Chapter 17 Businessman makes yogurt o Can combine knowledge of business quality product P464 Role of acct info Can t be a CEO until stockholders or investment community until you do accounting Acct classifying every business event involving money Buying and selling making investment decisions Know what s going on in company financially involved acct transactions Keep stakeholders informed investors govt employees creditors suppliers Acct disciplines For profit or not for profit company 5 disciplines o Managerial accounting general Helps managers inside company make decisions Gives cost of production Marketing expenses Preparing budgets How to minimize taxes minimize net income on income statement o Financial accounting Annual report annual statements if publicly traded Private accountant for small firms Public accounting firms EY Certify public accountant FASBY p467 Arthur Anderson shut down bc shredding Enron financial statements 17 3 CEOs and CFOs Strict penalties for fraud Sarbanks Oxily International and US FASBY General acct principles o Forensic accounting detectives If you are convicted of fraud you cannot practice publicly Look at assets on balance sheet and demand to see paperwork that supports what the company says they are selling Crazy Eddie inflated sales figures showing more revenue than was actually the case If you inflate revenue it will increase net income bc keeping expenses the same what Enron was doing Money laundering running an illicit business Any transaction 10 000 or above needs to be reported to treasury o Auditing private within a company then becomes external Wants to see all the numbers put in to statement Making sure assets and liabilities line up o Tax Accounting Prepare tax returns for a business o Govt and Not for Profit acct Add up how much is being spent Acct Cycle Chart on 470 o Begin with source documents o Organize them into journals o Then transfer them to journal entries o Take a trial balance to make sure assets liabilities net worth Double entry bookkeeping doesn t impact balance sheet Prepare a trial balance Acct Technology Acct transaction organized into journals ledgers financial statement 3 Financial Statements 473 Balance sheet o Assets Current assets most liquid easily converted into cash Accounts receivable want to collect quickly Inventory Fixed assets they deteriorate depreciation Land does not usually deteriorate can go up in value Building Equipment Furniture Intangible assets Goodwill can t quantify Total assets current fixed intangible 826 000 o Liabilities and Owners equity pay pretty quickly Current liabilities pay within a year Accts Payable Notes payable due June 2011 Accrued taxes Accrued salaries Notes payable due Mar 2015 Bonds payable due Dec 2020 Long term liabilities signed an IOU for long term bonds Owners Equity Common stock 1 000 000 shares Retained earnings what s coming from income statement money you own o Totaling over years of how much is coming from income statement Same as net worth Income statement Revenues How much you brought in in sales o Gross sales o Less sales returns and allowances Cost of goods sold o Beginning inventory Jan 1 o Merchandise purchases o Freight o Net purchases o Cost of goods available for sale o Less ending inventory Dec 31 subtracted from net sales Gross profit Operating expenses o Selling expenses o General expenses o Total operating expenses o Net income before taxes Less income tax expense Net income after taxes goes to balance sheet in owners equity retained earnings Statement of cash flows Looking at cash moving back and forth Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net cash inflow from financing activities Net charge in cash and equivalents Cash balance beginning of year Cash balance end of year what any auditor would compare to bank statement must match Liquidity ratio 482 Current ratio current assets current liabilities want a positive number Debt to owners equity ratio from balance sheet total liabilities owners equity o Want a big number on bottom Earnings per share net income after taxes number of common stock shares outstanding o Want higher earnings per share Return on equity net income after tax total owners equity from balance o Want big income after tax and a big owners equity probably have a sheet smaller percentage Activity Ratios Inventory turnover costs of goods sold Average inventory o Average beginning end 2 o Want a low costs of goods sold and a low average inventory
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