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Financial Accounting

Esperanza Huerta

Financial Accounting Esperanza Huerta Esperanza Huerta

Esperanza Huerta

Financial Accounting Esperanza Huerta Esperanza Huerta

Learning map

Cash Financial Operating Investing Financing flow statements Resources Resources Decisions
Cash
Financial
Operating
Investing
Financing
flow
statements
Resources
Resources
Decisions
map Cash Financial Operating Investing Financing flow statements Resources Resources Decisions Esperanza Huerta

Esperanza Huerta

map Cash Financial Operating Investing Financing flow statements Resources Resources Decisions Esperanza Huerta

Learning map

Cash Financial Operating Investing Financing flow statements Resources Resources Decisions
Cash
Financial
Operating
Investing
Financing
flow
statements
Resources
Resources
Decisions

Chapter 1 Economic environment of financial information Chapter 2 From accounting events to financial statements

Chapter 4 Using financial statements for investment

and credit decisions

events to financial statements Chapter 4 Using financial statements for investment and credit decisions Esperanza Huerta

Esperanza Huerta

events to financial statements Chapter 4 Using financial statements for investment and credit decisions Esperanza Huerta

Learning map

Cash Financial Operating Investing Financing flow statements Resources Resources Decisions
Cash
Financial
Operating
Investing
Financing
flow
statements
Resources
Resources
Decisions

Chapter 5 Operating cycle, revenue recognition, and receivable valuation

Chapter 6 Operating expenses, inventory valuation,

and accounts payable

and receivable valuation Chapter 6 Operating expenses, inventory valuation, and accounts payable Esperanza Huerta

Esperanza Huerta

and receivable valuation Chapter 6 Operating expenses, inventory valuation, and accounts payable Esperanza Huerta

Learning map

Cash Financial Operating Investing Financing flow statements Resources Resources Decisions
Cash
Financial
Operating
Investing
Financing
flow
statements
Resources
Resources
Decisions

Chapter 7 Long-lived fixed assets, intangible assets, and natural resources

Resources Decisions Chapter 7 Long-lived fixed assets, intangible assets, and natural resources Esperanza Huerta

Esperanza Huerta

Resources Decisions Chapter 7 Long-lived fixed assets, intangible assets, and natural resources Esperanza Huerta

Learning map

Cash Financial Operating Investing Financing flow statements Resources Resources Decisions
Cash
Financial
Operating
Investing
Financing
flow
statements
Resources
Resources
Decisions

Chapter 9 Debt financing: bonds, notes, and leases Chapter 10 Commitments and contingent liabilities

Chapter 11 Equity financing and shareholders’ equity

Chapter 10 Commitments and contingent liabilities Chapter 11 Equity financing and shareholders’ equity Esperanza Huerta

Esperanza Huerta

Chapter 10 Commitments and contingent liabilities Chapter 11 Equity financing and shareholders’ equity Esperanza Huerta

Learning map

Cash Financial Operating Investing Financing flow statements Resources Resources Decisions
Cash
Financial
Operating
Investing
Financing
flow
statements
Resources
Resources
Decisions

Chapter 3 Measuring performance: cash flow and net income

statements Resources Resources Decisions Chapter 3 Measuring performance: cash flow and net income Esperanza Huerta

Esperanza Huerta

statements Resources Resources Decisions Chapter 3 Measuring performance: cash flow and net income Esperanza Huerta

Learning map

Cash Financial Operating Investing Financing flow statements Resources Resources Decisions
Cash
Financial
Operating
Investing
Financing
flow
statements
Resources
Resources
Decisions

Chapter 1 Economic environment of financial information Chapter 2 From accounting events to financial statements

Chapter 4 Using financial statements for investment

and credit decisions

events to financial statements Chapter 4 Using financial statements for investment and credit decisions Esperanza Huerta

Esperanza Huerta

events to financial statements Chapter 4 Using financial statements for investment and credit decisions Esperanza Huerta

Chapter objectives

1. Identify the basic financial statementsthe income statement, the balance sheet, the statement of cash flow, and the statement of shareholders’ equity

2. Explain how companies acquire capital from investors who purchase the debt and equity securities issued by such firms to obtain an expected return commensurate

with the risk the investors assume.

