• No results found

Welcome to BU 227. Carolyn MacTavish, PhD, CPA, CA

N/A
N/A
Protected

Academic year: 2021

Share "Welcome to BU 227. Carolyn MacTavish, PhD, CPA, CA"

Copied!
34
0
0

Loading.... (view fulltext now)

Full text

(1)

Welcome to BU 227

(2)

BU 227

Chapter 1:

Financial Statements

and Business Decisions

(3)

Overview of Chapter 1

Nature of accounting

Accounting profession

Types of business organizations

Accounting equation

Financial statements

Ethics in accounting

(4)

Nature of Accounting

WHAT IS IT?

The identification, measurement and

communication of financial information

about economic entities to interested

persons.

INFO ON RESULTS OF ECONOMIC ACTIVITIES

(OPERATING, INVESTING, FINANCING)

RECORD

,

MEASURE

,

CLASSIFY

,

SUMMARIZE

,

COMMUNICATE

,

INTERPRET

&

ANALYSE

(5)

Nature of Accounting

(6)

Nature of Accounting

GOOD ACCOUNTING INFORMATION IS:

USEFUL

Fundamental Qualitative Characteristics

RELEVANCE

REPRESENTATIONAL FAITHFULNESS

Enhancing Qualitative Characteristics

COMPARABILITY

VERIFIABILITY

TIMELINESS

(7)

Nature of Accounting -GAAP

CONCEPTS, RULES, PROCEDURES

THAT DEFINE ACCEPTED ACTG

PRACTICE

COMPARE F/S

AUDIT – GAAS (CAS)

CICA HANDBOOK – 5 Parts

IFRS

ASPE

(8)

Nature of Accounting

TYPES OF ACCOUNTING:

FINANCIAL ACCOUNTING

EXTERNAL USERS

MANAGERIAL ACCOUNTING

(9)

Accounting Profession

TYPES OF ACCOUNTANTS:

PUBLIC

PRIVATE

PROFESSIONAL CERTIFICATION:

CHARTERED ACCOUNTANT (CA) now CPA, CA

CERTIFIED GENERAL ACCOUNTANT (CGA)

CERTIFIED MANAGEMENT ACCOUNTANT (CMA)

CHARTERED PROFESSIONAL ACCOUNTANT

(CPA) – Quebec… and soon to be across Canada

PROFESSIONAL CERTIFICATION:

(10)

Forms of Business Organization

Owner(s) Proprietor – one owner

Partners – two or more owners

Shareholders – usually many owners

Life of entity Limited by

owner’s choice or death

Limited by

partners’ choice or death

Indefinite

Legal status Owner & business are one legal

entity

Owner & business are one legal

entity

Shareholders & business are separate legal entities

Accounting status Owner & business are separate

accounting entities

Owner & business are separate accounting entities Shareholders & business are separate actg entities

(11)

The Four Basic Financial

Statements

1.

STATEMENT OF FINANCIAL POSITION aka Balance Sheet

reports the amount of assets (resources owned), liabilities (amounts

owed), and shareholders’ equity of an accounting entity at a point in

time.

2.

INCOME STATEMENT

– reports the revenues less the expenses of

the accounting period.

3.

STATEMENT OF CHANGES IN EQUITY

– reports the way that

profit, distribution of profit (dividends), and other changes to

shareholders’ equity affected the financial position of the company

during the accounting period.

4.

STATEMENT OF CASH FLOWS

– reports inflows (receipts) and

outflows (payments) of cash during the accounting period in the

(12)

Statement of Financial Position

(Balance Sheet)

SHOWS THE FINANCIAL POSITION OF THE

FIRM

AT ONE POINT IN TIME

(13)

Statement of Financial Position

aka Balance Sheet

ASSETS

RESOURCES

CONTROLLED BY

ENTITY

RESULT OF PAST

TRANSACTION

EXPECTED TO

BENEFIT FUTURE

LIABILITIES

OBLIGATIONS

DUE BY

ENTITY

RESULT OF PAST

TRANSACTION

EXPECTED TO CAUSE

FIRM TO PAYOUT

ASSETS OR RENDER

SERVICES IN FUTURE

SHAREHOLDERS’

EQUITY

OWNERS’ RESIDUAL

(

LEFTOVER

) INTEREST

IN FIRM’S ASSETS

AFTER DEDUCTING

LIABLITIES

(14)

The Accounting Equation

ASSETS

LIABILITIES

SHAREHOLDERS’

EQUITY

ASSETS = LIABILITIES + SHAREHOLDERS’

EQUITY

(15)

Income Statement

SUMMARY OF HOW WELL ENTITY

(16)

Income Statement

(Statement of Comprehensive Income)

REVENUE:

INCREASES

IN ECONOMIC

RESOURCES (EQUITY) DUE TO FIRM’S

ORDINARY ACTIVITIES

E.G. SALE OF GOODS/SERVICES,

RENT/INTEREST FROM LETTING OTHERS

USE FIRM ASSETS

(17)

June 2011

Cash from sale

collected on June 10.

X

May 2011

$1,000 sale made

on May 25.

X

Revenues

Earnings from the sale of goods or services.

Statement of Comprehensive Income

Revenue is recognized in the period in which

goods and services are sold, not necessarily

the period in which cash is received.

When will the revenue from this transaction be recognized?

(18)

May 2011

$1,000 revenue

recognized in May

June 2011

Statement of Comprehensive Income

When will the revenue from this transaction be recognized?

Earnings from the sale of goods or services.

