Anthony, Hawkins, and Merchant

ACCOUNTING:
TEXT AND CASES
Tenth Edition

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Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999
 Task Force Clip Art included
in this electronic presentation
is used with the permission of
New Vision Technology of
Nepean Ontario, Canada

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 The Nature
and Purpose
of Accounting
Part One: Financial Accounting

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 Planning Slide 1-1

Planning is the
process of
deciding what
….actions should be
taken in the
future.

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 Planning Slide 1-2

Planning involves making decisions. Decisions are

arrived at by--
 recognizing that a problem or an opportunity
exists
 specifying and ranking the criteria to be used to
determine the best solution
 identifying alternative ways of addressing the
problem or opportunity
 analyzing the consequences of each alternative
 comparing these consequences to each other and
the criteria so as to decide which is best
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 The Nature and Purpose of Accounting Slide 1-3

Information

Nonquantitative Quantitative
information information
Consists of

Accounting Nonaccounting
information information
Consists of

Operating Financial Management Tax

information accounting accounting accounting

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 Relationship of Management Functions Slide 1-4

Planning

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 Relationship of Management Functions Slide 1-5

Planning Implementation

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 Relationship of Management Functions Slide 1-6

Planning Implementation Control

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 Relationship of Management Functions Slide 1-7

Planning Implementation Control

Appropriate action

Feedback

Plan revision

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 The Balance Sheet Slide 1-8

HOLDEN COMPANY
Balance Sheet
As of December 31, 1999
(000 omitted)
Assets Liabilities and Owners’ Equity
Current assets: Current liabilities:
Cash $ 1,449 Accounts payable $ 5,602
Marketable securities 246 Bank loan payable 1,000
Accounts receivable, net 9,944 Accrued liabilities 876
Inventories 10,623 Estimated tax liability 1,541
Prepaid expenses 389 Current portion of long-
term debt 500
Total current assets $22,651 Total current liabilities $ 9,519

Current Section
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 The Balance Sheet Slide 1-9

Assets Liabilities and Owners’ Equity

Noncurrent assets: Noncurrent liabilities:
Property, plant, equipment Long-term debt, less
at cost $26,946 current portion $ 2,000
Less: Accumulated Deferred income taxes 824
Depreciation 13,534 Total liabilities 12,343
Property, plant, equipment
net 13,412 Owners’ equity:
Investments 1,110 Common stock 1,000
Patents and trademarks 403 Additional paid-in capital 11,256
Goodwill 663 Total paid-in capital 12,256
Retained earnings 13,640
Total owners’ equity 25,896
Total liabilities and owners’
Total assets $38,239 and owners’ equity $38,239

Noncurrent Section
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 The Accounting Equation Slide 1-10

Assets = Liabilities + Owners’ Equity

Assets are economic resources

which are owned by a business
and are expected to benefit
future operations.

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 The Accounting Equation Slide 1-11

Assets = Liabilities + Owners’ Equity

Liabilities are obligations

of the entity to outside
parties who have
furnished resources

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 Income Statement Slide 1-12

HOLDEN COMPANY
Income Statement
For the Year 1999
(000 omitted)

Sales revenue $75,478

Less cost of sales 52,227
Gross margin 23,251
Less operating expenses 10,785
Income before taxes 12,466
Provision for income taxes 6,344
Net income $ 6,122

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

 Financial Statement Objectives Slide 1-13

Financial reporting should provide information:

 Useful to present and potential investors and creditors in
making rational investment and credit decisions
 Comprehensible to those who have a reasonable
understanding of business and economic activities and are
willing to study the information with reasonable diligence
 About the economic resources of an enterprise, the claims
to those resources, and the effects of transactions and
events that change resources and claims to those resources
 About an enterprise’s financial performance during a
period

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A “Package” of Accounting Reports Slide 1-14

Condensed Balance Sheet

As of December 31, 1999
Assets
Current assets $22,651
Building and equip. 13,412
Other assets 2,176
Total assets $38,239