3. Describe the role of accounting rules in facilitating a properly functioning capital market.

4. Explain the conflicts of interest that can arise between

executives, debtholders, and shareholders of a

corporation and the costs associated with the divergent incentives that can arise when ownership and management of a company are separated.

with the divergent incentives that can arise when ownership and management of a company are separated.

Esperanza Huerta

with the divergent incentives that can arise when ownership and management of a company are separated.

Agenda

Accounting areas

Standards in financial accounting Accounting basis

Financial statements Supplements

Accounting areas Standards in financial accounting Accounting basis Financial statements Supplements Esperanza Huerta

Esperanza Huerta

Accounting areas Standards in financial accounting Accounting basis Financial statements Supplements Esperanza Huerta

Accounting definition

Areas

Standards

Accounting basis

Financial statements

Supplements

Accounting is an information system that identifies, records, and communicates the economic events of an organization to interested users.

Who uses accounting information?

communicates the economic events of an organization to interested users. Who uses accounting information? Esperanza Huerta

Esperanza Huerta

communicates the economic events of an organization to interested users. Who uses accounting information? Esperanza Huerta
Internal users Areas Standards Accounting basis Financial statements Supplements • Managers who plan, organize

Internal users

Areas

Standards

Accounting basis

Financial statements

Supplements

Managers who plan, organize and

run a business

Marketing managers

Production supervisors

Finance directors

Company officers

They have the authority to request ad hoc information

– Finance directors – Company officers • They have the authority to request ad hoc information
– Finance directors – Company officers • They have the authority to request ad hoc information

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– Finance directors – Company officers • They have the authority to request ad hoc information

External users

Areas Standards Accounting basis Financial statements Supplements

Areas

Standards

Accounting basis

Financial statements

Supplements

Accounting basis Financial statements Supplements  Investors  Creditors  Others  Regulatory

Investors Creditors

Others

Regulatory agencies

Tax authorities

Customers

Labor Unions Economic planners

They usually do not have the authority to request ad hoc information

Unions  Economic planners  They usually do not have the authority to request ad hoc
Unions  Economic planners  They usually do not have the authority to request ad hoc

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Accounting areas

Financial Managerial Audience External Internal Areas Temporality Past Present and Standards future Accounting
Financial
Managerial
Audience
External
Internal
Areas
Temporality
Past
Present and
Standards
future
Accounting basis
Restrictions
Regulated
Not regulated
Financial statements
Information
Monetary
Supplements
Monetary and
non monetary
Nature of the
Objetive
Subjective
information
Scope
Aggregated
Limited
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Financial accounting standards

Areas

Standards

Accounting basis

Financial statements

Supplements

GAAP

The phrase “general accepted accounting principlesis a technical accounting term

that encompasses the conventions, rules,

and procedures necessary to define accepted accounting practice at a particular time.

Source: Auditing Standards Board AU411

to define accepted accounting practice at a particular time. Source: Auditing Standards Board AU411 Esperanza Huerta

Esperanza Huerta

to define accepted accounting practice at a particular time. Source: Auditing Standards Board AU411 Esperanza Huerta

Accounting in the US

Areas

Standards

Accounting basis

Financial statements

Supplements

1887: American Accounting Association 1913: First federal income taxes

1929: Market crash

1933: Security and Exchange Comission (SEC) 1938: SEC delegates its authority to set accounting standards to the American Institute of

Accountants

1957: AIA becomes the American Institute of Certified Public Accountants (AICPA) 1959: Accounting Principles Board (APB) de AICPA 1973: Financial Accounting Standard Board (FASB) 2002: Sarbanes Oxley

Fuente: Dennis, A., Taking account: key dates for the profession,Journal of Accountancy, October 2000 (190:4)

Dennis, A., Taking account: key dates for the profession,Journal of Accountancy, October 2000 (190:4) Esperanza Huerta
Dennis, A., Taking account: key dates for the profession,Journal of Accountancy, October 2000 (190:4) Esperanza Huerta

Esperanza Huerta

FASB and IASB

FASB and IASB E s p e r a n z a H u e r

Esperanza Huerta

Johnson, S. Goodbye GAAP, CFO, April 2008, p. 51

FASB and IASB E s p e r a n z a H u e r

Standards in the US

Areas

Standards

Accounting basis

Financial statements

Supplements

FASB SFAS

AICPA

SEC

Accounting basis Financial statements Supplements • FASB – SFAS • AICPA • SEC Esperanza Huerta

