Anthony Hawkins and Merchant ACCOUNTING TEXT AND CASES

Anthony, Hawkins, and Merchant ACCOUNTING: TEXT AND CASES Tenth Edition These electronic slides are intended for the exclusive use by adopters of Irwin/Mc. Graw-Hill accounting textbooks only. Any other use of these presentations without express written permission of Irwin/Mc. Graw-Hill is strictly prohibited. Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 1999

This electronic presentation prepared by Douglas Cloud, Professor of Accounting, Pepperdine University Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 1999

Task Force Clip Art included in this electronic presentation is used with the permission of New Vision Technology of Nepean Ontario, Canada Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 1999

The Nature and Purpose of Accounting Part One: Financial Accounting Irwin/Mc. Graw-Hill 1 © The Mc. Graw-Hill Companies, Inc. , 1999

Planning Slide 1 -1 Planning is the process of deciding what …. actions should be taken in the future. Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 1999

Planning Slide 1 -2 Planning involves making decisions. Decisions are arrived at by-- recognizing that a problem or an opportunity exists specifying and ranking the criteria to be used to determine the best solution identifying alternative ways of addressing the problem or opportunity analyzing the consequences of each alternative comparing these consequences to each other and the criteria so as to decide which is best Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 1999

The Nature and Purpose of Accounting Slide 1 -3 Information Nonquantitative information Quantitative information Consists of Nonaccounting information Accounting information Consists of Operating information Irwin/Mc. Graw-Hill Financial accounting Management accounting Tax accounting © The Mc. Graw-Hill Companies, Inc. , 1999

Relationship of Management Functions Slide 1 -4 Planning Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 1999

Relationship of Management Functions Planning Irwin/Mc. Graw-Hill Slide 1 -5 Implementation © The Mc. Graw-Hill Companies, Inc. , 1999

Relationship of Management Functions Planning Irwin/Mc. Graw-Hill Implementation Slide 1 -6 Control © The Mc. Graw-Hill Companies, Inc. , 1999

Relationship of Management Functions Planning Implementation Slide 1 -7 Control Appropriate action Feedback Plan revision Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 1999

The Balance Sheet Slide 1 -8 HOLDEN COMPANY Balance Sheet As of December 31, 1999 (000 omitted) Assets Current assets: Cash Marketable securities Accounts receivable, net Inventories Prepaid expenses $ 1, 449 246 9, 944 10, 623 389 Total current assets $22, 651 Liabilities and Owners’ Equity Current liabilities: Accounts payable $ 5, 602 Bank loan payable 1, 000 Accrued liabilities 876 Estimated tax liability 1, 541 Current portion of longterm debt 500 Total current liabilities $ 9, 519 Current Section Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 1999

The Balance Sheet Slide 1 -9 Assets Liabilities and Owners’ Equity Noncurrent assets: Noncurrent liabilities: Property, plant, equipment Long-term debt, less at cost $26, 946 current portion $ 2, 000 Less: Accumulated Deferred income taxes 824 Depreciation 13, 534 Total liabilities 12, 343 Property, plant, equipment net 13, 412 Owners’ equity: Investments 1, 110 Common stock 1, 000 Patents and trademarks 403 Additional paid-in capital 11, 256 Goodwill 663 Total paid-in capital 12, 256 Retained earnings 13, 640 Total owners’ equity 25, 896 Total liabilities and owners’ Total assets $38, 239 and owners’ equity $38, 239 Noncurrent Section Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 1999

The Accounting Equation Slide 1 -10 Assets = Liabilities + Owners’ Equity Assets are economic resources which are owned by a business and are expected to benefit future operations. Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 1999

The Accounting Equation Slide 1 -11 Assets = Liabilities + Owners’ Equity Liabilities are obligations of the entity to outside parties who have furnished resources Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 1999

Income Statement Slide 1 -12 HOLDEN COMPANY Income Statement For the Year 1999 (000 omitted) Sales revenue $75, 478 Less cost of sales 52, 227 Gross margin 23, 251 Less operating expenses 10, 785 Income before taxes 12, 466 Provision for income taxes 6, 344 Net income $ 6, 122 Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 1999

Financial Statement Objectives Slide 1 -13 Financial reporting should provide information: Useful to present and potential investors and creditors in making rational investment and credit decisions Comprehensible to those who have a reasonable understanding of business and economic activities and are willing to study the information with reasonable diligence About the economic resources of an enterprise, the claims to those resources, and the effects of transactions and events that change resources and claims to those resources About an enterprise’s financial performance during a period Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 1999

