The Financial Accounting and Its Environment

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Financial accounting provides information to decision makers who are external to the business. Examples include present and future shareholders, present and future creditors, and government regulators. Managerial accounting provides information to decision makers who are internal to the business. This information is not published to people outside of the business

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Nội dung Text: The Financial Accounting and Its Environment

  1. Financial Accounting and Its Environment Chapter 1
  2. Major Types of Accounting • Financial accounting provides  information to decision makers who are  external to the business. – Examples include present and future  shareholders, present and future creditors, and  government regulators.
  3. Major Types of Accounting • Managerial accounting provides  information to decision makers who are  internal to the business. – This information is not published to people  outside of the business.
  4. Major Types of Accounting • Tax accounting involves tax compliance  and tax planning. – Tax compliance involves the calculation of  the company's tax liability after the  transactions for a year have been completed.
  5. Major Types of Accounting • Tax accounting involves tax compliance  and tax planning. – Tax planning involves the consideration of a  transaction before it has taken place in order  to determine tax consequences.
  6. Major Types of Accounting • Accounting Information Systems  – The processes and procedures required to  generate accounting information.
  7. Major Types of Accounting • Nonbusiness Organization Accounting  – Deals with the accounting needs of  organizations which do not attempt to earn a  profit, such as hospitals, colleges, and  churches.
  8. Overview of Financial Accounting Past Financial Transactions and Accounting Other Economic Process Events Financial Decision Statements Makers
  9. The Financial Accounting Process • Categorize past transactions and events. • Measure attributes of those transactions  and events. • Record and summarize the measurements.   
  10. The Financial Accounting Process • The initial valuation of a transaction is  generally not changed in the future. – This original measurement is called the  historical cost.
  11. Primary Financial Statements • The end result of the accounting process is  the preparation of the following: – Balance sheet – Income statement – Statement of cash flows
  12. The Balance Sheet • The balance sheet shows a firm's assets,  liabilities, and owners' equity at one point  in time.
  13. The Balance Sheet • Assets are valuable resources that a firm  owns. • Liabilities are obligations to convey  something of value in the future.
  14. The Balance Sheet • Owners' equity is a residual amount,  calculated by subtracting liabilities from  assets. – If assets are $300 and liabilities are $50, then  owner's equity must equal $250.
  15. The Balance Sheet Assets Liabilities and Owners’ Equity Cash 5,000 Liabilities Accounts receivable 7,000 Accounts payable 8,000 Inventory 10,000 Notes payable 2,000 Equipment 7,000 Total liabilities 10,000 Owners’ equity 19,000 Total assets 29,000 Total liabilities and owners’ equity 29,000
  16. The Income Statement • The income statement summarizes a firm's  revenues and expenses for a period of  time.
  17. The Income Statement • Revenues are inflows of assets from  providing goods and services to  customers.  • Expenses are the costs incurred to  generate revenues.
  18. The Income Statement • If revenues exceed expenses, then the  result is net income. • If expenses exceed revenues, then the  result is a net loss. – If expenses are $500 and revenues are $400,  then there is a net loss of $100.
  19. The Income Statement Revenues Sales 63,000 Expenses Cost of goods sold 35,000 General and administrative 20,000 Tax 3,000 Total expenses 58,000 Net income 5,000
  20. The Statement of Cash Flows • The statement of cash flows summarizes a  firm's inflows and outflows of cash over a  period of time.



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