Esperanza Huerta

Accounting basis Financial statements Supplements • FASB – SFAS • AICPA • SEC Esperanza Huerta

Accounting basis

Areas

An accounting basis establishes when an economic transaction has ocurred

Standards

Accounting basis

Cash basis

Financial statements

Supplements

Accrual basis

Standards Accounting basis Cash basis Financial statements Supplements Accrual basis Esperanza Huerta

Esperanza Huerta

Standards Accounting basis Cash basis Financial statements Supplements Accrual basis Esperanza Huerta

Cash basis accounting

Areas

Standards

Accounting basis

Financial statements

Supplements

Revenues are recorded only when

cash is received

Expenses are recorded only when

cash is paid

Supplements Revenues are recorded only when cash is received Expenses are recorded only when cash is

Esperanza Huerta

Supplements Revenues are recorded only when cash is received Expenses are recorded only when cash is

Accrual basis accounting

Areas

Standards

Accounting basis

Financial statements

Supplements

Revenues are recorded only when earned, not when cash

is received

Expenses are recorded only

when incurred, not when cash

paid

only when earned, not when cash is received Expenses are recorded only when incurred, not when

Esperanza Huerta

only when earned, not when cash is received Expenses are recorded only when incurred, not when
Kimmel et al, 20097 p 164 Esperanza Huerta

Kimmel et al, 20097 p 164

Kimmel et al, 20097 p 164 Esperanza Huerta

Esperanza Huerta

Kimmel et al, 20097 p 164 Esperanza Huerta

Accrual vs. cash

Areas

Standards

Accounting basis

Financial statements

Supplements

Accrual basis

Revenue

Cash inflow

Standards Accounting basis Financial statements Supplements Accrual basis Revenue  Cash inflow Esperanza Huerta

Esperanza Huerta

Standards Accounting basis Financial statements Supplements Accrual basis Revenue  Cash inflow Esperanza Huerta

Accrual vs cash

Areas

Standards

Accounting basis

Financial statements

Supplements

 

Accrual

Cash

Criterion

Subjective

Objective

Recognition

“Complete”

Incomplete

Performance

Adequate

Not adequate

measurement

GAAP compliant

Yes

No

Incomplete Performance Adequate Not adequate measurement GAAP compliant Yes No Esperanza Huerta

Esperanza Huerta

Incomplete Performance Adequate Not adequate measurement GAAP compliant Yes No Esperanza Huerta

Starbucks 2005

Starbucks 2005 Esperanza Huerta
Starbucks 2005 Esperanza Huerta

Esperanza Huerta

Starbucks 2005 Esperanza Huerta

Starbucks 2005

Starbucks 2005 Esperanza Huerta
Starbucks 2005 Esperanza Huerta

Esperanza Huerta

Starbucks 2005 Esperanza Huerta

America Movil 2004

America Movil 2004 Esperanza Huerta
America Movil 2004 Esperanza Huerta

Esperanza Huerta

America Movil 2004 Esperanza Huerta

America Movil 2004

America Movil 2004 Esperanza Huerta
America Movil 2004 Esperanza Huerta

Esperanza Huerta

America Movil 2004 Esperanza Huerta

America Movil 2004

America Movil 2004 Esperanza Huerta
America Movil 2004 Esperanza Huerta

Esperanza Huerta

America Movil 2004 Esperanza Huerta

Macadamia Orchards LP

2004

(f) Revenue. Macadamia nut sales are recognized when nuts

are harvested and delivered to the buyer. Contract farming

revenue and administrative services revenues are recognized in the period that such services are provided.

and administrative services revenues are recognized in the period that such services are provided. Esperanza Huerta

Esperanza Huerta

and administrative services revenues are recognized in the period that such services are provided. Esperanza Huerta

Bachoco 2004

Bachoco 2004 Esperanza Huerta
Bachoco 2004 Esperanza Huerta

Esperanza Huerta

Bachoco 2004 Esperanza Huerta

Financial statements

Areas

Standards

Accounting basis

Financial statements

Supplements

Accounting system

Record the transactions
Record the
transactions
statements Supplements Accounting system Record the transactions Economic event Esperanza Huerta Financial statements

Economic event

statements Supplements Accounting system Record the transactions Economic event Esperanza Huerta Financial statements

Esperanza Huerta

statements Supplements Accounting system Record the transactions Economic event Esperanza Huerta Financial statements

