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1- 2Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Marshall,McManus,andViele11thEdition
AccountingWhattheNumbersMean
CHAPTER1:AccountingPresentandPast
1- 3Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
LearningObjectivesAfter studying this chapter you should understand and be able to:LO 1-1: Explain the definition of accounting.LO 1-2: Identify who the users of accounting information are and explain why they find
accounting information useful.LO 1-3: Identify the variety of professional services that accountants provide.LO 1-4: Summarize the development of accounting from a broad historical perspective.LO 1-5: Explain the role that the Financial Accounting Standards Board (FASB) plays in the
development of financial accounting standards.LO 1-6: Generalize about how financial reporting standards evolve.LO 1-7: Identify the key elements of ethical behavior for a professional accountant. LO 1-8: Summarize the reasons for the FASB’s Conceptual Framework project.LO 1-9: Summarize the objective of general purpose financial reporting.LO 1-10: Describe the plan of the book.
1- 4Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
WhatisAccounting?
Accounting is the process of:
Learning Objective 1-1: Explain the definition of accounting.
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UsersandUsesofAccountingInformation
UserDecision/Informed Judgment
MadeManagement Planning, directing, and controllingInvestors/Shareholders Assessing amounts, timing, and
uncertainty of future cash returns on their investment
Creditors/Suppliers Assessing probability of collection and the risk of late (or non-) payment
Employees Planning for retirement and future job prospects
Securities and Exchange Commission
Reviewing for compliance of all required information
Learning Objective 1-2: Identify who the users of accounting information are and explain why they find accounting information useful.1- 6
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
FinancialAccountingFinancial accounting generally refers to
the process that results in the preparation and reporting of financial statements for
an entity.
Financial accounting is primarily externally oriented and concerned with
the historical results of an entity’s performance.
Professional services that accountants provide include:
Learning Objective 1-2: Identify who the users of accounting information are and explain why they find accounting information useful.
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ManagerialAccounting/CostAccounting
Managerial accounting is concerned with the use of economic and financial information to plan and control many of the activities of the
entity and to support the management decision-making process.
Cost accounting relates to the determination and accumulation of product, process, or
service costs.
Professional services that accountants provide include:
Learning Objective 1-3: Identify the variety of professional services that accountants provide.1- 8
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Auditing—PublicAccountingPublic accounting firms and individual Certified
Public Accountants (CPAs) provide auditing services and issue an independent
auditor’s report.
An independent auditor’s report usually contains four brief paragraphs and states whether the financial
statements are prepared in conformity with generallyaccepted accounting principles. An auditor’s report can
be unqualified (a “clean opinion) or qualified.
Professional services that accountants provide include:
Learning Objective 1-3: Identify the variety of professional services that accountants provide.
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InternalAuditingInternal auditors are
professional accountants who
perform functions much like those of an external
auditor. However, internal auditors are employed in industry
rather than public accounting.
Professional services that accountants provide include:
Learning Objective 1-3: Identify the variety of professional services that accountants provide.1- 10
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GovernmentalandNot-for-ProfitAccounting
Governmental units (e.g., municipal, state, and
federal agencies) and not-for-profit entities (e.g.,
universities, hospitals, and religious organizations)
require the same accounting functions to be
performed as do other accounting entities.
Professional services that accountants provide include:
Learning Objective 1-3: Identify the variety of professional services that accountants provide.
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IncomeTaxAccounting
Tax practitioners often develop specialties in
the taxation of individuals,
partnerships, corporations, trusts
and estates, or international tax law
issues.
Professional services that accountants provide include:
Learning Objective 1-3: Identify the variety of professional services that accountants provide.1- 12
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
HowHasAccountingDeveloped?
Mesopotamians record tax receipts
on clay tablets.
3000 B.C.
Learning Objective 1-4: Summarize the development of accounting from a broad historical perspective.
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Luca Pacioli published the first textbook describing a comprehensive double-
entry bookkeeping system.
HowHasAccountingDeveloped?
