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Chapter 1. Accounting as a Form of Communication. Financial Accounting 4e by Porter and Norton. Decisions Made with Financial Information. Add new product line??. Invest??. Build new plant??. Borrow $$??. Loan $$??. Extend credit $$??. Start new business??. Sell stocks or bonds??. - PowerPoint PPT Presentation
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1
Chapter 1Accounting as a Form of
Communication
Financial Accounting 4e by Porter and Norton
2
Decisions Made with Financial Information
Invest??
Borrow $$??
Sell stocks or bonds??
Build new plant??
Add new product line??
Start new business??
Loan $$??Extend credit $$??
3
What is Accounting?
Identifying
Measuring
Communicating
EconomicInformation
to various
users
4
Internal and ExternalUsers of Accounting Information
Internal Users -
Management
CreditorsCurrentand
PotentialOwners
GovernmentAgencies
SuppliersTrade
Organizations
FinancialAnalysts
Banks
5
The Accounting Equation
Assets = Liabilities + Owners’ Equity (or Stockholders'
Equity)Creditors'
Claimsto Assets
Owners'Claims
to Assets
EconomicResources
= +
Examples:CashAccounts receivableInventory
Accounts payableNotes payable
Capital stockRetained earnings
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Balance Sheet
Assets Liabilities
Owners’ Equity(or Stockholders' Equity)
=
+A
FEDERAL RESERVE NOTE
THE UNITED STATES OF AMERICATHE UNITED STATES OF AMERICA
L70744629F
12
1212
12
L70744629F
ONE DOLLARONE DOLLAR
WASHINGTON, D.C.
THIS NOTE IS LEGAL TENDER
FOR ALL DEBTS, PUBLIC AND PRIVATE
SERIES
1985
H 293
StockCertificate
- snapshot offinancial position
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Current assets:Cash and cash equivalents $ 93,779 $ 51,443Receivables, less allow. for doubtful accts. ($244 and $1,168, respectively) 20,183 32,045Dealer financing receivables, less allow. for doubtful accts ($117 and $27, respectively) 40,263 32,696Inventories 79,815 85,707Prepaid expenses 3,604 3,952Deferred income taxes 6,723 7,675
Total current assets 244,367 213,518
Property, plant and equipment, net 46,536 45,455Investment in life insurance 22,223 21,028Deferred income taxes 21,495 19,044Other assets 7,412 8,050
$342,033 $307,095
Winnebago Industries, Inc.Consolidated Balance SheetsAssets August 25,2001 August 26,2000
A
A = L + SE
Winnebago Industries, Inc.Consolidated Balance Sheets
Current liabilities:Accounts payable, trade $ 30,789 $ 26,212Income taxes payable 4,938 8,790Accrued expenses 34,392 35,242
Total current liabilities 70,119 70,244
Postretirement health care and deferred compensation benefits 64,450 61,942
Liabilities and Stockholders' EquityAugust 25, 2001 August 26, 2000
Stockholders' equity:Capital stock common 12,943 12,939Additional paid-in capital 22,261 21,994Reinvested earnings 234,139 195,556
269,343 230,489Less treasury stock, at cost (61,879) (55,580)
Total stockholders' equity 207,464 174,909
$ 342,033 $307,095
= L
+ SE
A = L + SE
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Income Statement
Revenues $$$
Less: Expenses ($$)
Net income $$
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Winnebago Industries, Inc.Consolidated Statements of Operations
Net revenues $ 681,834 $ 753,382Cost of manf. products 587,330 640,488Gross profit 94,504 112,894Selling, general and administrative
expenses 39,030 42,240Operating income 55,474 70,654Financial income 3,754 3,338Income before income taxes 59,228 73,992Provision for taxes 15,474 25,593Change in acctg. principle, net (1,050) --- Net Income $ 42,704 $ 48,399
August 25, 2001 August 26, 2000
Revenues
Revenues - Expenses = Net Income
Revenues
Expenses
Expenses
Expenses
Statement of Retained Earnings
Beginning retained earnings $$$Add: Net income for the period $$Deduct: Dividends for the period ($$)= Ending retained earnings $$$
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Winnebago Industries, Inc.Statement of Retained Earnings for 2001
Beginning balance, retained earnings $ 195,556
Add: Net income 42,704
Deduct: Cash dividends (4,121)
Ending balance, retained earnings $ 234,139
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Income Statement for 2001Revenues $ xxxLess: Expenses xxxNet income $ 42,704
Statement of Retained Earnings for 2001Beginning balance, retained earnings $195,556Add: Net income 42,704Deduct: Cash dividends (4,121)Ending balance, retained earnings $ 234,139
Relationships among Financial Statements – Winnebago Industries Example
Balance Sheets 2001 2000Total assets $ xxx $ xxx Liabilities xxx xxxCapital stock xxx xxxRetained earnings 234,139 195,556Total liabilities & stockholders' equity $ xxx $ xxx
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Financial Statement Assumptions
EconomicEntity
CostPrinciple
GoingConcern
MonetaryUnit
TimePeriod
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Economic Entity Concept
Each entity has its own books, records and financial statements that are separate from owners
No intermingling of personal and business assets and liabilities or income and expenses
BusinessBooks &Records
Owners’Books &Records
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Cost Principle
Record assets at cost paid to acquire them
Continue to value assets at historical cost until sold
More objective than market value
17
Going Concern
Assume business will continue indefinitely into the foreseeable future
Justifies use of historical cost
18
Monetary Unit
How we measure (e.g. U.S. dollar, Japanese yen, Mexican peso, etc.)
Assumes economic measure is relatively stable; no adjustment for inflation made in financial statements
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Time Period Assumption
Assumes it is possible to break up an entity’s earnings in discrete time periods (a month, quarter, year)
Necessary to provide users with financial results on a timely basis
Requires use of estimates 1 2 3
4 5 6 7 8 9 10
11 12 13 14 15 16 17
18 19 20 21 22 23 24
25 26 28 29 30 3127
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The Rules of the Game
GAAP
FASB
SEC
AICPA
The rules
The rule makers
The rule enforcers
The CPA regulators
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Where Accountants Work Private Business
Nonbusiness Organizations
Public Accounting
– audit
– tax
– management consulting
Educational Institutions
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End of Chapter 1