Financial

statements

statements Supplements Accounting system Record the transactions Economic event Esperanza Huerta Financial statements

Financial statements

Areas

Standards

Accounting basis

Financial statements

Supplements

Balance sheet

Income statement

Statement of cash flow

• Statement of stockholder’s equity

Balance sheet • Income statement • Statement of cash flow • Statement of stockholder’s equity Esperanza

Esperanza Huerta

Balance sheet • Income statement • Statement of cash flow • Statement of stockholder’s equity Esperanza

Areas

Standards

Accounting basis

Financial statements

Supplements

Balance sheet

Reports assets and claims to assets. Claims of creditors, liabilities. Claims of owners, stockholders’ equity. Assets = Liabilities + Stockholders’ Equity

Specific date one point in time!

BS 2012

Liabilities

Assets

SH equity

Resources Sources

Equity Specific date – one point in time! BS 2012 Liabilities Assets SH equity Resources Sources

Esperanza Huerta

Equity Specific date – one point in time! BS 2012 Liabilities Assets SH equity Resources Sources

Balance sheet

Areas

Standards

Accounting basis

Financial statements

Supplements

BS 2012

Liabilities

Assets

SH equity

Resources Sources

Assets: Resources owned by the business

Liabilities: Obligations or debts of business

Stockholders equity: Ownership claims on assets

• Liabilities: Obligations or debts of business • Stockholders equity: Ownership claims on assets Esperanza Huerta

Esperanza Huerta

• Liabilities: Obligations or debts of business • Stockholders equity: Ownership claims on assets Esperanza Huerta

Balance sheet

Areas

Standards

Accounting basis

Financial statements

Supplements

Resources= Sources

Assets= Libilities+ Stockholder’s equity

basis Financial statements Supplements Resources= Sources Assets= Libilities+ Stockholder’s equity Esperanza Huerta

Esperanza Huerta

basis Financial statements Supplements Resources= Sources Assets= Libilities+ Stockholder’s equity Esperanza Huerta

Classified Balance Sheet

Areas

Standards

Accounting basis

Financial statements

Supplements

Assets

Current Assets

Long-Term Investments

Property, Plant, and

Equipment

Intangible Assets

– Current Assets – Long-Term Investments – Property, Plant, and Equipment – Intangible Assets Esperanza Huerta

Esperanza Huerta

– Current Assets – Long-Term Investments – Property, Plant, and Equipment – Intangible Assets Esperanza Huerta

Current Assets

Areas

Standards

Accounting basis

Financial statements

Supplements

Assets that are expected to be converted to cash or used up within one year.

Current assets are listed in order of

liquidity. Examples:

Cash

Short-term investments

Receivables

Inventories

Prepaid expenses

Examples: – Cash – Short-term investments – Receivables – Inventories – Prepaid expenses Esperanza Huerta

Esperanza Huerta

Examples: – Cash – Short-term investments – Receivables – Inventories – Prepaid expenses Esperanza Huerta

Long-Term Investments

Areas

Standards

Accounting basis

Financial statements

Supplements

Investments of stocks and bonds

of other corporations which are normally held for many years.

Investments in long-term assets

such as land or buildings that are

not currently being used in the

company’s operations

assets such as land or buildings that are not currently being used in the company’s operations

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assets such as land or buildings that are not currently being used in the company’s operations

Property, Plant, and Equipment

Areas

Standards

Accounting basis

Financial statements

Supplements

Assets with relatively long useful lives.

Assets used in operating the business.

Examples:

land

buildings

machinery

delivery equipment

furniture and fixtures

Examples: – land – buildings – machinery – delivery equipment – furniture and fixtures Esperanza Huerta

Esperanza Huerta

Examples: – land – buildings – machinery – delivery equipment – furniture and fixtures Esperanza Huerta

Depreciation is

Areas

Standards

Accounting basis

Financial statements

Supplements

Practice of allocating an

asset’s full purchase price to a number of years instead of

expensing full cost in year of

purchase.

asset’s full purchase price to a number of years instead of expensing full cost in year

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asset’s full purchase price to a number of years instead of expensing full cost in year

Accumulated Depreciation

Areas

Standards

Accounting basis

Financial statements

Supplements

Shows the total amount of

depreciation that the company has expensed thus

far in the asset’s life.