A “Package” of Accounting Reports Slide 1 -14 Condensed Balance Sheet As of December 31, 1999 Assets Current assets Building and equip. Other assets Total assets $22, 651 13, 412 2, 176 $38, 239 Liabilities and Owners’ Equity Liabilities $12, 343 Owners’ Equity Paid-in capital 12, 256 Retained earnings 13, 640 Total liabilities and owners’ equity $38, 239 Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 1999

A “Package” of Accounting Reports Condensed Balance Sheet As of December 31, 1999 Assets Current assets Building and equip. Other assets Total assets $22, 651 13, 412 2, 176 $38, 239 Slide 1 -15 Income Statement For the Year 1999 Sales revenue Less cost of sales Gross margin Less operating exp. Income before taxes Provision for taxes Net income, 1999 $75, 478 52, 222 23, 351 10, 785 12, 466 6, 344 $ 6, 122 Liabilities and Owners’ Equity Liabilities $12, 343 Owners’ Equity Paid-in capital 12, 256 Retained earnings 13, 640 Total liabilities and owners’ equity $38, 239 Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 1999

A “Package” of Accounting Reports Condensed Balance Sheet As of December 31, 1999 Assets Current assets Building and equip. Other assets Total assets $22, 651 13, 412 2, 176 $38, 239 Liabilities and Owners’ Equity Liabilities $12, 343 Owners’ Equity Paid-in capital 12, 256 Retained earnings 13, 640 Total liabilities and owners’ equity $38, 239 Irwin/Mc. Graw-Hill Slide 1 -16 Income Statement For the Year 1999 Sales revenue Less cost of sales Gross margin Less operating exp. Income before taxes Provision for taxes Net income, 1999 $75, 478 52, 222 23, 351 10, 785 12, 466 6, 344 $ 6, 122 Statement of Retained Earnings Retained earnings Add net income Less dividends Retained earnings $13, 640 6, 122 19, 762 4, 390 $15, 372 © The Mc. Graw-Hill Companies, Inc. , 1999

A “Package” of Accounting Reports Condensed Balance Sheet As of December 31, 1999 Assets Current assets Building and equip. Other assets Total assets $22, 651 13, 412 2, 176 $38, 239 Liabilities and Owners’ Equity Liabilities $12, 343 Owners’ Equity Paid-in capital 12, 256 Retained earnings 13, 640 Total liabilities and owners’ equity $38, 239 Irwin/Mc. Graw-Hill Slide 1 -17 Income Statement For the Year 1999 Sales revenue Less cost of sales Gross margin Less operating exp. Income before taxes Provision for taxes Net income, 1999 $75, 478 52, 222 23, 351 10, 785 12, 466 6, 344 $ 6, 122 Statement of Retained Earnings Retained earnings Add net income Less dividends Retained earnings $13, 640 6, 122 19, 762 4, 390 $15, 372 © The Mc. Graw-Hill Companies, Inc. , 1999

A “Package” of Accounting Reports Slide 1 -18 Condensed Balance Sheet As of December 31, 2000 Assets Current assets Building and equip. Other assets Total assets Statement of Retained Earnings Retained earnings Add net income Less dividends Retained earnings Irwin/Mc. Graw-Hill $13, 640 6, 122 19, 762 4, 390 $15, 372 $24, 062 14, 981 3, 207 $42, 250 Liabilities and Owners’ Equity Liabilities $14, 622 Owners’ Equity Paid-in capital 12, 256 Retained earnings 15, 372 Total liabilities and owners’ equity $42, 250 © The Mc. Graw-Hill Companies, Inc. , 1999

A “Package” of Accounting Reports Slide 1 -19 Condensed Balance Sheet As of December 31, 2000 Assets Current assets Building and equip. Other assets Total assets Statement of Retained Earnings Retained earnings Add net income Less dividends Retained earnings Irwin/Mc. Graw-Hill $13, 640 6, 122 19, 762 4, 390 $15, 372 $24, 062 14, 981 3, 207 $42, 250 Liabilities and Owners’ Equity Liabilities $14, 622 Owners’ Equity Paid-in capital 12, 256 Retained earnings 15, 372 Total liabilities and owners’ equity $42, 250 © The Mc. Graw-Hill Companies, Inc. , 1999

Summary Slide 1 -20 An organization has four types of accounting information: Operating information, which has to do with the details of operations Management accounting information, which is used internally for planning, implementation, and control Financial accounting information, which is used both by management and external parties Tax accounting information, which is used to file tax returns with taxing authorities Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 1999

Chapter 1 The End Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 1999