3000 B.C. 1494
Learning Objective 1-4: Summarize the development of accounting from a broad historical perspective.1- 14
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
The industrial revolution of the 19th century generated the need for large amounts of capital to finance the
enterprises that supplanted individual craftsmen.
This need resulted in the corporate form of organization and the need to provide investors with reports showing the
financial position and the results of operations.
HowHasAccountingDeveloped?
3000 B.C. 1494 1800’s
Learning Objective 1-4: Summarize the development of accounting from a broad historical perspective.
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Accounting professionals in this country organized themselves in the early 1900’s and worked hard to establish certification laws, standardized audit procedures, and other
attributes of a profession.
HowHasAccountingDeveloped?
3000 B.C. 1494 1800’s 1900’s
Learning Objective 1-4: Summarize the development of accounting from a broad historical perspective.1- 16
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
The Securities Act of 1933 and the Securities Exchange Act of 1934gave the Securities and Exchange Commission (SEC) the authority to establish accounting principles for companies whose securities had
to be registered with the SEC.
Between 1932 and 1934, the American Institute of Accountants and the New York Stock Exchange agreed
on five broad principles of accounting.
HowHasAccountingDeveloped?
3000 B.C. 1494 1800’s 1900’s 1932to
1934
1933&
1934
Learning Objective 1-4: Summarize the development of accounting from a broad historical perspective.
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The Committee on Accounting Procedure of the American Institute of Accountants issued 51 Accounting Research
Bulletins that dealt with accounting principles.
Although the SEC has the authority to establish accounting principles, the standard-setting process has
been delegated to other organizations over the years.
HowHasAccountingDeveloped?
3000 B.C. 1494 1800’s 1900’s 1932to
1934
1933&
1934
1939to
1959
Learning Objective 1-4: Summarize the development of accounting from a broad historical perspective.1- 18
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
HowHasAccountingDeveloped?
3000 B.C. 1494 1800’s 1900’s 1932to
1934
1933&
1934
1939to
1959
The Financial Accounting Foundation (FAF) was created and established the Financial Accounting Standards
Board (FASB) as the authoritative standard-setting body within the accounting profession.
The FASB has issued 168 Statements of Financial Accounting Standards that have established standards of
accounting and reporting for particular issues.
1973
Learning Objective 1-5: Explain the role that the Financial Accounting Standards Board (FASB) plays in the development of financial accounting standards.
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HowHasAccountingDeveloped?
1939to
1959The Sarbanes-Oxley Act of 2002 created the five-member
Public Company Accounting Oversight Board (PCAOB), which has the authority to set and enforce auditing, attestation,
quality control, and ethics standards for public companies.
3000 B.C. 1494 1800’s 1900’s 1932to
1934
1933&
1934
1973 2002
Learning Objective 1-5: Explain the role that the Financial Accounting Standards Board (FASB) plays in the development of financial accounting standards. 1- 20Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
HowHasAccountingDeveloped?
Effective July, 2009, however, all FASB standards were superseded by the FASB Accounting Standards
Codification (FASB Codification). Essentially, the FASB Codification reorganized divergent sources of U.S.
GAAP in a more accessible and researchable format. The FASB Codification now represents a single source
of U.S. GAAP.
Learning Objective 1-5: Explain the role that the Financial Accounting Standards Board (FASB) plays in the development of financial accounting standards.
1- 21Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
StandardsforOtherTypesofAccounting:
Managerial/Cost Accounting
Cost Accounting Standards Board (CASB) for government contracts
Auditing/Public Accounting
Auditing Standards Board (part of AICPA)
State and Local Governments
Governmental Accounting Standards
Board (GASB)
How do financial reporting standards evolve?
Learning Objective 1-6: Generalize about how financial reporting standards evolve.1- 22
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
InternationalAccountingStandardsThe goal of the International Accounting
Standards Board (IASB) is to develop a single set of high-quality, understandable, enforceable
and globally accepted financial reporting standards based upon clearly articulated
principles.
