McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc All rights reserved Chapter Business Decisions and Financial Accounting PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W Caldwell, D.B.A., CMA Jon A Booker, Ph.D., CPA, CIA Fred Phillips, Ph.D., CA Learning Objective Describe various organizational forms and business decision makers 1-3 Organizational Forms Sole Proprietorship 1-4 Business organization owned by one person The owner is personally liable for all debts of the business Organizational Forms 1-5 Source: BizStats.com The Accounting System Business and Financing Activities Accounting System Accounting Reports External users (creditors, investors, etc.) 1-6 Financial Managerial Internal users (managers, etc.) Accounting is a system of analyzing, recording, summarizing and reporting the results of a business’s activities Learning Objective Describe the purpose, structure, and content of the four basic financial statements 1-7 The Basic Accounting Equation Resources Owned by the company Resources Owed to creditors to stockholders Assets = Liabilities + Stockholders’ Equity Separate Entity Assumption Requires that a business’s financial reports include only the activities of the business and not those of its stockholders 1-8 Assets Resources controlled by the company that have measurable value and are expected to provide future benefits to the company Cash Equipment Supplies 1-9 Furniture Liabilities Amounts owed by the business to creditors Notes Payable 1-10 Accounts Payable 1-30 *Source: 2008 Robert Half Salary Guide www.collegegrad.com/careers/all.shtml Chapter Solved Exercises M1-13, E1-3, E1-6, E1-8, S1-6 (Req 1) M1-13 Preparing a Statement of Retained Earnings Stone Culture Corporation was organized on January 1, 2009 For its first two years of operations, it reported the following: Net Income for 2009 $ 36,000 Net Income for 2010 45,000 Dividends for 2009 15,000 Dividends for 2010 20,000 Total assets at the end of 2009 125,000 Total assets at the end of 2010 242,000 On the basis of the data given, prepare a statement of retained earnings for 2009 (its first year of operations) and 2010 Show computations 1-32 M1-13 Preparing a Statement of Retained Earnings 1-33 E1-3 Preparing a Balance Sheet DSW is a designer shoe warehouse, selling some of the most luxurious and fashionable shoes at prices that people can actually afford Its balance sheet, at November 1, 2008, contained the following items (in thousands) Required: 1.Prepare the balance sheet as of November 1, solving for the missing amount 2.As of November 1, did most of the financing for assets come from creditors or stockholders? 1-34 E1-3 Preparing a Balance Sheet DSW, Inc Balance Sheet At November 1, 2008 (in thousands) Assets Cash Accounts Receivable $45,570 11,888 Property, Plant, and Equipment 233,631 Other Assets 494,294 Total Assets $785,383 Liabilities Accounts Payable $136,405 Notes Payable 99,044 Other Liabilities 79,148 Total Liabilities 314,597 Stockholders’ Equity 1-35 Contributed Capital 291,248 Retained Earnings 179,538 Total Stockholders’ Equity 470,786 Total Liabilities and Stockholders’ Equity $785,383 Most of the financing as of November came from stockholders The stockholders have financed $470,786 of the total assets and creditors have financed only $314,597 of the total assets of the company E1-6 Preparing an Income Statement and Inferring Missing Values Regal Entertainment Group operates movie theaters and food concession counters throughout the United States Its income statement for the quarter ended June 26, 2008, reported the following amounts (in thousands): Required: Solve for the missing amounts and prepare an Income Statement for the quarter ended June 26, 2008 TIP: First put the items in the order they would appear on the Income Statement and then solve for the missing values What is Regal’s main source of revenue and biggest expense? 1-36 E1-6 Preparing an Income Statement and Inferring Missing Values ? ? 1-37 E1-6 Preparing an Income Statement and Inferring Missing Values 1-38 E1-8 Inferring Values Using the Income Statement and Balance Sheet Equations Review the chapter explanations of the income statement and the balance sheet equations Apply these equations in each of the following independent cases to compute the two missing amounts for each case Assume that it is the end of the first full year of operations for the company TIP: First identify the numerical relations among the columns using the balance sheet and income statement equations Then compute the missing amounts 1-39 E1-8 Inferring Values Using the Income Statement and Balance Sheet Equations R – E = NI 1-40 A = L + SE E1-8 Inferring Values Using the Income Statement and Balance Sheet Equations R – E = NI 1-41 A = L + SE S1-6 (Req 1) Critical Thinking: Developing a Balance Sheet On September 30, Ashley and Jason started arguing about who is better off Jason said he was better off because he owned a PlayStation console that he bought last year for $350 He figures that, if needed, he could sell it to a friend for $280 Ashley argued that she was better off because she had $1,000 cash in her bank account and a vintage car that she bought two years ago for $800 but could now sell for $1,400 Jason countered that Ashley still owed $250 on her car loan and that Jason’s dad promised to buy him a Porsche if he does really well in his accounting class Jason said he had $6,000 cash in his bank account right now because he just received a $4,800 student loan Ashley knows that Jason also owes a tuition installment of $800 for this term Required: Prepare a financial report that compares what Ashley and Jason each own and owe on September 30 Make a list of any decisions you had to make when preparing your report 1-42 S1-6 (Req 1) Critical Thinking: Developing a Balance Sheet Balance Sheet ASSETS What is owned Cash Console Car TOTAL What is owed LIABILITIES Car loan Tuition Payable Student Loan TOTAL “Net worth” EQUITY TOTAL 1-43 Ashley Jason $1,000 -0800 $1,800 $6,000 350 -0$6,350 $ 250 -0-0250 1,550 $1,800 $ -0800 4,800 5,600 750 $6,350 End of Chapter [...]