• Shows the total amount of depreciation that the company has expensed thus far in the

Esperanza Huerta

• Shows the total amount of depreciation that the company has expensed thus far in the

Assets That A Company

Depreciates

Should be shown at cost less

accumulated depreciation

Assets That A Company Depreciates Should be shown at cost less accumulated depreciation Esperanza Huerta
Assets That A Company Depreciates Should be shown at cost less accumulated depreciation Esperanza Huerta

Esperanza Huerta

Assets That A Company Depreciates Should be shown at cost less accumulated depreciation Esperanza Huerta

Intangible Assets

Areas

Standards

Accounting basis

Financial statements

Supplements

Non-current assets

Have no physical substance

Examples:

patents

copyrights

trademarks or trade names

franchise

substance • Examples: – patents – copyrights – trademarks or trade names – franchise Esperanza Huerta

Esperanza Huerta

substance • Examples: – patents – copyrights – trademarks or trade names – franchise Esperanza Huerta

Areas

Standards

Accounting basis

Financial statements

Supplements

Assets

BS 2012

Current

Fixed

Intangible

Liabilities

SH equity

Resources Sources

statements Supplements Assets BS 2012 Current Fixed Intangible Liabilities SH equity Resources Sources Esperanza Huerta

Esperanza Huerta

statements Supplements Assets BS 2012 Current Fixed Intangible Liabilities SH equity Resources Sources Esperanza Huerta

Classified Balance sheet

Areas

Standards

Accounting basis

Financial statements

Supplements

Liabilities

Current Liabilities

Long-Term Liabilities

Stockholders' Equity

Capital stock

Retained earnings

– Long-Term Liabilities • Stockholders' Equity – Capital stock – Retained earnings Esperanza Huerta

Esperanza Huerta

– Long-Term Liabilities • Stockholders' Equity – Capital stock – Retained earnings Esperanza Huerta

Current Liabilities

Areas

Standards

Accounting basis

Financial statements

Supplements

Obligations that are supposed to be paid within the coming year

accounts payable

wages payable

bank loans payable

interest payable

taxes payable

current maturities of long-term

bank loans payable

payable • interest payable • taxes payable • current maturities of long-term bank loans payable Esperanza

Esperanza Huerta

payable • interest payable • taxes payable • current maturities of long-term bank loans payable Esperanza

Long-Term Liabilities

Debts expected to be paid

after one year

Examples…

bonds payable

mortgages payable

long-term notes payable

lease liabilities and

Areas

Standards

Accounting basis

Financial statements

Supplements

obligations under employee pension plans

Accounting basis Financial statements Supplements obligations under employee pension plans Esperanza Huerta
Accounting basis Financial statements Supplements obligations under employee pension plans Esperanza Huerta

Esperanza Huerta

Stockholders' Equity

Areas

Standards

Accounting basis

Financial statements

Supplements

Capital stock - investments of assets in the business by the

stockholders

Retained earnings - earnings

kept for use in the business

assets in the business by the stockholders • Retained earnings - earnings kept for use in

Esperanza Huerta

assets in the business by the stockholders • Retained earnings - earnings kept for use in

Areas

Standards

Accounting basis

Financial statements

Supplements

Classified BS

BS 2012

Current

Fixed

Intangible

Current

Long-term

Capital

RE

Resources Sources

Supplements Classified BS BS 2012 Current Fixed Intangible Current Long-term Capital RE Resources Sources Esperanza Huerta

Esperanza Huerta

Supplements Classified BS BS 2012 Current Fixed Intangible Current Long-term Capital RE Resources Sources Esperanza Huerta

Areas

Standards

Accounting basis

Financial statements

Supplements

Retained earnings

Earned on periods before the

period reported

Earned on the period reported

Dividends issued

Earned on periods before the period reported • Earned on the period reported • Dividends issued

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Earned on periods before the period reported • Earned on the period reported • Dividends issued

Retained earnings

   

1

2

3

4

Areas

Periods before

0

100

175

115

Standards

Period reported

100

75

(60)

90

Accounting basis

Retained earnings

100

175

115

205

         

Financial statements

Supplements

100 175 115 205           Financial statements Supplements Esperanza Huerta

Esperanza Huerta

100 175 115 205           Financial statements Supplements Esperanza Huerta

Expanding the accounting

equation

Areas

 

Assets=

Liabilities +

SH equity

Standards

 

