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Robert N. West © VEMBA Accounting© The McGraw-Hill Companies, Inc., 1999
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Tenth Edition
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ACCOUNTING: TEXT AND CASES
Robert N. West © VEMBA Accounting
This electronic presentation
prepared by Douglas Cloud, Professor of
Accounting, Pepperdine University
Robert N. West © VEMBA Accounting
Task Force Clip Art includedin this electronic presentationis used with the permission of
New Vision Technology ofNepean Ontario, Canada
Robert N. West © VEMBA Accounting
The Nature and Purpose of Accounting
© The McGraw-Hill Companies, Inc., 1999
1Part One: Financial Accounting
Robert N. West © VEMBA Accounting
….
PlanningPlanning is the is the process of process of
deciding what deciding what actions should be actions should be
taken in the taken in the future.future.
PlanningPlanning is the is the process of process of
deciding what deciding what actions should be actions should be
taken in the taken in the future.future.
Planning Slide 1-1
Robert N. West © VEMBA Accounting
recognizing that a problem or an opportunity exists
specifying and ranking the criteria to be used to determine the best solution
identifying alternative ways of addressing the problem or opportunity
analyzing the consequences of each alternative comparing these consequences to each other and
the criteria so as to decide which is best
recognizing that a problem or an opportunity exists
specifying and ranking the criteria to be used to determine the best solution
identifying alternative ways of addressing the problem or opportunity
analyzing the consequences of each alternative comparing these consequences to each other and
the criteria so as to decide which is best
Planning Slide 1-2
Planning involves making decisions. Decisions are arrived at by--
Robert N. West © VEMBA Accounting
InformationInformationInformationInformation
The Nature and Purpose of Accounting
Nonquantitative Nonquantitative informationinformation
Nonquantitative Nonquantitative informationinformation
Quantitative Quantitative informationinformation
Quantitative Quantitative informationinformation
Accounting Accounting informationinformation
Accounting Accounting informationinformation
Nonaccounting Nonaccounting informationinformation
Nonaccounting Nonaccounting informationinformation
Consists of
Operating Operating informationinformation
Operating Operating informationinformation
Financial Financial accountingaccounting
Financial Financial accountingaccounting
Management Management accountingaccounting
Management Management accountingaccounting
Tax Tax accountingaccounting
Tax Tax accountingaccounting
Consists of
Slide 1-3
Robert N. West © VEMBA Accounting
Relationship of Management Functions Slide 1-4
Planning
Robert N. West © VEMBA Accounting
Relationship of Management Functions Slide 1-5
Planning Implementation
Robert N. West © VEMBA Accounting
Relationship of Management Functions Slide 1-6
Planning Implementation Control
Robert N. West © VEMBA Accounting
Relationship of Management Functions Slide 1-7
Planning Implementation Control
Appropriate action
Feedback
Plan revision
Robert N. West © VEMBA Accounting
The Balance Sheet Slide 1-8
HOLDEN COMPANYBalance Sheet
As of December 31, 1999(000 omitted)
Assets Liabilities and Owners’ EquityCurrent assets: Current liabilities:Cash $ 1,449 Accounts payable $ 5,602Marketable securities 246 Bank loan payable 1,000Accounts receivable, net 9,944 Accrued liabilities 876Inventories 10,623 Estimated tax liability 1,541Prepaid expenses 389 Current portion of long- term debt 500 Total current assets $22,651 Total current liabilities $ 9,519
Current SectionCurrent SectionCurrent SectionCurrent Section
Robert N. West © VEMBA Accounting
The Balance Sheet Slide 1-9
Assets Liabilities and Owners’ EquityNoncurrent assets: Noncurrent liabilities:Property, plant, equipment Long-term debt, less at cost $26,946 current portion $ 2,000 Less: Accumulated Deferred income taxes 824 Depreciation 13,534 Total liabilities 12,343Property, plant, equipment net 13,412 Owners’ equity:Investments 1,110 Common stock 1,000Patents and trademarks 403 Additional paid-in capital 11,256Goodwill 663 Total paid-in capital 12,256
Retained earnings 13,640Total owners’ equity 25,896Total liabilities and owners’
Total assets $38,239 and owners’ equity $38,239
Noncurrent SectionNoncurrent SectionNoncurrent SectionNoncurrent Section
Robert N. West © VEMBA Accounting
Assets are economic resources which are owned by a business
and are expected to benefit future operations.
Assets are economic resources which are owned by a business
and are expected to benefit future operations.
