Lecture Financial accounting - Chapter 1: Accounting activities and financial statements

After completing this chapter you should be able to: Principal activities of business firms, understanding four financial statements, the users of financial statements, the financial reporting reform, the types of business entity,...and other contents.
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Lecture Financial accounting - Chapter 1: Accounting activities and financial statements Chapter 1Accounting Activities and Financial Statements ACCT 100Objectives of the Chapter1. Principal activities of business firms.2. Understanding four financial statements.3. The users of financial statements.4. The financial reporting reform.5. The types of business entity.6. The authorities prescribing accounting standards and the need for international accounting standards.7. Accounting concepts and principles. The Financial Statements 2I. Principal Activities ofBusiness Firms Establishing Corporate Goals and Strategies Obtaining Financing (from owners and creditors) Making Investments (i.e., Investments, Purchase of Property, Plant and Equipment, Purchase of Intangibles, etc.) Carrying Out Operations (i.e., purchase of materials/inventory, production, marketing and administration) Overview of Financial Statements 32. Understanding FourFinancial StatementsQ1: What is accounting? An information system to account for business transactions and to communicate the financial information to users. Q2: How do accountants communicate financial information to users? Overview of Financial Statements 4Annual Financial Reports Public firms communicate their financial information via the annual reports to shareholders. The content of an annual report includes:1. A letter to shareholders from the CEO (i.e., IBM 2008 Annual Report, p1-9).2. Management’s Discussion and Analysis (MD&A) (i.e., IBM 2008 Annual Report, p18-57). Overview of Financial Statements 5Annual Financial Reports(contd.)3. Report of Management (i.e., on the effectiveness of Internal control; required by Sarbanes-Oxley Act of 2002). (IBM 2008 Annual Report, p58)4. Report of Independent Registered Public Accounting Firm. (i.e., IBM 2008 Annual Report, p59)5. Audited Consolidated Financial statements and Notes. (i.e., IBM 2008 Annual Report60-119) Overview of Financial Statements 6The Four FinancialStatements 1. Consolidated Income Statement 2. Consolidated Statement of Retained Earnings 3. Consolidated Balance Sheet 4. Consolidated Statement of Cash Flows Overview of Financial Statements 7The Content of FourFinancial Statements The Income Statement (Statement of Earnings): reports the operating results of a firm for a period of time. Accounts reported include revenue, expenses, gains, losses, the net income and the earnings per share. Overview of Financial Statements 8The Content of FourFinancial Statements(Contd.) The Statement of Retained Earnings: reports the earnings not distributed to shareholders. Accounts reported include beginning balance of retained earnings, current year’s net income, dividends distributed for the reporting period and the ending balance of retained earnings. Overview of Financial Statements 9The Content of FourFinancial Statements(contd.) The Balance Sheet Statement (Statement of Financial Position) : reports the financial position of a firm on a particular date. Accounts reported include assets, liabilities and stockholders’ equity. Overview of Financial Statements 10The Content of FourFinancial Statements(contd.) The Statement of Cash Flows: reports cash flows from three business activities and the net increase (or decrease) of the cash during the year. Business activities affect cash flows: operating, investing and financing. Overview of Financial Statements 11 Exhibit 1-1 (from Financial Accounting by Harrison and Horngren) LANDS’ END, INC. & SUBSIDIARIES Consolidated Statement of Earnings For the fiscal years ended (In thousands) 2/2/2006 1/27/2005 1. Net sales $1,031,548 $992,106 2. Cost of sales 588,017 571,265 3. Gross profit 443,531 420,841 4. Selling, general, and admin. exps. 392,484 357,516 5. Charges from sale of subsidiary 1,882 3,500 6. Income from operations 49,165 59,825 7. Other income (expense): 8. Interest expense (2,771) (1,769) 9. Interest income 253 30710. Other 4,278 1,30011. Total other income (expense), net 1,760 (162)12. Income before income taxes 50,925 59,66313. Income tax provision 20,370 23,56714. Net income $ 30,555 $ 36,096 ...