MBAAccounting

AccountingProf:JimWallaceTA:GolfOverviewofWeek1AdministrativestuffWhatisfinancialaccounting?SomeMythsAccrualversusCash-basedFinancialstatementsGAAPAuditingAdministrativeStuffWhoamIWhoisyourT.A.TeachingphilosophySyllabusHomeworkCalculatorWebAccesstoClassInfoThesiteshouldcontain:SyllabusPowerPointslidesHandoutsHomeworksolutionsAmethodtocommunicatefinancialinformationtointerestedexternalparties.Usersincludecapitalproviders,regulators,customers,suppliers,employees,etc•CapitalsuppliersincludedebtandequityprovidersFinancialaccountingisusedforbothpredictionandcontrolAccountingisrigidandyieldsthetruthGenerally-acceptedaccountingprinciples,orGAAP,areasetofrigidrulesthat,iffollowedcorrectly,willleadtoaunique,“correct”representationofthefinancialperformanceandhealthofafirm.Thebasicfinancialstatements,consistingofabalancesheet,anincomestatement,andastatementofcashflows,reflectacomplete,accurate,andtimelyportrayalofthefinancialperformanceandwell-beingofafirmAccountingisthesoleproductofaccountantsGAAPiscreatedfromacomprehensiveanalyticalprocess,whichisfreefrompoliticalinfluence.ItisallthereAllofafirm’sidentifiableassetsandliabilitiesappearonthebalancesheet,andthedifferencebetweenafirm’sassetsanditsliabilitiesrepresentsthevalueofthefirm.ThestatementsstandaloneEachofthefinancialstatementsisindependent,witheachreflectingadifferentaspectofthefirm’sperformanceandfinancialhealth.CashisKing!Cashflowisultimatelywhatmatterstoafirmanditsinvestors;therefore,itisnotreallynecessarytoworryaboutthedefinitionofearningsusedinthepreparationoftheincomestatement.Rather,oneneedonlyconsiderthesourcesandusesofcashasreflectedonthefirm’sstatementofcashflows.SomeadditionalmythsAccountingisuseless.Accountingishard!Accountantsareboring.OtherTypesofAccountingManagerialNon-profitTaxAccrualAccountingAccrualaccountingrestsontwoguidingprinciples:RevenueRecognitionPrinciple–recordrevenuewhenEarnedRealizedorRealizableMatchingPrinciple–recordexpenseswhenIncurredNeithertherecognitionofrevenuenortherecordingofexpensenecessarilyinvolvesthereceiptorpaymentofcashHowdoyoudefinearichperson?Hasalotofvaluablestuff(worthmorethanwhatisowed).MakesalotofmoneyTheFinancialStatementsTheaccountingequationBalanceSheetIncomeStatementStatementofCashFlowsStatementofOwnersEquityStatementofretainedearningsBalanceSheetMirrorstheAccountingEquationAssets=Liabilities+EquityUsesoffunds=SourcesoffundsAssetsarelistedinorderofliquidityCurrentandnon-currentLiabilitiesarelistedinorderofmaturityEquityconsistsofContributedCapitalandRetainedEarningsAssetsTobereportedonabalancesheet,anassetmust:1.Beownedorcontrolledbythecompany2.MustpossessexpectedfuturebenefitsMostAssetsareReportedatHistoricalCostHistoricalCostisObjectiveVerifiableTherefore,notsubjecttobiasHowever,historicalcostisnotparticularly“relevant”tomostreadersofthebalancesheet“Relevancevs.Reliability”isanimportantissuewithaccountants.LiabilitiesLiabilitiesarelistedinorderofmaturityCurrentLiabilitiescomedueinlessthanayear.Noncurrentliabilitiescomedueafterayear.Companiesdesiremorecurrentassetsthancurrentliabilities–thisdifferenceiscallednetworkingcapitalEquityEquityconsistsof:ContributedCapital(cashraisedfromtheissuanceofshares)EarnedCapital(retainedearnings).RetainedEarningsisupdatedeachperiodasfollows:MarketValuevs.BookValueStockholders’equity=CompanybookvalueBookvalueisdeterminedusingGAAP.BookvalueisnotthesameasMarketValue.MarketValue=#ofSharesxPricepershareOnaverage,UScompanybookvalueisroughlytwo-thirdsofmarketvalue.IncomeStatementStatementofStockholders’EquityStatementofEquityisareconciliationofthebeginningandendingbalancesofstockholders’equityaccounts.Mainequitycategoriesare:ContributedcapitalRetainedearnings(includingOtherComprehensiveIncomeorOCI)TreasurystockStatementofCashFlowsStatementofcashflows(SCF)reportscashinflowsandoutflowsCashflowsarereportedbasedonthethreebusinessactivitiesofacompany:1.Operatingactivities:transactionsrelatedtotheoperationsofthebusiness.2.Investingactivities:acquisitionsanddivestituresoflong-termassets3.Financingactivities:issuancesandpaymentstowardequity,borrowings,andlong-termliabilities.ArticulationofFinancialStatementsFinancialstatementsarelinkedwithinandacrosstime–theyarticulate.Balancesheetandincomestatementarelinkedviaretainedearnings.Absentofequitytransactionssuchasstockissuancesandpurchasesanddividendpayments,thechangeinstockholders’equityequalstheincomeorlossfortheperiod.DividendsChangeinCashOperatingcashflowsInvestingcashflowsFinancingcashflowsChangeinshareholders’equityRevenues--------------Expenses--------------NetincomeLiabilities____Share-holders’equityCash--------OtherassetsLiabilities____Share-holders’equityCash--------OtherassetsBalanceSheet(beginningofperiod)BalanceSheet(endofperiod)IncomestatementStatementofcashflowsStatementofshareholders’equityExhibit1.5TheRelationshipAmongtheBasicFinancialStatementsDividendsChangeinCashOperatingcashflowsInvestin