The Accounting Equation Slide 1-10
Assets = Liabilities + Owners’ Equity
Robert N. West © VEMBA Accounting
The Accounting Equation
Liabilities are obligations of the entity to outside
parties who have furnished resources
Liabilities are obligations of the entity to outside
parties who have furnished resources
Slide 1-11
Assets = Liabilities + Owners’ Equity
Robert N. West © VEMBA Accounting
Sales revenue $75,478Less cost of sales 52,227
Gross margin 23,251Less operating expenses 10,785
Income before taxes 12,466Provision for income taxes 6,344
Net income $ 6,122
Income Statement
HOLDEN COMPANYIncome StatementFor the Year 2000
(000 omitted)
Slide 1-12
Robert N. West © VEMBA Accounting
Useful to present and potential investors and creditors in Useful to present and potential investors and creditors in making rational investment and credit decisionsmaking rational investment and credit decisions
Comprehensible to those who have a reasonable Comprehensible to those who have a reasonable understanding of business and economic activities and are understanding of business and economic activities and are willing to study the information with reasonable diligencewilling to study the information with reasonable diligence
About the economic resources of an enterprise, the claims About the economic resources of an enterprise, the claims to those resources, and the effects of transactions and to those resources, and the effects of transactions and events that change resources and claims to those resourcesevents that change resources and claims to those resources
About an enterprise’s financial performance during a About an enterprise’s financial performance during a periodperiod
Useful to present and potential investors and creditors in Useful to present and potential investors and creditors in making rational investment and credit decisionsmaking rational investment and credit decisions
Comprehensible to those who have a reasonable Comprehensible to those who have a reasonable understanding of business and economic activities and are understanding of business and economic activities and are willing to study the information with reasonable diligencewilling to study the information with reasonable diligence
About the economic resources of an enterprise, the claims About the economic resources of an enterprise, the claims to those resources, and the effects of transactions and to those resources, and the effects of transactions and events that change resources and claims to those resourcesevents that change resources and claims to those resources
About an enterprise’s financial performance during a About an enterprise’s financial performance during a periodperiod
Financial Statement Objectives
Financial reporting should provide information:
Slide 1-13
Robert N. West © VEMBA Accounting
A “Package” of Accounting Reports Slide 1-14
Condensed Balance SheetAs of December 31, 1999
Assets
Current assets $22,651Building and equip. 13,412Other assets 2,176Total assets $38,239
Liabilities and Owners’ EquityLiabilities $12,343 Owners’ EquityPaid-in capital 12,256Retained earnings 13,640Total liabilities and owners’ equity $38,239
Robert N. West © VEMBA Accounting
A “Package” of Accounting Reports Slide 1-15
Income StatementFor the Year 2000
Sales revenue $75,478Less cost of sales 52,222
Gross margin 23,351Less operating exp. 10,785
Income before taxes 12,466Provision for taxes 6,344
Net income, 1999 $ 6,122
Condensed Balance SheetAs of December 31, 1999
Assets
Current assets $22,651Building and equip. 13,412Other assets 2,176Total assets $38,239
Liabilities and Owners’ EquityLiabilities $12,343 Owners’ EquityPaid-in capital 12,256Retained earnings 13,640Total liabilities and owners’ equity $38,239
Robert N. West © VEMBA Accounting
A “Package” of Accounting Reports Slide 1-16
Income StatementFor the Year 2000
Sales revenue $75,478Less cost of sales 52,222
Gross margin 23,351Less operating exp. 10,785
Income before taxes 12,466Provision for taxes 6,344
Net income, 1999 $ 6,122
Statement of Retained Earnings
Retained earnings $13,640Add net income 6,122
19,762Less dividends 4,390Retained earnings $15,372
Condensed Balance SheetAs of December 31, 1999
Assets
Current assets $22,651Building and equip. 13,412Other assets 2,176Total assets $38,239
Liabilities and Owners’ EquityLiabilities $12,343 Owners’ EquityPaid-in capital 12,256Retained earnings 13,640Total liabilities and owners’ equity $38,239
Robert N. West © VEMBA Accounting
A “Package” of Accounting Reports Slide 1-17
Income StatementFor the Year 1999
Sales revenue $75,478Less cost of sales 52,222
Gross margin 23,351Less operating exp. 10,785
Income before taxes 12,466Provision for taxes 6,344
Net income, 1999 $ 6,122
Statement of Retained Earnings
Retained earnings $13,640Add net income 6,122
19,762Less dividends 4,390Retained earnings $15,372
Condensed Balance SheetAs of December 31, 1999
Assets
Current assets $22,651Building and equip. 13,412Other assets 2,176Total assets $38,239
Liabilities and Owners’ EquityLiabilities $12,343 Owners’ EquityPaid-in capital 12,256Retained earnings 13,640Total liabilities and owners’ equity $38,239
Robert N. West © VEMBA Accounting
A “Package” of Accounting Reports Slide 1-18
Statement of Retained Earnings
Retained earnings $13,640Add net income 6,122
19,762Less dividends 4,390Retained earnings $15,372
Current assets $24,062Building and equip. 14,981Other assets 3,207Total assets $42,250 Liabilities and Owners’ EquityLiabilities $14,622 Owners’ EquityPaid-in capital 12,256Retained earnings 15,372Total liabilities and owners’ equity $42,250
Condensed Balance SheetAs of December 31, 2000
Assets
Robert N. West © VEMBA Accounting
A “Package” of Accounting Reports Slide 1-19
Statement of Retained Earnings
Retained earnings $13,640Add net income 6,122
19,762Less dividends 4,390Retained earnings $15,372
Current assets $24,062Building and equip. 14,981Other assets 3,207Total assets $42,250 Liabilities and Owners’ EquityLiabilities $14,622 Owners’ EquityPaid-in capital 12,256Retained earnings 15,372Total liabilities and owners’ equity $42,250
Condensed Balance SheetAs of December 31, 2000
Assets
Robert N. West © VEMBA Accounting
Operating information, which has to do with the details of operations
Management accounting information, which is used internally for planning, implementation, and control
Financial accounting information, which is used both by management and external parties
Tax accounting information, which is used to file tax returns with taxing authorities
Summary Slide 1-20
An organization has four types of accounting information:
Robert N. West © VEMBA Accounting
Chapter 1
The End