Liabilities and Owners’ Equity

Liabilities $12,343
Owners’ Equity
Paid-in capital 12,256
Retained earnings 13,640
Total liabilities and
owners’ equity $38,239

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

A “Package” of Accounting Reports Slide 1-15

Income Statement
Condensed Balance Sheet For the Year 1999
As of December 31, 1999 Sales revenue $75,478
Assets Less cost of sales 52,222
Gross margin 23,351
Current assets $22,651
Less operating exp. 10,785
Building and equip. 13,412
Income before taxes 12,466
Other assets 2,176
Provision for taxes 6,344
Total assets $38,239
Net income, 1999 $ 6,122
Liabilities and Owners’ Equity
Liabilities $12,343
Owners’ Equity
Paid-in capital 12,256
Retained earnings 13,640
Total liabilities and
owners’ equity $38,239

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

A “Package” of Accounting Reports Slide 1-16

Income Statement
Condensed Balance Sheet For the Year 1999
As of December 31, 1999 Sales revenue $75,478
Assets Less cost of sales 52,222
Gross margin 23,351
Current assets $22,651
Less operating exp. 10,785
Building and equip. 13,412
Income before taxes 12,466
Other assets 2,176
Provision for taxes 6,344
Total assets $38,239
Net income, 1999 $ 6,122
Liabilities and Owners’ Equity
Statement of Retained Earnings
Liabilities $12,343
Owners’ Equity Retained earnings $13,640
Paid-in capital 12,256 Add net income 6,122
Retained earnings 13,640 19,762
Total liabilities and Less dividends 4,390
owners’ equity $38,239 Retained earnings $15,372

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

A “Package” of Accounting Reports Slide 1-17

Income Statement
Condensed Balance Sheet For the Year 1999
As of December 31, 1999 Sales revenue $75,478
Assets Less cost of sales 52,222
Gross margin 23,351
Current assets $22,651
Less operating exp. 10,785
Building and equip. 13,412
Income before taxes 12,466
Other assets 2,176
Provision for taxes 6,344
Total assets $38,239
Net income, 1999 $ 6,122
Liabilities and Owners’ Equity
Statement of Retained Earnings
Liabilities $12,343
Owners’ Equity Retained earnings $13,640
Paid-in capital 12,256 Add net income 6,122
Retained earnings 13,640 19,762
Total liabilities and Less dividends 4,390
owners’ equity $38,239 Retained earnings $15,372

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

A “Package” of Accounting Reports Slide 1-18

Condensed Balance Sheet

As of December 31, 2000
Assets
Current assets $24,062
Building and equip. 14,981
Other assets 3,207
Total assets $42,250

Statement of Retained Earnings Liabilities and Owners’ Equity

Liabilities $14,622
Retained earnings $13,640 Owners’ Equity
Add net income 6,122 Paid-in capital 12,256
19,762 Retained earnings 15,372
Less dividends 4,390 Total liabilities and
Retained earnings $15,372 owners’ equity $42,250

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

A “Package” of Accounting Reports Slide 1-19

Condensed Balance Sheet

As of December 31, 2000
Assets
Current assets $24,062
Building and equip. 14,981
Other assets 3,207
Total assets $42,250

Statement of Retained Earnings Liabilities and Owners’ Equity

Liabilities $14,622
Retained earnings $13,640 Owners’ Equity
Add net income 6,122 Paid-in capital 12,256
19,762 Retained earnings 15,372
Less dividends 4,390 Total liabilities and
Retained earnings $15,372 owners’ equity $42,250

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 Summary Slide 1-20

An organization has four types of accounting

information:
 Operating information, which has to do with the
details of operations
 Management accounting information, which is
used internally for planning, implementation, and
control
 Financial accounting information, which is used
both by management and external parties
 Tax accounting information, which is used to file
tax returns with taxing authorities
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 Chapter 1

The End

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