Financial Accounting Business 020 Professor Bill OBrien Fall

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 n n n 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? n n 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 n Internal Decision Makers n n n Managers Employees External Decision Makers n n Creditors Customers Suppliers Investors FINANCIAL ACCOUNTING – BUS 020 - FALL 2014 Any Others?

Building Blocks n n n Ethics Principles Assumptions FINANCIAL ACCOUNTING – BUS 020 - FALL 2014

It All Comes Down to Ethics! n n You will face an ethical challenge It could impact n n n 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 n Impact of errors on reporting n Impact of errors on investors n Remember: What is. Is! FINANCIAL ACCOUNTING – BUS 020 - FALL 2014

Principles of Financial Accounting n n Historical cost Revenue recognition n n n 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 n n 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 n n n 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 n Assets = Liabilities + Equity or n n 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 n n n n Balance Sheet Income 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 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 R/E

Standard Setting Process n n 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 n n Generally Accepted Accounting Principles--GAAP Who is responsible? n n n Management The Board of Directors The Auditors FINANCIAL ACCOUNTING – BUS 020 - FALL 2014

Accounting Careers n Certified Public Accountant--CPA n n n Assurance, tax and consulting Private industry Internal audit Non-profit organizations Government service Academia FINANCIAL ACCOUNTING – BUS 020 - FALL 2014

Key Terms and Ratios n Terms n n n n Assets Liabilities Equity Revenue Expenses Accounting Equation…A = L + E Ratios n P/E Ratio…market price/net income FINANCIAL ACCOUNTING – BUS 020 - FALL 2014