Accounting basis

Assets=

Liabilities+

Capital stock

+ Retained

Financial statements

 

Supplements

Assets=

Liabilities +

Capital stock

+ RE

 

(before)

Assets= Liabilities + Capital stock + RE   (before) Esperanza Huerta earnings + RE (current period)

Esperanza Huerta

earnings

+ RE

(current

period)

Assets= Liabilities + Capital stock + RE   (before) Esperanza Huerta earnings + RE (current period)

Google, Inc.’s Balance Sheet

All numbers in millions

December 31

2009

2008

Assets

Current Assets

Cash and cash equivalents Short term investments Net receivables Other current assets

$10,198

$ 8,657

14,287

7,189

3,846

2,928

836

1,404

Total Current Assets

29,167

20,178

Long term investments

129

85

Property, plant and equipment

4,845

5,234

Intangible assets

5,677

5,837

Other long term assets

679

434

Total Assets

$40,497

$31,768

Liabilities

Current Liabilities Accounts payable Other current liabilities Total Current Liabilities Long-term liabilities Total Liabilities Stockholders' Equity Common stock Retained earnings Total Stockholders' Equity Total Liab. & Stockholders' Equity

 

$2,463

$ 2,002

285

300

2,748

2,302

1,745

1,227

4,493

3,529

15,922

14,677

20,082

13,562

36,004

28,239

$40,497

$31,768

20,082 13,562 36,004 28,239 $40,497 $31,768 Esperanza Huerta © Cambridge Business Publishers, 2011
20,082 13,562 36,004 28,239 $40,497 $31,768 Esperanza Huerta © Cambridge Business Publishers, 2011
20,082 13,562 36,004 28,239 $40,497 $31,768 Esperanza Huerta © Cambridge Business Publishers, 2011
20,082 13,562 36,004 28,239 $40,497 $31,768 Esperanza Huerta © Cambridge Business Publishers, 2011
20,082 13,562 36,004 28,239 $40,497 $31,768 Esperanza Huerta © Cambridge Business Publishers, 2011

Esperanza Huerta

20,082 13,562 36,004 28,239 $40,497 $31,768 Esperanza Huerta © Cambridge Business Publishers, 2011

© Cambridge Business Publishers, 2011

20,082 13,562 36,004 28,239 $40,497 $31,768 Esperanza Huerta © Cambridge Business Publishers, 2011

Income Statement

Areas

Standards

Accounting basis

Financial statements

Supplements

Reports operating success or

failure for a period.

Summarizes revenues and expenses for period

If revenue > expense = Net

Income.

period. • Summarizes revenues and expenses for period • If revenue > expense = Net Income.
period. • Summarizes revenues and expenses for period • If revenue > expense = Net Income.

Esperanza Huerta

period. • Summarizes revenues and expenses for period • If revenue > expense = Net Income.

Income statement

Areas

Standards

Accounting basis

Financial statements

Supplements

BS 2012

Assets

Liabilities

CS RE <2012 RE = 2012

BS 2012 Assets Liabilities CS RE <2012 RE = 2012 IS 2012 Revenues Expenses Resources Sources

IS 2012

Revenues

Expenses

Resources Sources

Assets Liabilities CS RE <2012 RE = 2012 IS 2012 Revenues Expenses Resources Sources Esperanza Huerta

Esperanza Huerta

Assets Liabilities CS RE <2012 RE = 2012 IS 2012 Revenues Expenses Resources Sources Esperanza Huerta

Google, Inc.’s Income Statement

All numbers in millions

Google, Inc.’s Income Statement All numbers in millions Years Ending December 31 2009 2008 Total Revenue

Years Ending December 31

2009

2008

Total Revenue

$23,650

$21,796

Cost of Revenue Gross Profit Operating Expenses Research Development

8,844

8,622

14,806

13,174

2,843

2,793

Selling General and Administrative

3,651

3,749

Total Operating Expenses 6,494

6,542

Income from Continuing Operations

8,312

6,632

Total Other Income/(Expense) Earnings Before Interest and Taxes Interest Income

0

(1,094)