The IASB has issued 41 IASs and
15 IFRSs.
How do financial reporting standards evolve?
Learning Objective 1-6: Generalize about how financial reporting standards evolve.
1- 23Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
EthicsandtheAccountingProfession
ObjectivityIntegrity
Independence Competence
Learning Objective 1-7: Identify the key elements of ethical behavior for a professional accountant. 1- 24
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
TheConceptualFramework
Statements of Financial Accounting Concepts (SFACs)
describe concepts and relationships that underlie financial
accounting standards.
In the mid-1970’s, the Financial Accounting Standards Board (FASB) began creating the Statements of
Financial Accounting Concepts (SFAC) in an effort to define the underlying concepts of accounting principles
and financial reporting practices.
Learning Objective 1-8: Summarize the reasons for the FASB’s Conceptual Framework project.
Page 5
1-5
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ConceptsStatementNo.8“The Objective of General Purpose
Financial Statements”
Individual firms or entities External Users Historical cost
Timely information
Notes and disclosures
Accrual accounting
Benefits exceed costs
Does not measure value of the firm Evolving
Learning Objective 1-9: Summarize the objectives of financial reporting for business enterprises.1- 26
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ThePlanofthisBook:
26
This text is divided into two main parts:Chapters 2 through 11, which compose the first part of the book, are devoted to financial accounting topics.
The remaining chapters, Chapters12 through 16, provide an in-depth look at managerial accounting.
Learning Objective 1-10: The Plan of the Book
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EndofChapter1
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Marshall,McManus,andViele11thEdition
AccountingWhattheNumbersMean
CHAPTER2:FinancialStatementsandAccountingConcepts/Principles
1- 30Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
LearningObjectivesAfter studying this chapter you should understand and be able to:LO 2-1: Explain what transactions are. LO 2-2: Identify and explain the kind of information reported in each financial statement
and describe how financial statements are related to each other.LO 2-3: Explain the meaning and usefulness of the accounting equation.LO 2-4: Explain the meaning of each of the captions on the financial statements illustrated
in this chapter.LO 2-5: Identify and explain the broad, generally accepted concepts and principles that
apply to the accounting process.LO 2-6: Discuss why investors must carefully consider cash flow information in
conjunction with accrual accounting results.LO 2-7: Identify and explain several limitations of financial statements.LO 2-8: Describe what a corporation’s annual report is and why it is issued.
Page 6
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FinancialStatementsTransactionsareeconomic
interchangesbetweenentitiesthatareaccountedforandreflectedinfinancial
statements.
Learning Objective 2-1: Explain what transactions are. 1- 32
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An entity’s financial statements are the end product of a process that starts with transactions between the entity and other organizations and individuals.
Transactions
Financial Statements
FinancialStatements
• Procedures for sorting, classifying, and presenting (bookkeeping)
• Selection of alternative methods of reflecting the effects of certain transactions (accounting)
Learning Objective 2-1: Explain what transactions are.
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Account balances are then used in the preparation of
financial statements.
Cash Account
Accounts Receivable
Account
Accounts Payable Account
Transactions are summarized in accounts.
Accounts are used to organize like-kind
transactions.
Accounts
Learning Objective 2-1: Explain what transactions are. 1- 34
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In addition to the financial statements, the annual report will probably include several accompanying notes or
explanations of the accounting policies used and detailed information about many of the amounts and captions shown
in the financial statements.
Required Disclosure Financial Statement that Satisfies Requirement
Financial position at the end of the period Balance Sheet
Earnings for the period Income Statement Cash flows during the period Statement of Cash Flows
Investments by and distributions to owners during the period
Statement of Changes in Owners' Equity
FinancialStatements
Learning Objective 2-2: Identify and explain the kind of information reported in each financial statement and describe how financial statements are related to each other.
1- 35Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
BalanceSheet—ElementsLiabilities are
amounts owed to other entities.
Assets represent the amount of resources owned by the entity.
Equity is the ownership right
of the owner(s) of the entity in the
assets that remain after
deducting the liabilities.
