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AccountingManagers 04

This document provides an overview of key accounting concepts for managers, including: - Account categories such as assets, liabilities, and equity and examples of accounts in each. - The accounting equation that shows the relationship between assets, liabilities, and equity. - How transactions are recorded and the double-entry bookkeeping system. - The key financial statements - income statement, statement of owner's equity, and balance sheet - and how they are related. - Types of information provided in each financial statement and how statements can be analyzed.

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Alenne Felizardo
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26 views

AccountingManagers 04

This document provides an overview of key accounting concepts for managers, including: - Account categories such as assets, liabilities, and equity and examples of accounts in each. - The accounting equation that shows the relationship between assets, liabilities, and equity. - How transactions are recorded and the double-entry bookkeeping system. - The key financial statements - income statement, statement of owner's equity, and balance sheet - and how they are related. - Types of information provided in each financial statement and how statements can be analyzed.

Uploaded by

Alenne Felizardo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Accounting for Managers

Module 4:
Financial Statements
Account Categories

• Accounts are the categories into which transactions are classified (assets, liabilities, equity)
• Assets (current, long-term, intangible)
• Current: checking, savings, accounts receivable, inventory, prepaid expenses
• Long-term: equipment, land, buildings, vehicles
• Intangible: intellectual property, goodwill, investments
• Liabilities (current, long-term)
• Current: accounts, sales tax, income tax, wages, unearned revenue
• Long-term: debt
• Equity (owner’s capital, withdrawals, revenue, expenses
• Revenue: sales, service
• Expenses: salaries/wages rent, insurance, taxes
Account Categories (cont.)

• Control accounts (accounts receivable, inventory), backed up with subsidiary ledgers


• Equity accounts: capital contributions by owner and withdrawals
• equity is value of owner’s investment in business
• Common business expenses (rent, salaries, advertising, administrative expenses, insurance)
Accounting Equation

• Accounting Equation:
• Assets = Liabilities + Equity
• Assets – Liabilities = Equity
• Expanded Accounting Equation:
• Equity = Owner Contributions – Owner Withdrawals + Revenues – Expenses
• Assets = Liabilities + Owner Contributions – Owner Withdrawals + Revenues – Expenses
• Equation is basis for entire set of financial statements
• shows what company owns, how much debt there is
• Can be further broken down into subaccounts for data collection and informational purposes
Transactions

• Transaction: economic event that has a monetary impact on financial statements


• Recorded in a journal, sorted by account & posted to ledger, and transferred to financial
statements
• Pay cash for inventory, purchase display case on account, place advertisement in weekly
newspaper, pay employees to work in store stocking shelves
Double Bookkeeping System

• System of bookkeeping, where every entry to an account requires corresponding and


opposite entry to different account
• Left-hand side (debit), right-hand side (credit)
• Accounting cycle: begins with transactions and ends with completed financial state
Entering Transactions in the Journal

• Once transactions for month are journalized, they are posted to ledger pages
• Journal entry is transferred to appropriate account
• In cash account, debit represents increase, and credit represents decrease
• Reference number is account number to which journal entry is posted
• Next step is to create trial balance to make sure debit is balanced out by credit (equity on
right, wages left)
• Then accountant runs final check (adjusted trial balance) and then it can move onto financial
statements
Key Financial Statements
Structures of Key Financial Statements

• Income statement: shows revenues less expenses (net income)


• always begins with revenue and continues with list of expenses for a period of time
• Bottom line on income statement is either increase in owners’ equity (expenses exceed
revenues) or decrease
• Statement of Owners’ Equity: shows beginning owner capital, additions and subtractions to
capital
• Equity – Owner Contributions – Owner Withdrawals + Revenues – Expenses
• Balance Sheet: indicates specific date that is always last day of time period covered by prior
two statements
Relationships Between Financial Statements

• Income Statement (the bottom line): flows to Statement of Owners’ Equity


• Statement of Owners’ Equity: reconciles beginning capital to ending capital
• Balance Sheet
• Statement of Cash Flow: beginning cash and cash equivalents from balance sheet to ending
cash
Key Information in Financial Statements

• Multiple-step income statement begins with Net Sales


• Cost of Goods sold directly matches cost of products sold against Net Sales
• Publicly traded corporations raise capital by borrowing or selling stock on the open market
• Balance sheet shows company’s assets, liabilities, and net worth
• Statement of cash flows shows how changes in balance sheet accounts and income affect
cash & cash equivalents
Analyzing Data from Financial Statements
Reporting Current Assets

• Current assets include cash (bank account balances) & cash equivalents (safe assets readily
converted into cash), accounts receivable, and inventory
• Companies often sell products to customers on credit
• Most liquid assets listed on balance sheet and will turn into cash fairly soon
• Accounts receivable collected within 30 days
• Some current assets are not converted to cash (prepaid expenses such as insurance)
Reporting Inventories

• Inventory includes raw materials, work-in-progress goods, and finished goods held for sale
• Exact makeup of inventory account will differ by company
• manufacturing firm (raw materials)
• Hope Depot or Lowe’s (finished goods only)
Reporting Stockholder Equity

• Account on company’s balance sheet that consists of capital plus retained earnings
• When business is not a corporation and has no stockholders, it will be reflected as Owners
Equity
• Also represents residual value of assets minus liabilities
Reporting Unearned Revenue

• Revenues that make up gross income of business are reported on company’s income
statement
Reporting Expenses

• Expenses that are deducted from gross income to get net income are reported on income
statement
• Connection between balance sheet and income statement results from use of double-entry
accounting or bookkeeping and accounting equation, Assets = Liabilities + Owner’s Equity
Quick Review

• Accounting is language of business

• Manager will be responsible for performance of your company, division, or department

• Being informed consumer for accounting information may one day be the secret to your
success

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