8,312

5,538

69

316

Income Before Tax

8,381

5,854

Income Tax Expense Net income

1,861

1,627

$ 6,520

$ 4,227

Tax Expense Net income 1,861 1,627 $ 6,520 $ 4,227 Esperanza Huerta © Cambridge Business Publishers,
Tax Expense Net income 1,861 1,627 $ 6,520 $ 4,227 Esperanza Huerta © Cambridge Business Publishers,
Tax Expense Net income 1,861 1,627 $ 6,520 $ 4,227 Esperanza Huerta © Cambridge Business Publishers,
Tax Expense Net income 1,861 1,627 $ 6,520 $ 4,227 Esperanza Huerta © Cambridge Business Publishers,

Esperanza Huerta

© Cambridge Business Publishers, 2011

Tax Expense Net income 1,861 1,627 $ 6,520 $ 4,227 Esperanza Huerta © Cambridge Business Publishers,
Statement of Cash Flows Areas Standards Accounting basis Financial statements Supplements • Provides

Statement of Cash Flows

Areas

Standards

Accounting basis

Financial statements

Supplements

Provides information about

cash receipts and cash payments

Summarizes for period

Cash effects of operating, investing, and financing activities.

payments • Summarizes for period • Cash effects of operating, investing, and financing activities. Esperanza Huerta

Esperanza Huerta

payments • Summarizes for period • Cash effects of operating, investing, and financing activities. Esperanza Huerta
Statement of Cash Flows Areas Standards Accounting basis Financial statements Supplements • Where did the

Statement of Cash Flows

Areas

Standards

Accounting basis

Financial statements

Supplements

Where did the cash come from?

How was cash used during the period?

What was the change in the cash balance during the period?

A company cannot survive

without cash!

What was the change in the cash balance during the period? • A company cannot survive
What was the change in the cash balance during the period? • A company cannot survive

Esperanza Huerta

What was the change in the cash balance during the period? • A company cannot survive

Statement of cash flow

Compares two BS identifying changes in cash

Areas

Standards

Accounting basis

Financial statements

Supplements

SCF

Accounting basis Financial statements Supplements SCF BS 2011 Liabilities BS 2012 Activo Assets Liabilities SH

BS 2011

Liabilities

BS 2012

Activo

Assets

Liabilities

SH equity

SH equity

Resources

Sources

SCF BS 2011 Liabilities BS 2012 Activo Assets Liabilities SH equity SH equity Resources Sources Esperanza

Esperanza Huerta

SCF BS 2011 Liabilities BS 2012 Activo Assets Liabilities SH equity SH equity Resources Sources Esperanza

Google, Inc.’s

Statement of Cash Flow

All numbers in millions

Years Ending December 31

2009

2008

Operating Activities

Net Income Depreciation Adjustments To Net Income

$6,520

$4,227

1,524

1,500

785

1,799

Changes In Accounts Receivables Changes In Liabilities

(504)

(335)

511

183

Changes In

Other Operating Activities

480

479

Net Cash Flow From Operating Activities

9,316

7,853

Investing Activities Capital Expenditures Investments Other Cashflows from

 

(810)

(2,358)

(7,101)

359

Investing Activities

(108)

(3,320)

Net Cash Flow From Investing Activities Financing Activities

(8,019)

(5,319)

Sale/(Purchase) of Stock

143

(72)

Other Cash Flows from Financing Activities

90

159

Net Cash Flow From Financing Activities Effect Of Exchange Rate Changes

233

87

11

(46)

Change In Cash and Cash Equivalents

$ 1,541

$2,575

(46) Change In Cash and Cash Equivalents $ 1,541 $2,575 © Cambridge Business Publishers, 2011 Esperanza
(46) Change In Cash and Cash Equivalents $ 1,541 $2,575 © Cambridge Business Publishers, 2011 Esperanza
(46) Change In Cash and Cash Equivalents $ 1,541 $2,575 © Cambridge Business Publishers, 2011 Esperanza
(46) Change In Cash and Cash Equivalents $ 1,541 $2,575 © Cambridge Business Publishers, 2011 Esperanza

© Cambridge Business Publishers, 2011

Esperanza Huerta

Statement of Stockholders’ Equity
Statement of
Stockholders’ Equity

Areas

Standards

Accounting basis

Financial statements

Supplements

Stockholders’ equity has two parts:

Common Stock

and

Retained Earnings,

Thus, The Statement of Stockholders’ Equity reports ALL

CHANGES in the common stock

and retained earnings accounts

of Stockholders’ Equity reports ALL CHANGES in the common stock and retained earnings accounts … Esperanza
of Stockholders’ Equity reports ALL CHANGES in the common stock and retained earnings accounts … Esperanza

