Introduction to business: accounting

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1. Accounting: decision making by the numbers
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
3. What is accounting?
4. organizing, analyzing, and reporting financial information
5. information?
6. data?
8. SO?!?
9. what context do we need to make data meaningful?
10. price − cost price = margin price x sales = revenue cost x sales = CGS revenue − CGS = gross profit
11. Managerial Accounting (insider information)  cost accounting  planning  controlling  tax accounting
12. 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)
14. Auditing: reviewing and evaluating records  independent audit: accuracy of company’s financials  internal audit
15. Tax Accounting  trained in tax law  prepares tax returns  prepares tax strategies
16. Balance Sheet: shows profits & losses as of specific date Fundamental Accounting Equation Assets = Liabilities + Owners’ Equity
17. Tangible Assets  fixed assets (property, plant & equipment PPE)  land  buildings & improvements  equipment  vehicles  furniture & fixtures
18. Tangible Assets  current assets (can be converted to cash w/in one year)  raw materials  work in progress  finished inventory  accounts receivable
19. Intangible Assets  goodwill  intellectual property  trademarks  copyrights  patents
20. Liabilities  current liabilities (due in less than one year)  accounts payable  long-term liabilities (due in one year or more)  notes payable  bonds payable
21. 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)
22. Statement of cash flows • changes to cash balance • operating • inventory, accounts receivable/payable, taxes • investing • equipment, investments • financing • debt, dividends
23. Valuation issues  depreciation  valuation method: cost (book), market, replacement  cost of goods sold  FIFO, LIFO
24. Liquidity Ratios  current ratio: current assets current liabilities  acid-test (quick) ratio: cash + marketable securities + receivables current liabilities
25. Debt (Leverage) debt to OE: total liabilities owners’ equity
26. 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