Basic concept

Accounting Information

System

Assets

Assets havePotential usefulness

Future usefulness

Economic Value

Cost principle Going-concern concept

Objectivity principle

Stable dollar concept

Equitiesclimes against the total assets of an

organization

Liabilities: Claims of no owners

Owner's Equity

Claims of owners

Retained EarningsCumulative total of net income, net loss, and dividends since start of business

RevenuesInflows of assets that result from performing

services or selling goods

Revenues are realized when: the service is performed or

the goods are delivered

ExpensesOutflows of assets or incurrence of liabilities while earning revenues

A business incurs expenses to earn revenues

The Accounting EquationThings of Value = Claims

Assets = Equities

Assets = Liabilities + Owner's Equity

Assets - Liabilities = Net Assets

Analyzing Transactions

Use accounting equation

Is there a change in assets?

Which asset? How much was the change?

Is there another change in assets?

Is there a change in liabilities?

Which liability?How much was the change?

Is there another change in liabilities?

Is there a change in owners’ equity?

How much was the change?

Financial Statements

Four Basic Financial Statements1) Income Statement

2) Statement of Owners’ Equity

3) Classified Balance Sheet

4) Statement of Cash Flows

Income StatementReports changes in owners’ equity from operating activities

Revenues - Expenses = Net Income(Loss)

Statement of Owners’ EquityChanges in owners’ interest in assets

Issuances of new stock

Retained earnings:Net income or loss

Dividends

Classified Balance SheetClassification - arrangement of financial statement items into groupings that have common basis

Assets:Current

Property, plant, and equipment

Classified Balance SheetLiabilities:

Current

Long-tern

Owners’ Equity:Common stock

Retained earnings

Statement of Cash FlowsReports cash flows during period

Categories of activities:Operating activities

Investing activities

Financing activities

Analyzing Information

Balance Sheet AnalysisAre total assets higher or lower?

What is percent change in total assets?

Is the percent of total liabilities to total liabilities plus owner’s equity increasing or decreasing?

Income Statement AnalysisAre revenues higher or lower?

What is the percentage change in total revenues?

Is the percentage of total expenses to total revenues increasing or decreasing?

Integrative AnalysisIs the business operating efficiently by using the least amount of asset investment to generate a given level of total revenues?

Calculate Total Asset Turnover:Total revenues

divided by

Average total assets

Any Question???

Thank You