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Introduction to business: accounting

Ted Major
February 18, 2016

Introduction to business: accounting


Ted Major

February 18, 2016

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  1. Accounting:
    decision making by
    the numbers

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  2. 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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  3. What is accounting?

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  4. organizing, analyzing, and
    reporting financial information

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  5. information?

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  6. data?

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  8. SO?!?

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  9. what context do we need to
    make data meaningful?

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

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  11. Managerial Accounting
    (insider information)

    cost accounting



    tax accounting

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  12. Financial Accounting
    (outsider information)

    annual report

    private accountant (in-house)

    public accountant (clients on a fee

    Financial Accounting Standards
    Board (FASB)

    Generally Accepted Accounting
    Practices (GAAP)

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  14. Auditing: reviewing and
    evaluating records

    independent audit: accuracy of
    company’s financials

    internal audit

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  15. Tax Accounting

    trained in tax law

    prepares tax returns

    prepares tax strategies

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

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  17. Tangible Assets

    fixed assets (property, plant &
    equipment PPE)


    buildings & improvements



    furniture & fixtures

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  18. 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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  19. Intangible Assets


    intellectual property




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  20. Liabilities

    current liabilities (due in less than one

    accounts payable

    long-term liabilities (due in one year
    or more)

    notes payable

    bonds payable

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  21. Income Statement

    shows profit (loss) over a certain

    revenue – CGS = gross margin

    gross margin – operating expenses =
    net income before taxes

    net income before taxes – taxes = net
    income (loss)

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

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  23. Valuation issues


    valuation method: cost (book),
    market, replacement

    cost of goods sold


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  24. Liquidity Ratios

    current ratio:
    current assets
    current liabilities

    acid-test (quick) ratio:
    cash + marketable securities + receivables
    current liabilities

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

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

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