NETA PowerPoint
Presentations to accompany
The Future of
Business
Fourth Edition
Adapted by
Norm Althouse,
University of Calgary
Copyright © 2014 by Nelson Education Ltd.
Accounting for Financial
Success
Chapter 16
Chapter 16
Copyright © 2014 by Nelson Education Ltd.
Making the Connection
Copyright © 2014 by Nelson Education Ltd.
Learning Outcomes
1.
2.
3.
4.
5.
4
Explain the importance of financial reports and
accounting information to the targeted users.
Show an understanding of the accounting profession.
Identify the six steps in the accounting cycle.
Understand how a balance sheet (statement of financial
position) describes the financial condition of an
organization.
Explain the purpose of the income statement
(statement of comprehensive income).
Copyright © 2014 by Nelson Education Ltd.
Learning Outcomes (cont’d)
6.
7.
8.
5
Describe the importance of the statement of cash
flows.
Explain how ratio analysis is used to identify a
company’s financial strengths and weaknesses.
List some of the major trends that are impacting the
accounting industry.
Copyright © 2014 by Nelson Education Ltd.
Explain the importance of financial reports and
accounting information to the targeted users.
6
Copyright © 2014 by Nelson Education Ltd.
Basic Terms
Accounting – Process of collecting, recording, classifying,
summarizing, reporting, and analyzing financial activities.
Managerial accounting – Provides financial information
that managers inside the organization can use to evaluate
and make decisions about current and future operations.
Financial accounting – Focuses on preparing external
financial reports that are used by outside stakeholders.
7
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Exhibit 16.1: The Accounting System
8
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Exhibit 16.2: Reports Provided by the
Accounting System
9
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Primary Financial Statements
Balance Sheet
(Statement of Financial Position)
Income Statement
(Statement of Comprehensive Income)
Statement of Cash Flows
10
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Show an understanding of the accounting
profession.
11
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The Accounting Profession
Chartered Accountant
(CA)
Certified Management Accountant (CMA)
Certified General Accountant
(CGA)
Accounting
Designations
Chartered Professional Accountant
(CPA)
12
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Identify the six steps in the accounting
cycle.
13
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Exhibit 16.3: The Accounting Cycle
14
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Accounting Equation
Assets
What Is Owned
15
=
Liabilities
+
What Is Owed
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Owners’
Equity
Net Worth
Understand how a balance sheet (statement of
financial position) describes the financial condition
of an organization.
16
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Balance Sheet
Assets
Resources
=
Liabilities
Obligations
Owners’
Equity
+
Net Worth
Also known as the statement of financial position
17
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Assets
Current Assets
Will be converted into cash within the next 12 months.
Fixed Assets (Capital Assets or PP&E)
Will generate revenues for more than one year.
Intangible Assets
Assets of value, but have no physical existence.
18
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Liabilities
Current Liabilities
Will be paid off within the next 12 months.
Long-Term Liabilities
Will take longer than one year to pay off.
19
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Owners’ Equity
Owners’ Net Worth
(Assets – Liabilities = Owners’ Equity)
Examples for a corporation:
common shares, preferred shares, retained earnings.
Examples for a proprietorship or partnership:
paid-in capital, retained earnings.
20
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Explain the purpose of the income statement
(statement of comprehensive income).
21
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Income Statement
Revenues
Sales
•
•
•
22
–
Expenses
=
Costs to Generate Sales
Also known as:
the statement of comprehensive income
statement of earnings
profit and loss statement
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Net Profit
(Loss)
Profit
Revenues
Also called sales or income
Gross sales – Total dollar amount of company’s sales.
Net sales – Gross sales less returns, allowances and
discounts.
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Expenses
Cost of Goods Sold (CGOS)
Total expense of buying or producing the company’s goods
or services.
Operating Expenses
Expenses of operating a business that is not directly related to producing
or buying its products.
Taxes are not an expense but an obligation.
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Net Profit or Loss
Net Income
Revenues less expenses (revenues are greater than expenses).
Net Loss
Revenues less expenses (revenues are less than expenses).
Net losses are presented in brackets.
25
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Describe the importance of the statement of
cash flows.
26
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Statement of Cash Flows
Operating Activities.
Cash Flows
from …
Investment Activities.
Financing Activities.
27
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Explain how ratio analysis is used to identity a
company’s financial strengths and weaknesses.
28
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Ratio Analysis
Liquidity
Ratio
Classifications
Profitability
Activity
Debt
29
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Liquidity Ratios
The ability for the company to pay its short-term
obligations.
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Current
Ratio
Ratio of total current assets to total
current liabilities.
Acid-Test
(Quick) Ratio
Ratio of total current assets excluding
inventory to total current liabilities.
Net Working
Capital
The amount obtained by subtracting
current liabilities from total current assets.
Copyright © 2014 by Nelson Education Ltd.
Profitability Ratios
The measure of a company’s use of resources.
Net Profit
Margin
Ratio of net profit to net sales.
Return on
Equity
Ratio of net profit to owners’ equity.
Earnings per
Share (EPS)
31
Ratio of net profit to the number of
common shares outstanding.
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Activity Ratios
Measures how well a company uses its assets.
The speed inventory moves through the
company and is turned into sales.
FERNANDO VERGARA/AP PHOTO
Inventory Turnover
32
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Debt Ratios
Measures the degree and effect of a company’s use
of borrowed funds to finance its operations.
Debt to Equity
33
Relationship between the amount of
debt capital and equity capital.
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List some of the major trends that are
impacting the accounting industry.
34
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The Future of Accounting

Accountants expand their role.

Valuing knowledge assets.

Green and social accounting.
35
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