Learning Objective 2-3: Explain the meaning and usefulness of the accounting equation.1- 36
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BalanceSheetPresents the balances in an entity's accounts at a given point in time
Liabilities EquityAssets = +
Learning Objective 2-3: Explain the meaning and usefulness of the accounting equation.
Page 7
1-7
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Current assets are those assets that are likely to be converted into cash or used to benefit the entity within
one year.
BalanceSheet
Plant and equipment
includes long-term assets
that will benefit the entity over several years.
Learning Objective 2-4: Explain the meaning of each of the captions on the financial statements illustrated in this chapter.1- 38
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BalanceSheetLong-term liabilities are those liabilities that will not be
repaid within one year of the balance sheet date.
Current liabilities are thoseliabilities that are to be paid within one year.
Learning Objective 2-4: Explain the meaning of each of the captions on the financial statements illustrated in this chapter.
1- 39Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
IncomeStatementThe income statement shows the net income (or net
loss) for the period of time under consideration.Revenues result from the entity’s operating activities (e.g., selling
merchandise).
Costs and expenses are incurred in generating revenues and
operating the entity.
Notice that the statement starts
with net sales and that the various expenses are
subtracted to arrive at net income
Learning Objective 2-4: Explain the meaning of each of the captions on the financial statements illustrated in this chapter.1- 40
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IncomeStatementIncome taxes are shown after all the other income statement
items have been reported.
Earnings per share of common stock outstanding is reported as a separate item at the bottom of the income statement because of its
significance in evaluating the market value of a share of common stock.
Learning Objective 2-4: Explain the meaning of each of the captions on the financial statements illustrated in this chapter.
1- 41Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
StatementofChangesinStockholders'Equity
This financial statement shows the detail of stockholders' equity and explains the changes that occurred in the components of stockholders'
equity during the year.
MAIN STREET STORE, INC.Statement of Changes in Stockholders’ Equity
For the Year Ended August 31, 2017Paid-In Capital:Beginning balance $ –0–
1.Common stock, par value, $10; 50,000 shares authorized, 10,000 shares issued and outstanding 100,000Additional paid-in capital 90,000
Balance, August 31, 2017 $190,000Retained Earnings:Beginning balance $ –0–Net income for the year 18,000Less: Cash dividends of $.50 per share (5,000)
Balance, August 31, 2017 $ 13,000Total stockholders’ equity $203,000
Learning Objective 2-4: Explain the meaning of each of the captions on the financial statements illustrated in this chapter.1- 42
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StatementofCashFlowsThe purpose of this financial statement is to identify the
sources and uses of cash during the year.MAIN STREET STORE, INC.
Statement of Cash FlowsFor the Year Ended August 31, 2017
Cash Flows from Operating Activities:
Net income $ 18,000
Add (deduct) items not affecting cash:
Depreciation expense 4,000
Increase in accounts receivable (80,000)
Increase in merchandise inventory (170,000)
Increase in current liabilities 67,000
Net cash used by operating activities $(161,000)
Cash Flows from Investing Activities:
Cash paid for equipment $ (40,000)
Cash Flows from Financing Activities:
Cash received from issue of long-term debt $ 50,000
Cash received from sale of common stock 190,000
Payment of cash dividend on common stock (5,000)
Net cash provided by financing activities $ 235,000
Net increase in cash for the year $ 34,000
Learning Objective 2-4: Explain the meaning of each of the captions on the financial statements illustrated in this chapter.
Page 8
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Time-LineModel
Learning Objective 2-4: Explain the meaning of each of the captions on the financial statements illustrated in this chapter.1- 44
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FinancialStatementRelationships
The arrow indicates that net income affects retained earnings, which is a component of stockholders' equity.
Learning Objective 2-4: Explain the meaning of each of the captions on the financial statements illustrated in this chapter.
1- 45Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
FinancialStatementRelationships
Learning Objective 2-4: Explain the meaning of each of the captions on the financial statements illustrated in this chapter.1- 46
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FinancialStatementRelationshipsIf assets equal $300,000 and liabilities equal $125,000,
what is stockholders' equity?
