Introduction to business: accounting

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Accounting: decision making by the numbers

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Quiz • Closed book/closed notes • You may collaborate with your team • You are responsible for the answers on your quiz • You do not have to choose the same answers as your team • Put phones away

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What is accounting?

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organizing, analyzing, and reporting financial information

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information?

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data?

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SO?!?

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what context do we need to make data meaningful?

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price − cost price = margin price x sales = revenue cost x sales = CGS revenue − CGS = gross profit

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Managerial Accounting (insider information)  cost accounting  planning  controlling  tax accounting

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Financial Accounting (outsider information)  annual report  private accountant (in-house)  public accountant (clients on a fee basis)  Financial Accounting Standards Board (FASB)  Generally Accepted Accounting Practices (GAAP)

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Auditing: reviewing and evaluating records  independent audit: accuracy of company’s financials  internal audit

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Tax Accounting  trained in tax law  prepares tax returns  prepares tax strategies

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Balance Sheet: shows profits & losses as of specific date Fundamental Accounting Equation Assets = Liabilities + Owners’ Equity

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Tangible Assets  fixed assets (property, plant & equipment PPE)  land  buildings & improvements  equipment  vehicles  furniture & fixtures

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Tangible Assets  current assets (can be converted to cash w/in one year)  raw materials  work in progress  finished inventory  accounts receivable

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Intangible Assets  goodwill  intellectual property  trademarks  copyrights  patents

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Liabilities  current liabilities (due in less than one year)  accounts payable  long-term liabilities (due in one year or more)  notes payable  bonds payable

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Income Statement  shows profit (loss) over a certain period  revenue – CGS = gross margin  gross margin – operating expenses = net income before taxes  net income before taxes – taxes = net income (loss)

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Statement of cash flows • changes to cash balance • operating • inventory, accounts receivable/payable, taxes • investing • equipment, investments • financing • debt, dividends

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Valuation issues  depreciation  valuation method: cost (book), market, replacement  cost of goods sold  FIFO, LIFO

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Liquidity Ratios  current ratio: current assets current liabilities  acid-test (quick) ratio: cash + marketable securities + receivables current liabilities

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Debt (Leverage) debt to OE: total liabilities owners’ equity

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Profitability EPS: net income after taxes number of shares outstanding return on sales: net income net sales return on equity: net income after tax owners’ equity