... BASIC ACCOUNTING EQUATION Assets = Liabilities + Stockholders’ Equity 1-17 The Statement of Cash Flows Summarizes how a business s operating, investing, and financing activities caused its cash balance to change over a particular period of time 1-18 Notes to the Financial Statements Notes help financial statement users understand how the amounts were derived and what other information may affect their decisions. .. company’s profits)? I/S Learning Objective 4 Describe factors that contribute to useful financial information 1-25 External Financial Reporting Main Goal: Provide useful financial information to external users for decision making Useful Useful Relevant Relevant 1-26 Faithful Faithful Representation Representation Accounting Standards 1-27 World World United United States States Where? Where? FASB FASB Who?... assets and creditors have financed only $314,597 of the total assets of the company E1-6 Preparing an Income Statement and Inferring Missing Values Regal Entertainment Group operates movie theaters and food concession counters throughout the United States Its income statement for the quarter ended June 26, 2008, reported the following amounts (in thousands): Required: 1 Solve for the missing amounts and. .. decisions 1-19 Relationships Among the Financial Statements Net income flows from the Income Statement to the Statement of Retained Earnings 11 1-20 Relationships Among the Financial Statements Ending Retained Earnings flows from the Statement of Retained Earnings to the Balance Sheet 22 1-21 Relationships Among the Financial Statements Cash on the Balance Sheet and Cash at End of Year on the Statement... states that of results of revenues business less activities expenses should be reported in an for a period appropriate of time monetary unit 1-15 The Statement of Retained Earnings Reports the way that net income and the distribution of dividends affected the financial position of the company during the period 1-16 The Balance Sheet Reports at a point in time: 1 What a business owns (assets) 2 What it... Equity Owners’ claim to the business resources Contributed Capital Retained Earnings Stock Certificate 1-11 Revenues, Expenses and Net Income Revenues – Expenses = Net Income 1-12 Dividends Distributions of a company’s earnings to its stockholders as a return on their investment Dividends are not an expense 1-13 Financial Statements Income Statement Statement of Retained Earnings Financial statements are... 2008 (in thousands) Assets Cash Accounts Receivable $45,570 11,888 Property, Plant, and Equipment 233,631 Other Assets 494,294 Total Assets $785,383 Liabilities Accounts Payable $136,405 Notes Payable 99,044 Other Liabilities 79,148 Total Liabilities 314,597 Stockholders’ Equity 1-35 Contributed Capital 291,248 Retained Earnings 179,538 Total Stockholders’ Equity 470,786 Total Liabilities and Stockholders’... 2009 (its first year of operations) and 2010 Show computations 1-32 M1-13 Preparing a Statement of Retained Earnings 1-33 E1-3 Preparing a Balance Sheet DSW is a designer shoe warehouse, selling some of the most luxurious and fashionable shoes at prices that people can actually afford Its balance sheet, at November 1, 2008, contained the following items (in thousands) Required: 1.Prepare the balance... GAAP GAAP What? What? IFRS IFRS Ethical Conduct When faced with an ethical dilemma: Identify who will benefit from the situation and how others will be harmed Identify the alternative courses of action Choose the alternative that is the most ethical 1-28 Chapter 1 Supplement Accounting Careers 1-30 *Source: 2008 Robert Half Salary Guide www.collegegrad.com/careers/all.shtml Chapter 1 Solved Exercises... Relationships Among the Financial Statements Cash on the Balance Sheet and Cash at End of Year on the Statement of Cash Flows agree 33 1-22 Learning Objective 3 Explain how financial statements are used by decision makers 1-23 Using Financial Statements Creditors Investors (1)Is the company generating enough cash to make payments on its loans? … SCF (1)What immediate return (through dividends) on my contributions? ... Accounting System Business and Financing Activities Accounting System Accounting Reports External users (creditors, investors, etc.) 1-6 Financial Managerial Internal users (managers, etc.) Accounting. .. to the Financial Statements Notes help financial statement users understand how the amounts were derived and what other information may affect their decisions 1-19 Relationships Among the Financial. .. summarizing and reporting the results of a business s activities Learning Objective Describe the purpose, structure, and content of the four basic financial statements 1-7 The Basic Accounting