Assets = Liabilities + Stockholders'
Equity 320,000 = 117,000 + ?
Balance Sheet
Learning Objective 2-4: Explain the meaning of each of the captions on the financial statements illustrated in this chapter.
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If assets equal $320,000 and liabilities equal $117,000, what is stockholders' equity?
Assets = Liabilities + Stockholders'
Equity 320,000 = 117,000 + 203,000
Balance Sheet
Stockholders' equity equals $203,000
($320,000 - $117,000)
FinancialStatementRelationships
Learning Objective 2-4: Explain the meaning of each of the captions on the financial statements illustrated in this chapter.1- 48
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Now, suppose that total assets increase $10,000 during the year and total liabilities decrease $3,000 during the year.
What is stockholders' equity at the end of the year?
FinancialStatementRelationships
Assets = Liabilities + Stockholders'
Equity 320,000 117,000 203,000
10,000 (3,000) ?330,000 114,000 ?
Balance Sheet
Learning Objective 2-4: Explain the meaning of each of the captions on the financial statements illustrated in this chapter.
Page 9
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Stockholders' equity must have increased by $13,000. Since stockholders' equity was $203,000 at the beginning
of the year, it must be $216,000 at the end of the year.
FinancialStatementRelationships
Assets = Liabilities + Stockholders'
Equity 320,000 117,000 203,000
10,000 (3,000) 13,000 330,000 114,000 216,000
Balance Sheet
Learning Objective 2-4: Explain the meaning of each of the captions on the financial statements illustrated in this chapter.1- 50
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BalanceSheetAccount Definition
Cash Cash on hand and in the bankAccounts receivable Amounts due from customersMerchandise inventory Cost of merchandise acquired and not yet soldEquipment Cost of equipment purchased and used in businessAccumulated depreciation
Portion of the cost of equipment that is estimated to have been used up in the process of operating the business
Short-term debt Amounts borrowed that will be repaid within one year of the balance sheet date
Accounts payable Amounts due to suppliersOther accrued liabilities Amounts owed to various creditorsLong-term debt Amounts borrowed from banks or other creditors that will
not be repaid within one year from the balance sheet date
Residual claim of owners, computed as "assets minus liabilities"
Stockholders' equity
Learning Objective 2-4: Explain the meaning of each of the captions on the financial statements illustrated in this chapter.
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IncomeStatementCaptions Explanation
Net sales Amount of sales of merchandise to customers, less the amount of customer returns of merchandise
Cost of goods sold Represents the total cost of merchandise removed from inventory and delivered to customers as a result of sales
Gross profit Difference between net sales and cost of goods sold; Represents the seller's maximum amount of "cushion" from which all other expenses of the business must be deducted before it is possible to have net income
Selling, general, and administrative expenses
Represents the operating expenses of the entity
Income from operations Represents one of the most important measures of the firm's activities
Interest expense Represents the cost of using borrowed fundsIncome taxes Shown after all of the other income statement items have
been reported because income taxes are a function of the firm's income before taxes
Net income per share of common stock outstanding
A significant item in evaluating the market value of a share of common stock; Often referred to as "earnings per share" or EPS
Learning Objective 2-4: Explain the meaning of each of the captions on the financial statements illustrated in this chapter.1- 52
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StatementofChangesinStockholders'Equity
Captions ExplanationPaid-in capital Represents the total amount invested in the entity by
the ownersCommon stock Reflects the number of shares authorized by the
corporation's charter, the number of shares issued to stockholders, and the number of shares still held by the stockholders
Additional paid-in capital
Difference between the total amount invested by the owners and the par value or stated value of the stock
Retained earnings Represents the cumulative net income of the entity that has been retained for use in the business
Dividends Distributions of earnings to the owners
Learning Objective 2-4: Explain the meaning of each of the captions on the financial statements illustrated in this chapter.
