Information for Business Decisions I

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Information for Business Decisions I

• Accounting 011
• Professor Bill OBrien
• Fall 2006

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Session 1Introduction to Financial Accounting
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Financial Accounting Model
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Financial Information Users

• Internal Decision Makers
• Managers
• Employees
• External Decision Makers
• Creditors
• Customers
• Suppliers
• Investors

Any Others?
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Financial Statement Components

• Balance Sheet
• Income Statement
• Statement of Retained Earnings or Statement of
  Shareholders Equity
• Statement of Cash Flows
• Footnotes
• Report of Independent Accountants
• Managements Discussion Analysis
• Management Report

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Financial Statement Tour
Stmt of Owners Eq. Stmt of Ret.Earnings
Balance Sheet
Income Statement
Statement of Cash Flows
Current Assets Non- current Assets
Revenue Cost of Goods Sold (COGS) Gross
Margin Operating Exps. Net Income
Current Liabilities Long- term Debt Equity
Operating Cash Investing Cash Financing
Cash Change in Cash Beginning Cash Ending Cash
Beginning R/E Net Income Changes in Eq. Less
Dividends Ending R/E
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Using Financial Information

• Impact of errors on reporting
• Impact of errors on investors
• Remember
• What is. Is!

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Standard Setting Process

• SEC (Securities and Exchange Commission)
• AICPA (Am. Institute of CPAs)
• FASB (Financial Acctg. Stds. Board)
• Sarbanes-Oxley Bill of 2002

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Standard Setting Flow Chart
A Political Circle
-Creates SEC 1934
-Lobbies government
-Delegates standard setting
Pub. Cos.
standards
-Finances FASB indirectly
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High Quality Financial Reporting

• Generally Accepted Accounting Principles--GAAP
• Who is responsible?
• Management
• The Board of Directors
• The Auditors

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Accounting Careers

• Certified Public Accountant--CPA
• Assurance, tax and consulting
• Private industry
• Internal audit
• Non-profit organizations
• Government service
• Academia

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It All Comes Down to Ethics!

• You will face an ethical challenge
• It could impact
• Your job
• Your family
• Your relationships
• Your financial stability
• Your physical well-being
• You have only ONE reputation...

What is. Is!
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Key Terms and Ratios

• Terms
• Assets
• Liabilities
• Equity
• Revenue
• Expenses
• Accounting EquationA L E
• Ratios
• P/E Ratiomarket price/net income