MANAGERIAL ACCOUNTING

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MANAGERIAL ACCOUNTING

• BIOLA BOLD

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THE PURPOSE OF ACCOUNTING
TO PROVIDE

• FINANCIAL INFORMATION
• ABOUT A BUSINESS
• TO INDIVIDUALS
• AND ORGANIZATIONS

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WHO ARE THE USERS OF ACCOUNTING INFORMATION?

• OWNERS
• MANAGERS
• CREDITORS
• GOVERNMENT AGENCIES

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THE ACCOUNTING PROCESS
ACCOUNTING IS A SYSTEM OF

• GATHERING FINANCIAL INFORMATION
• ABOUT A BUSINESS
• AND REPORTING IT TO USERS

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STEP ONE
ANALYZING What Happened?
LOOKING AT EVENTS THAT HAVE TAKEN PLACE AND
THINKINGABOUT HOW THEY AFFECT THE BUSINESS -
SOURCE DOCUMENTS
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STEP TWO
CLASSIFYING
SORTING AND GROUPING SIMILAR ITEMS TOGETHER
ASSETS OWNERS EQUITY LIABILITIES
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STEP THREE
RECORDING
ENTERING FINANCIAL INFORMATION ABOUT EVENTS INTO
THE ACCOUNTING SYSTEM
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STEP FOUR
SUMMARIZING
BRINGING THE VARIOUS ITEMS OF INFORMATION
TOGETHER TO DETERMINE A RESULT
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STEP FIVE
REPORTING

• TELLING THE RESULTS
• INCOME STATEMENT
• STATEMENT OF OWNERS EQUITY
• BALANCE SHEET

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STEP SIX
INTERPRETING
DECIDING THE MEANING AND IMPORTANCE OF THE
INFORMATION IN VARIOUS REPORTS
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ACCOUNTING PROCESSSIX MAJOR STEPS
ANALYZING
RECORDING
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ACCOUNTING PROCESSSIX MAJOR STEPS
SUMMARIZING
CLASSIFYING
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ACCOUNTING PROCESSSIX MAJOR STEPS
REPORTING
INTERPRETING
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Week Two
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TYPES OF BUSINESSES

• SERVICE
• MERCHANDISING
• MANUFACTURING

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SERVICE BUSINESS

• A BUSINESS THAT PROVIDES A SERVICE

TRAVEL AGENCY
PHYSICIAN
COMPUTER CONSULTANT
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MERCHANDISING BUSINESS

• A BUSINESS THAT BUYS A PRODUCT FROM ANOTHER
  BUSINESS TO SELL TO CUSTOMERS

PHARMACY
JEWELRY STORE
DEPARTMENT STORE
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MANUFACTURING BUSINESS

• A BUSINESS THAT MAKES A PRODUCT TO SELL

FURNITURE MAKER
AUTO MANUF.
TOY FACTORY
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OWNERSHIP STRUCTURES

• SOLE PROPRIETORSHIP
• PARTNERSHIP
• CORPORATION

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SOLE PROPRIETORSHIP

• ONE OWNER
• OWNER ASSUMES ALL RISK
• OWNER MAKES ALL DECISIONS

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PARTNERSHIP

• TWO OR MORE PARTNERS
• PARTNERS SHARE RISKS
• PARTNERS MAY DISAGREE ON HOW TO RUN BUSINESS

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CORPORATIONS

• STOCKHOLDERS
• STOCKHOLDERS HAVE LIMITED RISK
• STOCKHOLDERS MAY HAVE LITTLE INFLUENCE ON
  BUSINESS DECISIONS

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CORPORATIONS

• Sell more goods and services in total than sole
  proprietorships and partnerships combined
• But there are fewer businesses organized as
  corporations.
• Separate legal entity that exists separate from
  its owners
• Corporations assets and liabilities are those of
  the business, not the owners.
• Corporation can own property, enter into
  contracts and incur debt in its own name. It can
  sue and be sued.