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Captions ExplanationCash flows from operating activities
Shown first; Net income is the starting point for this measure of cash generation
Depreciation expense Added back to net income because it is subtracted to arrive at net income, but does not require the use of cash
Increase in accounts receivable
Deducted because it reflects sales revenues, included in net income, but not yet received in cash
Increase in merchandise inventory
Deducted because cash was spent to acquire the increase in inventory
Increase in current liabilities
Added because cash has not yet been paid for the products and services that have been received during the current fiscal period
Cash flows from investing activities
Shows the cash sources and uses related to long-lived assets
Cash flows from financing activities
Shows the cash sources and uses related to transactions with creditors and stockholders
StatementofCashFlows
Learning Objective 2-4: Explain the meaning of each of the captions on the financial statements illustrated in this chapter.1- 54
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AccountingConceptsandPrinciples
Accounting EntityEvery economic entity can be
separately identified and accounted for.
Unit of MeasurementOnly transactions denominated in dollars (currency) are recorded in
the accounting records.
Now FutureGoing Concern Concept
The presumption that the entity will continue to operate in the future—
it’s not being liquidated.
Cost PrincipleTransactions are recorded at their
original cost to the entity as measured in dollars.
Learning Objective 2-5: Identify and explain the broad, generally accepted concepts and principles that apply to the accounting process.
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AccountingConceptsandPrinciples
Matching ConceptAll expenses incurred to generate
that period’s revenues be deducted from the revenues
earned.
Accounting PeriodThe period of time selected for
reporting results of operations and changes in financial position.
ObjectivityThe accountants’ desire to have a given transaction recorded in the same way
in all situations.
Accrual AccountingRecognize revenue at the point of
sale and recognize expenses when incurred, even though the cash
receipt or payment may occur at another time.
Learning Objective 2-5: Identify and explain the broad, generally accepted concepts and principles that apply to the accounting process.1- 56
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Full DisclosureCircumstances and events that make a difference to financial statement users
should be disclosed.
ConsistencyProvides meaningful trend
comparisons over several years.
MaterialityThe benefit of increased accuracy
should outweigh the cost of achieving the increased accuracy.
ConservatismWhen in doubt, make judgments and estimates that result in lower profits
and asset valuations.
AccountingConceptsandPrinciples
Learning Objective 2-5: Identify and explain the broad, generally accepted concepts and principles that apply to the accounting process.
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AccrualAccountingVs.CashFlows
Revenue Recognition -Timing is the Key
Cash flowrecognizes:
Accrual accountingrecognizes:
Revenuewhen payment is received
for services renderedor products sold.
Revenuewhen revenue is earned,
at the point of sale ofservices or products.
Expenseswhen they are paid.
Expenseswhen they are incurred.
Learning Objective 2-6: Describe why investors must carefully consider cash flow information in conjunction with accrual accounting results.1- 58
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LimitationsofFinancialStatements
Financial statements report only quantitative
economic data.
They do not reflect qualitative economic variables, such as the
value of the management team or the
employees’ morale.
How do the terms “quantitative” and “qualitative” differ?
Qualitative economic variables
are usually subjective in value
and cannot be quantified in terms of dollars and cents that can be verified.
Learning Objective 2-7: Identify and describe several limitations of financial statements.
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LimitationsofFinancialStatements
Matching Concept
Estimates are acceptable provided there is a basis
for them.
Many estimates are used, such as warranty costs, depreciation, and
pension expense.
Historical Cost Concept
Assets are usually valued at the cost of the Asset
when acquired.
The balance sheet does not report market values
or replacement cost of the assets.
Learning Objective 2-7: Identify and describe several limitations of financial statements.1- 60
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TheCorporation’sAnnualReportThe annual report is
distributed to shareholders (and others).
It contains the financial statements, together with the report of the external auditor’s examination of the financial statements.
It also contains Management’s Discussion
and Analysis (MD&A).
Learning Objective 2-8: Describe what a corporation’s annual report is and why it is issued.
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