Revenue is recognized in the period in which

goods and services are sold, not necessarily

the period in which cash is received.

Revenues

(19)

Income Statement

EXPENSES:

DECREASES

IN ECONOMIC

RESOURCES (EQUITY) DUE TO FIRM’S

ORDINARY ACTIVITIES

CAUSED BY REVENUE-GENERATING

ACTIVITIES

NOT

DUE TO WITHDRAWALS BY OWNERS

(20)

May 2011

June 2011

Paid $75 cash on May 11

for newspaper ad.

X

Ad appears

on June 8.

X

Expenses

The dollar amount of resources used up by the entity

to earn revenues during a period.

Statement of Comprehensive Income

An expense is recognized in the period in which

goods and services are used, not necessarily

the period in which cash is paid.

When will the expense for this transaction be recognized?

(21)

May 2011

June 2011

Advertising expense

recognized in June.

Statement of Comprehensive Income

The dollar amount of resources used up by the entity

to earn revenues during a period.

An expense is recognized in the period in which

goods and services are used, not necessarily

the period in which cash is paid.

When will the expense for this transaction be recognized?

Expenses

(22)

The Accounting Equation

ASSETS = LIABILITIES + EQUITY

CONTRIBUTED CAPITAL (OWNER CONTRIBUTIONS)

DIVIDENDS

(OWNER WITHDRAWALS)

RETAINED EARNINGS NET INCOME

(REVENUE – EXPENSES)

LET’S TRY SOME QUESTIONS!

(23)

Statement of Owners’ Equity OR

Statement of Retained Earnings (ASPE)

SUMMARIZES CHANGE IN EQUITY DURING THE

PERIOD

OE BALANCE, BEGINNING OF PERIOD

+ OWNER INVESTMENTS DURING

-

OWNER WITHDRAWALS DURING

+ NET INCOME or

-

NET LOSS

= OE BALANCE, END OF PERIOD

LINKS

BALANCE SHEET AND INCOME STATEMENT

Beginning Retained Earnings

+ Net Income OR

-Net Loss

-Dividends

= Ending Retained Earnings

(24)

Statement of Changes in Equity

(IFRS)

Share Retained Other Capital Earnings Components

Balance as at Jan. 1, 2009 6,266 58,646 (9,996) Profit for the year 11,793

Distribution of dividends (5,779) Decrease in share capital (18)

Other comprehensive income (loss) (834) Other changes, net (6,447) Balance as at Dec. 31, 2009 6,248 64,660 (17,277)

THE NESTLE GROUP

Statement of Changes in Equity

(in thousands of CHF)

For the Year Ended December 31, 2009

LO 1

(25)

E1-2 (2)

Beginning Retained Earnings + Net Income – Dividends

=

Ending Retained Earnings

Therefore

Net Income= Ending Retained Earnings + Dividends -

Beginning Retained Earnings

= $12,780 + 0 – 0

= $12,780

Who has financed more?

How much have shareholders financed? $112,780

How much have creditors financed? $ 10,120

(26)

Statement of Cash Flows

SUMMARIZES CASH RECEIPTS AND

PAYMENTS MADE DURING PERIOD,

SHOWING CASH FROM (OR USED IN):

OPERATIONING ACTIVITES

INVESTING ACTIVITIES

FINANCING ACTIVITIES

(27)

Financial Statements

INCOME STATEMENT

BALANCE SHEET STMT OF RETAINED EARNINGS

STMT OF CASH FLOWS NET INCOME

Retained Earnings, ENDING BALANCE

CASH, BEG & END

(28)

P1-3

New Delivery Company was organized on January 1, 2012. At the end of the first

quarter (three months) of operations, the owner prepared a summary of its operations as shown in the first row of the following tabulation:

Summary of Transactions Profit Cash a. Services performed for customers, $66,000, of which

one-sixth remained uncollected at the end of the quarter. $66,000 $55,000 b. Cash borrowed from the local bank, $30,000 (one-year note). c. Small service truck purchased for use in the business: cost,

$9,000; paid 30% down, balance on credit.

d. Expenses, $36,000, of which one-sixth remained unpaid at the end of the quarter.

e. Service supplies purchased for use in the business, $3,000, of which one-fourth remained unpaid (on credit) at the end of the quarter. Also, one-fifth of these supplies were unused (still on hand) at the end of the quarter.

f. Wages earned by employees, $21,000, of which one-half remained unpaid at the end of the quarter

Compute the following for the quarter: Profit (or loss)

(29)
(30)
(31)
(32)
(33)
(34)

References

Related documents

Use of Trademarks Outside the United States: If you have received written authorization from NOVA Chemicals to distribute NOVA Chemicals products outside the United States, you

• Cash flow statements explain balance sheet changes in cash in terms of operating, investing, and financing activities: net cash inflows (outflows) from operating activities,

The statement of cash flows provides information about the cash inflows and outflows from operating, investing, and financing activities during an..

In conclusion, conducting financial statement analysis using information from the statement of cash flows is more difficult than analyses using information from the income

The primary purpose of the cash flow statement is to provide information about cash receipts, cash payments, and the net change in cash resulting from the operating, investing,

Because the statement of cash flows reports only on cash inflows and outflows, significant operating, investing, or financing activities that do not involve cash flows are not

After extending all of the information to the operating activities portion of the work sheet we foot the columns and calculate a cash inflow of $100,000 and a cash outflow of

The projected cash flow statement is completed at the beginning of the accounting period and projects expected cash inflows and outflows for the period to estimate the