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CHARACTERISTICS
LIMITED LIABILITY OF OWNERS
Owners of a corporation generally have no
personal liability for the debts of the
corporation.
Major advantage of corporations
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CHARACTERISTICS
TRANSFERABLE OWNERSHIP UNITS
Owners equity in a corporation is called Capital
Stock. Capital Stock is divided into shares that
can be transferred from one person to another
without the consent of the other owners and
without disturbing the corporations normal
activities.
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CHARACTERISTICS
EASE OF RAISING CAPITAL
The limited liability and transferable ownership
characteristics are attractive to investors.
Therefore, a corporation generally can obtain
capital by selling additional shares of stock.
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CHARACTERISTICS
NO MUTUAL AGENCY
Unlike partnerships, in a corporation individual
owners do not have the power to act as an agent
of the business.
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CHARACTERISTICS
UNLIMITED LIFE
The corporations charter states the life as
either perpetual or renewable. Changes in
ownership have no effect on the life of a
corporation.
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CHARACTERISTICS
TAXATION OF EARNINGS
Corporations must pay income taxes. In addition,
the corporations owners pay personal income tax
on the dividends they receive. This results in
Double taxation.
DISADVANTAGE
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CHARACTERISTICS
GOVERNMENT REGULATION
Activities of the corporation are regulated by
federal, state and local laws. These laws may
restrict the corporations ownership of real
property, the purchase of its own stock and the
retention of its earnings.
DISADVANTAGE
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CORPORATION

• States have the power to create corporations.
• Incorporators file an application with the
  state.
• Once application is approved...Charter, also
  called Certificate of Incorporation, is prepared,
  including
• Name of the corporation
• Location of the principal office
• Purpose of the business
• Description of the capital stock
• Names and addresses of the incorporators

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TERMINOLOGY

• BYLAWS - provide general guidelines for
  conducting the business
• STOCKHOLDERS - owners in a corporation
• STOCK CERTIFICATE - form that shows the name of
  stockholder and number of shares owned
• BOARD OF DIRECTORS - elected by stockholders,
  determine corporate policies
• OFFICERS - manage the corporation and are
  responsible to the board

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CORPORATE ORGANIZATION
OWNERS (Stockholders)
BOARD OF DIRECTORS
Who elect the
Who Appoint the
OFFICERS (President, Vice President,
Secretary, Treasurer)
EMPLOYEES
Who Manage the
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EQUITY ACCOUNTS
SOLE PROPRIETORSHIP Owners Equity
Owner, Capital
Owner, Drawing
1. Investments
2. Net Loss
3. Drawing
2. Net Income
All Equity transactions eventually affect the one
capital account.
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EQUITY ACCOUNTS
CORPORATION Stockholders Equity
Capital Stock
1. Investments
Only records investments by owners
Additional Paid-In-Capital
1. Investments
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EQUITY ACCOUNTS
CORPORATION Stockholders Equity
Retained Earnings
Capital Stock
1. Investments
2. Net Income
2. Net Loss
Corporations make a distinction between capital
invested by the owners (Paid-In-Capital) and
earnings retained in the business.
Additional Paid-In-Capital
1. Investments
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EQUITY ACCOUNTS
CORPORATION Stockholders Equity
Retained Earnings
Capital Stock
Drawings are now Dividends and reduce Retained
Earnings.
1. Investments
2. Net Income
2. Net Loss
Additional Paid-In-Capital
Dividends
1. Investments
3. Dividends
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EQUITY ACCOUNTS
CORPORATION Stockholders Equity
Retained Earnings
Capital Stock
1. Investments
2. Net Income
2. Net Loss
Separate account which records the earnings of
the corporation
Additional Paid-In-Capital
1. Investments
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CAPITAL STOCK

• AUTHORIZED STOCK - The total number of shares the
  corporate charter authorizes a corporation to
  issue
• ISSUED STOCK - Stock that has been sold and
  issued
• TREASURY STOCK - Stock that has been bought back
• OUTSTANDING STOCK - Number of shares in the hands
  of stockholders.

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COMMON STOCK

• If corporation has only one type of stockits
  called Common Stock.
• Gives its owner the right to
• Vote at stockholder meetings
• Share in earnings distributions
• Purchase additional shares in proportion to the
  owners present holding if more shares are issued
• called the Preemptive Right
• Share in the assets if the corporation liquidates

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PREFERRED STOCK

• Type of stock that gives its owners certain
  rights and privileges superior to those of common
  stock
• for example.right to receive dividends before
  common stock
• dividends are stated as a dollar amount or a of
  par value
• Dont have common stockholders rights
• for example... they dont have the right to vote

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STOCK VALUES
NO-PAR STOCK
PAR VALUE
Dollar amount per share
Stock that has no dollar amount
Recorded in the Capital Stock account
MARKET VALUE
STATED VALUE
Amount for which the stock can be sold
Amount assigned by board of directors