
Flows
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Perfect Posters’
Balance
Sheet
Example
ASSETS
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Perfect Posters’
Balance
Sheet
Example
LIABILITIES
& OWNER'S
EQUITY
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Perfect Posters’
Income
Statement
Example
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Statements of Cash Flows
Cash flows from:
Operations
Investing
Financing
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Perfect Posters’
Sales
Budget
Example
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Reporting Standards and Practices
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Revenue Recognition
Matching
Full Disclosure
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Analyzing Financial Statements
Solvency
Ratios
Profitability
Ratios
Activity
Ratios
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Short Term Solvency Ratios
Current Ratio:
Current Assets
Current Liabilities
Working Capital:
Current Assets – Current Liabilities
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Long-term Solvency Ratios
Debt to Owners’ Equity Ratio:
Debt
Owners’ Equity
Leverage:
Ability to finance an investment through borrowed funds
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Profitability and Activity Ratios
Return on Equity:
Earnings Per Share:
Inventory Turnover Ratio:
Net Income
Total Owners' Equity
Net Income
# of Shares Outstanding
Cost of Goods Sold
Average Inventory
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International Accounting
Foreign
Currency
Exchange
International
Accounting
Standards
International
Transactions
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Chapter Review
Explain the role of accountants, public and private
Discuss the CPA Vision Project
Explain the accounting equation and doubleentry accounting
Describe the three basic financial statements
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Chapter Review
Explain how key financial ratios can help analyze the financial strength of a business
Explain some of the special issues facing accountants at firms that do international business
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