Esperanza Huerta

Statement of stockholder’s equity

Areas

Standards

Accounting basis

Financial statements

Supplements

Compares two BS identifying changes in stockholder’s equity

BS 2011 Liabilities BS 2012 Activo Liabilities SH equity Assets SH equity
BS 2011
Liabilities
BS 2012
Activo
Liabilities
SH
equity
Assets
SH equity

SSHE

Resources Sources

BS 2011 Liabilities BS 2012 Activo Liabilities SH equity Assets SH equity SSHE Resources Sources Esperanza

Esperanza Huerta

BS 2011 Liabilities BS 2012 Activo Liabilities SH equity Assets SH equity SSHE Resources Sources Esperanza

Financial statements

SCF

Areas

Standards

Accounting basis

Financial statements

Supplements

Accounting basis Financial statements Supplements BS 2011 Liabilities BS 2012 Assets Liabilities Activo SH

BS 2011

Liabilities

BS 2012

Assets

Liabilities

Activo

SH

equity
equity

SH equity

SSHE
SSHE

IS 2012

Revenues

Resources Sources

Expenses

BS 2012 Assets Liabilities Activo SH equity SH equity SSHE IS 2012 Revenues Resources Sources Expenses

Esperanza Huerta

BS 2012 Assets Liabilities Activo SH equity SH equity SSHE IS 2012 Revenues Resources Sources Expenses

Supplements to the Financial

Statements in an Annual Report

Areas

Standards

Accounting basis

Financial statements

Supplements

Management Discussion and Analysis

Notes to Financial Statements

• Auditor’s report

• Auditor’s report
• Management Discussion and Analysis • Notes to Financial Statements • Auditor’s report Esperanza Huerta
• Management Discussion and Analysis • Notes to Financial Statements • Auditor’s report Esperanza Huerta

Esperanza Huerta

Areas

Standards

Accounting basis

Financial statements

Supplements

Management’s Discussion

and Analysis covers three items:

1. Liquidity

2. Capital resources

3. Results of operations

Discussion and Analysis covers three items: 1. Liquidity 2. Capital resources 3. Results of operations Esperanza

Esperanza Huerta

Discussion and Analysis covers three items: 1. Liquidity 2. Capital resources 3. Results of operations Esperanza

Notes to Financial

Statements

Areas

Standards

Accounting basis

Financial statements

Supplements

Explanatory notes and

supplementary schedules

Clarifies information in financial statements

Expands with additional detail

Describes accounting policies

Explains uncertainties and contingencies

with additional detail • Describes accounting policies • Explains uncertainties and contingencies Esperanza Huerta
with additional detail • Describes accounting policies • Explains uncertainties and contingencies Esperanza Huerta

Esperanza Huerta

Auditor’s Report

Areas

Standards

Accounting basis

Financial statements

Supplements

Certified Public Accountant

CPA

Auditor (CPA) conducts independent examination of financial statements

Fair representation?

Follow generally accepted

accounting principles (GAAP)?

statements • Fair representation? • Follow generally accepted accounting principles (GAAP)? Esperanza Huerta
statements • Fair representation? • Follow generally accepted accounting principles (GAAP)? Esperanza Huerta
statements • Fair representation? • Follow generally accepted accounting principles (GAAP)? Esperanza Huerta

Esperanza Huerta

Auditor’s report

Unqualified opinion

Qualified opinion

Adverse opinion

Disclaimer of opinion

report • Unqualified opinion • Qualified opinion • Adverse opinion • Disclaimer of opinion Esperanza Huerta

Esperanza Huerta

report • Unqualified opinion • Qualified opinion • Adverse opinion • Disclaimer of opinion Esperanza Huerta

Learning map

Cash Financial Operating Investing Financing flow statements Resources Resources Decisions
Cash
Financial
Operating
Investing
Financing
flow
statements
Resources
Resources
Decisions

Chapter 1 Economic environment of financial information Chapter 2 From accounting events to financial statements

Chapter 4 Using financial statements for investment

and credit decisions

events to financial statements Chapter 4 Using financial statements for investment and credit decisions Esperanza Huerta

Esperanza Huerta

events to financial statements Chapter 4 Using financial statements for investment and credit decisions Esperanza Huerta