accounting in the info age

8/13/2019 Accounting in the info age

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The McGraw-Hill Companies, Inc., 2002

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1 Accounting in theInformation Age


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Communication News

Facts

Access

Commentary

Living in the Information Age

Data


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Timeliness

Independence

Freedom-of-

Expression

Living in the Information Age

Communication News

Facts

Access

Commentary

Data


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Identifies

Records

CommunicatesRelevant

Reliable

Comparable

Influence of Accounting

Accounting is asystem that

information

that is

to help users makebetter decisions.


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BusinessSells

Products

Profit

Profit

Services

Goal

Business and Investment


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Sales

- ExpensesProfit

Amounts earned from selling

products or services

Business Profit

Costs incurred with sales

Amounts earnedfrom sales less

expensesincurred


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Retail price 100.00$

Materials and labor (55.15)

Depreciation (6.98)

Rent (1.36)Advertising and promotion (11.83)

Selling and administrative (15.64)

Interest (0.63)

U.S. taxes (2.65)

Other (1.58)

NIKE profit 4.18$

Nikes Profit BreakdownExh.

1.1



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Return$

Risk?

ProfitInvestment

Amount ofuncertaintyabout thereturn we

expect toearn

Return and Risk

The lower the riskof our investment,the lower is our expected return.



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Returns for Bonds with DifferentRisks

Source: The Wall Street Journal

Exhibit 1.2

0% 2% 4% 6% 8% 10%

High Risk

Medium Risk

Low Risk

U.S. Treasury

BondTypes

Different Risk Levels

Bonds arewritten promises

by organizationsto repay

amounts loaned

to them withinterest.

Exh.

1.2



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Land and Building

Factors ofproduction are themeans businessesuse to make profit.

Accounting Information



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IdentifyingEconomic

Events

RecordingEconomic

Events

Reportingand

AnalyzingEconomic

Events

Focus of Accounting



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Generally Accepted Accounting Principles

Provide input to

Help set

Securities andExchange

Commission

Unions

Investors

Accountants

Politicians

Lenders

Others

AICPA

Setting Accounting Rules

Financial Accounting Standards Board



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Reduces time, effortand cost of

recordkeeping.

Improves clericalaccuracy.

Changes the way westore, process andsummarize largemasses of data.

Technology

Accounting and Technology



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Corporation

Law Offices

PartnershipProprietorship

SallysGrocery

Business

Forms of OrganizationExh.

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Nonbusiness

Forms of OrganizationExh.

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Characteristics Proprietorship Partnership Corporation

Business entity yes yes yes

Legal entity no no yesLimited liability no no yes

Unlimited life no no yes

Business taxed no no yes

One owner allowed yes no yes

*

* Limited partnerships and limited liability partnershipsspecifically restrict certain partners liabilities.

Characteristics of BusinessOrganizations

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Owners of a corporation are calledshareholders(or stockholders).

When a corporation issues onlyone class of stock, we call it

common stock (or capital stock).

Corporation


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Libraries Army

Airports Cities

Colleges

Museums Hospitals

Prisons Shelters

Schools

Accounting for these organizations is usually a fund-basedsystem, but the basic principles are similar to

accounting for business organizations.

Nonbusiness Organization

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Financing

Financing Activities

Owner financing (equity)Nonowner financing

(liabilities)

Activities in Organizations

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Financing


Investing

Investing Activities

Buying resources (assets)Selling resources (assets)

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Financing


Operating

Investing

Operating activities

Aimed at selling products

and services

Result in sales and expenses

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Balance Sheet

Assets 5,856.9$ Liabilities 2,720.9$

Equity 3,136.0

Total Assets $5,856.9

Total Liabilities &

Equity $5,856.9

NIKE

Balance Sheet (in millions)

May 31, 2000

A balance sheet reports on investing and financing. It

lists amounts for assets, liabilities, and equity at apoin t in t ime. The relationship is reflected in the

Balance Sheet equation:

Assets = Liabilities + Equity

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Income Statement

An income statement reports on operating activities.

It lists sales (revenues), costs, and expenses over aperiod of t ime. The relationship is expressed:

Net Income = Revenues - Expenses

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Revenues 8,995.1$

Costs and Expenses 8,416.0

Net Income 579.1$

NIKE

Income Statement (in millions)

For the Year Ended May 31, 2000

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Statement of Changes in OwnersEquity

This statement reports changes in the owners claimson the business over a period of t ime. It includes

changes due to income and any owner contributionsand withdrawals (called div idendsin a corporation).

Equity, May 31, 1999 3,334.6$

Add: Net Income 579.1$

Less: Dividend (131.5)

Other changes (646.2)

Equity, May 31, 2000 3,136.0$

NIKE

Statement of Changes in Owners' Equity (in millions)


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Statement of Cash Flows

The statement of cash flows reports on cash flows foroperating, investing, and financing activities over a

period of t ime.

Cash from operating activities 759.9$Cash from investing activities (440.0)

Cash from financing activites (263.7)

Net decrease in cash 56.2$

NIKE

Statement of Cash Flows (in millions)


Exh.

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Managerial Accountingis aimed at InternalUsers

Financial Accounting isaimed at External Users

Managers

Officers

Internal Auditors

LendersShareholders

GovernmentLabor Unions

External AuditorsCustomers

Users of Accounting Information

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Research & Development

Productsand

Services

Internal Operating Functions

Purchasing

Human Resources

Production

Marketing

Distribution

Servicing

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Beliefs thatseparate right

from wrong Acceptedstandards ofgood and

badbehavior

Often coincidewith laws

Ethics

Ethics and Social Responsibility

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IdentifyEthical Issues

AnalyzeOptions

Make EthicalDecision

Use personalethics to

recognize ethicalissues.

Consider boththe good and bad

consequencesfor all affected.

Choose the bestoption afterweighing all

consequences.

Guidelines for Ethical DecisionMaking

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Social Responsibility

Donations to nonprofit

organizations

Programs to reduce

pollution

Programs to improve

worker and consumer

safety Paid time off for

workers

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Financial

StatementPreparationStatement AnalysisAuditingRegulatory

ConsultingPlanningCriminal Investigation

Managerial

General AccountingCost AccountingBudgetingInternal AuditingManagement

Consulting

Taxation

PreparationPlanningRegulatoryInvestigationsConsulting

Accounting-

related

LendersConsultantsAnalystsTradersManagersDirectorsUnderwritersPlannersAppraisersFBI Investigators

Selected Opportunities inAccounting

Exh.

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Accounting Specialization

Certified Public

Accountant (CPA)

Certified Management

Accountant (CMA) Certified Internal

Auditor (CIA)

Chartered FinancialAnalyst (CFA)

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= Net income Avg total assets

ROI is viewed as anindicator of operating

efficiency.

Return on Investment (ROI)

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End of Chapter 1

accounting in the info age

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