FINANCIAL ACCOUNTING ACTG 3000

1
FINANCIAL ACCOUNTINGACTG 3000

• Presented by Charles Kile, Ph.D.
• Professor of Accounting
• Middle Tennessee State University

2
What is Income?

• IF Accounting is viewed as a measure of economic
  performance . . .
• . . . THEN income is the unit of measurement.

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Income Profit Earnings

• These are simply synonymous terms to describe
  the unit of measurement used in the accounting
  system.
• These are not real items. Their inherent meaning
  is only derived by how their measurement is
  determined.

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Income (Profit, Earnings)is comprised of

• REVENUE
• -- and EXPENSES
• (and other special adjustments ( , --)

5
GAAP The Rules that Public Companies Must Follow
for Financial Reporting

• Generally
• Accepted
• Accounting
• Principals

6
3 Criteria for Recognition of Revenue

• 1- The Work has been completed.
• 2- The Collection of money (funds) is reasonably
  assured.
• 3- Collection of funds is reliably measured.

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Recording CostsASSETS EXPENSES

• 1- Immediately Expensed - Now
• 2- Through Long-Term Assets - In Bits Pieces
  over time
• 3- Through Inventory - When Sold
• 4- Through Land - Never

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The Financial Statements

• Income Statement
• Balance Sheet
• Statement of Cash Flows
• Retained Earnings Statement
• Footnote Information

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INCOME STATEMENTREVENUE

• SALES - Revenue generated from selling inventory
  to customers.
• SERVICE REVENUE AND FEES REVENUE Revenue
  generated from performing a service as one of the
  companys lines of business.

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Operating Expenses

• COST OF GOODS SOLD the cost of inventory that
  has been sold
• WAGE EXPENSE the cost of paying employees
• RENT EXPENSE the cost of paying rent
• UTILITIES EXPENSE the cost of paying utilities
• INTEREST EXPENSE the cost of paying interest on
  borrowing
• DEPRECIATION EXPENSE the amount of depreciation
  taken on long-term assets this year
• AMORTIZATION EXPENSE the amount of amortization
  taken on intangible assets this year
• SELLING GENERAL AND ADMINSTRATIVE a host of
  expense items not related to production
  activities.

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OTHER INCOME STATEMENT ACCOUNTS

• Other Revenue
• INTEREST INCOME revenue earned by lending money
• GAINS ON SALES OF ASSETS amount cleared over
  the cost of a sold asset
• Other Expenses
• LOSSES ON SALES OF ASSETS amount deficient
  relative to the cost of a sold asset

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Mechanics of Accounting

• lt ASSETS and EXPENSES increase with a DEBIT
  entry. The have DEBIT balances.
• gt LIABILITIES, EQUITY REVENUE increase with a
  CREDIT entry and have CREDIT balances.