Using Accounting Information

Business Planning Activities

Individual

Point of View Business Point of View

Planning Budgeting

Accounting Information System

Resources and procedures in a business

Accounting Information System

Resources and procedures in a business that change economic data

Accounting Information System

Resources and procedures in a business that change economic data into financial information

Users of Accounting Information

Owners Lenders Labor

Organizations Customers Society groups Government Regulatory Agencies

Entity Concept
Any organization unit for which we gather and process

Entity Concept
Any organization unit for which we gather and process financial and economic data

Entity Concept
Any organization unit for which we gather and process financial and economic data for the purpose of decision making

Types of Ownership
Single

proprietorship Partnership Corporation

Financial Statements
Balance

Sheet Income Statement Statement of Cash Flows

Balance Sheet
Summarizes

assets, liabilities, and owners equities as of a specific moment in time

Assets - economic resources or items of value a business owns Liabilities - claims against the assets by nonowners Owners equity - claims against the assets by owners

Basic Accounting Equation

Assets = Liabilities + Owners Equity

Income Statement
Presents

the results of operations for a period of time

Revenues - inflow of assets from performing services or selling goods Expenses - use of assets or incurrence of liabilities when earning revenues

Statement of Cash Flows

Presents

the reasons why cash on the balance sheet changed from one date to another Presents cash flows from
Operating activities Investing activities Financing activities

Published Annual Reports

Letter

to stockholders Managements discussion and analysis Financial statements and notes The report of the independent accountant

Analyzing Information
Common-size

statement

Express each item as a percent of the total for that statement Balance sheet - total assets Income statement - total revenues

Balance Sheet Analysis

Are

total assets higher or lower? What is percent change in total assets? Is the percent of total liabilities to total liabilities plus owners equity increasing or decreasing?

Income Statement Analysis

Are

revenues higher or lower? What is the precentage change in total revenues? Is the percentage of total expenses to total revenues increasing or decreasing?

Integrative Analysis
Is

the business operating efficiently by using the least amount of asset investment to generate a given level of total revenues? Calculate Total Asset Turnover
Total revenues divided by Average total assets