Accounting for Decision Makers Dr. Richardus Eko Indrajit.

Accounting for Decision Makers

Dr. Richardus Eko Indrajit

Accounting

An information system that provides reports about the economic activities of an individual, family, organization, or other entity

Functions of Accounting

To summarize the financial performance of the firm (financial accounting)

Used to guide internal management in making decisions about the direction of the firm through relevant and timely information (managerial accounting)

Used to help determine the taxes to be paid (tax accounting)

Financial Reporting

Securities and Exchange Commission a government agency responsible for the

regulation of the stock markets and financial statement disclosures of companies

Reports and Statements Annual/Quarterly report 10-K - SEC required disclosure report Balance sheet Income Statement Statement of Cash Flows

Balance Sheet

Assets = Liabilities + Owner’s Equity

Assets-physical items or rights that have value and are owned by the company

Liabilities-claims of all creditors Owner’s Equity-Owner’s claims on the

company

Assets

Must meet four conditions will result in future benefits can be estimated in money terms is a result of a past transaction is owned by the enterprise

Cash & Marketable Securities Accounts Receivable Inventory Property, Plant & Equipment

Liabilities

Must meet four conditions will result in future sacrifices can be estimated in money terms are the result of a past transaction are owned by the enterprise

Accounts Payable & Accrued Expenses Long Term Liabilities

Owner’s Equity

Same as Stock holder’s Equity Common stock Retained Earnings

Income Statement

+ Revenues- Cost of Goods Sold- Operating Expenses= Income- Income Taxes= Net Income

Statement of Cash Flows

Cash flows from operations Cash flows from financing Cash flows from investments

Management Accounting

Costs - payments of cash or other assets in return for a benefit. Direct & indirect material Direct & indirect labor Factory overhead

Product costs vs Period costs Fixed costs vs Variable costs

Segment Profit Analysis

Determine the profit contributed by various market segments geographic, product, gender, etc.

Contribution margin sales less the variable costs

Contribution margin ratio contribution margin / sales

Tax Accounting

To pay the lowest amount of taxes possible in a legal manner. Following the rules of the Internal Revenue Service.

Finance

Dr. Richardus Eko Indrajit

Finance

The study of how to manage assets and obtain funds to meet a company’s long-term business goals.

Areas of Finance

Financial markets - mechanisms for bringing together those who have money to invest with those who need funds.

Financial institutions - collects funds from savers and lends them to or invests them in business or people that need cash.

Financial management - how an organization should manage its assets, liabilities, and equity to produce a good or service.

Financial Markets

Functions matching savers and users of funds liquidity diversification sending signals and information

Expected returns and interest rates Nominal risk-free rate of return Risk

Types of Financial Markets

Money and capital marketstreasury billscommercial papernegotiable certificates of deposit

Primary and secondary markets initial public offeringsorganized exchanges - NYSE, AMEXover-the-counter - NASDAQ

Stock Quotations

52 week and daily Hi - Lo Stock Sym Div Yld % PE Vol Close % change

Financial Institutions

Depository institutions Contractual savings institutions Investment institutions Venture capital Market-financed intermediaries Factors

Financial Management

Capital Budgeting Capital Structure Net working capital

Current Assets

Fixed Assets

Current Liabilities

Long-term Debt

Equity

OperatingDecisions

OperatingDecisions

CapitalStructureDecisions

CapitalBudgetingDecisions

Total Assets = Total Liabilities + Equity

Financial Positions

Treasurer the financial officer who oversees the traditional functions of financial analysis,

capital budgeting, short-term and long-term financing decisions and current asset management

Controller the individual who manages accounting, cost analysis and tax planning

Financial Analyst a staff member who diagnoses the effects of management proposals or

decisions on the financial health of a company

Securities Analyst a financial analyst who examines the stock prices of companies in a given

industry and makes recommendations to clients as to whether the price is too low or too high.

Value of a Firm

Shareholder wealth Market value of a firm’s common stock stock price * number of shares outstanding

Market value added market value of stock + market value of debt

- book value of stock - book value of debt

Corporate Governance

Principal-Agent Problem Principals: shareholders of a company Agents: managers who run a firm in

the best interest of the principals

Reducing Problems Incentives Increased information flows