December 19 (1-3:45) JSOM2.106
Fin. ST. Analysis Protect
Company name1 ----- student1
Introduction to Accounting
Business activities and financial statements
Balance sheet valuation rules
Income statement valuation rules
Transaction analysis --- prepare fin statement
Mallard Clothing --- Prepare fin statement
Statement of cash flows (problem5-62)
Articles of statement of cash flows
1. Mallard clothing type problem
2. SOCF operating (Indirect method)
3. True/False ---- Descriptive material (Sample, Elearning, 1-4)
What is Accounting?
Accounting is a system of measuring and reporting results of business activities to interested users.
Uses Decision Accounting reports
1. lenders(bank) lend? Interest? Income statement (profitability) statement of cash flows(sources and users of cash) balance sheet(Assets, liabilities) 3↑financial statements
↑Annual reports(1.notes to financial statement 2. decision of business) 2.managers Cash flows? Cash budget (predictions of cash inflow/outflow) 3.investors buy or sell stocks Financial statements
of a company?
4.Government Income tax? Income statement
Tax returns(tax rules) → IRS( Internal Revenue services) ↑significant different from income statement 5.Suppliers
7.Credit Rating companies
(about paying back loans)
Users Internal External
Reports Tailored & Standardized(Financial statements) U.S.GAAP(Rules) Customized(no rules) General accepted accounting rules↑
IFRS ( International Financial Reporting Standards)
Why GAAP & IFRS separate?
IFRS : Principle based (allows lot of flexibility to companies in preparing their financial statement) GAAP : Rules based(less flexibility)
Which rule to use depends on Where stocks are traded.
GAAP: Litigation system --- It is easy for share holders to sue a company in U.S. ( If stock price falls, the company are likely to be sued
U.S. suitor do not pay for the fee, while European suitor pay for the fee.)
Assets = Liabilities + Owner's Equity Resources Claims of creditors Claims of shareholders (provide future benefits)
Revenues - expenses = Net Income
2.Statement of cash flows(1/1/11-12/31/11)
Sources: Cash from customers
Users: Cash paid to employees
Sources: Sell old building
Users: Purchase building
Sources: Borrowing from a bank
Users: Repay loan
keep shareholder as user
1. Assets = Liabilities + S/H's Equity →Monetary Accounts --- Accounts receivables
Accounts Payables(operating activity)
Notes payables(financing activity)
→Nonmonetary Accounts --- Inventory
Monetary : Present Value = Future payments - Interest
Nonmonetary: History cost
Reason: Current value/fair value reliability?
As long as you really sell it, you won't know its current value. But current value is more relevant/useful.
Exceptions to using historical cost:
1. lower of...