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    CH 1

    Uploaded by

    Yusef Sobhi

    Copyright:

    © All Rights Reserved
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    of 19
    Introduction to Financial Accounting Conversations with menagers quickly reveal contador views of accounting, T some, acon ca dy exec in "ben courting.” To coters accounting seams hopeless sibecive Thre an od joke about a company president intenieing accountants, The accounnt whe got ‘he jo had the folow Present “What's two plus Accountant: "dot know What rumber id you hae in mind?” While here may not be aconsensis 3s 1 whether acouring is more “bean courting” oF nore shady deci, ost will agree that occount ing extremely important to the operations of an ‘organization. ‘This ehater begins our study of accounting, has thee goat: 1. To decibe what accounting is 2, Te explore wy suet 3, Te inoduce te diensions cl tn derstanding ad sing accounting + econmi cones + acountg conventions + instutional context, ‘Wie bein by deng accountng, We then into thc basi accounting prods ofnancal statements Areal cmpanys facial tte ments sere as foal pint for mucho his iron. Examples present and scuss several econ that ca be improved by consi tring accountnginformation. Final we preset the Farivork of economic concepts, {ounting convents, ad institutional context on hich we base tue chapters What Is Accounting? oszecm | Accounting isthe gathering nd eportngo fn Nsory of organization. This Tematatitaes! | nan Risto resus a ontingl process of turing nancial dat. oranzing it seta is uit sto counting record sad sting periieSanchltepors to Use = |Aeurteup-aoate unc reports conta est del of valubl information for Ther wer The mor gal af the book to roi a lear understanding of how 26 “Sunting works so yu can mae the mos of his inormation, Consider the coe ofthe Union Plas Hota nd Cain (href, Union Ps), seth Maza Casio ad hot wh 137 guest oom on Main ore 1962, Union Plea experienced phenomesal thins lon th the Las Vegan ae and within he guning Indust. New tele nd asinosepening up onthe Las Vege Strip ncaed the massive Blago,s 3. bilo ‘Toutopmten Rate wo when began in 9, te Union Plz ae orspetition fam {Th wider rage of sources inldng Ada City, gaming om erboa casinos in ‘acral St Lous Misour and Bay St Loa, Minpp and casinos on Nae resin tservtione arom the United Sates, cng os mansgeset, 201 sparc icy fo sion Pa Incr compton forthe idle sector neste love pres atthe same Uiee conve ea and sss wen up On op of eething doe fe eon ace tf Scpember ad thi aftermath severely dampened toro costing Union Plea ‘ene half ofits wholesale oon bookngs nthe fllowig hee mom remy of evens cullege Union Plaza 20, and we ght exec ther asi ster ec te compan Sort me wlshow yo stl Union Paes ancl ae ‘em tat siempew eptre the compas fnincal history and acuretely convey i Accounting the at Fhery ofan onion acount or appring 0 sth eames Shapes the coaequercs of mlopingspee ceuing igure tt 1 sere Howe gtng the most fom the information i contig eportsruies saree cogs hes important fre that shape te costachon of eins Framework for Understanding Accounting information es ePSscatons snd insta cote. Eeonmi cone see He hat Tren though estimates and predictions playa rol, the" wiggle room an accounting see opemeron ad ne ston context dsp To wrker abd ES Satiane oncsps ureter busines cases should ep ete) and ccouning aa oe er eang th onal antes! in which the concep’ and CO ‘por | astetesthe eltonsip beeen ancl ports and he econo tos of the cngnestion. Us of nunc sotertents rust understand the erin rus ode to make correc amen tte re economists ft cz aren Accounting mumier supply ony apprsimaton te economic els forging ‘hour tcringproces joparves te quali of decison es ot iportant ha the sesuntg bese. hse nortan ies what tey ea loxganzation Pave Financial Reporte The dct anwer tthe question, What accounting, ght ed solos eon sh roves of gern, contig al eon th Fuca eyes Auman fl ty igiiel yHe f fact that th concep ad conven ply sls inthe aecountng poses ls us acount as bth gil ond soi densons. To a tun ths duality can Suan. Accounsing es soneere Buco a pret lng ane which ce tin cam eit be proven sore ordemonsrated be hase, ard a totaly Sbjetnedacpne wee the vali any statement can ever be proven or proven wb ccaity. Alsou the presence of bot loa and sve dimensions stat our Fn ets tmonow of natriny e bokte sual to keep bot ie srenlone te ew boture denying iter sis imps our understanding ofa 2a Cpl knowl of the concepiand convents aval can be bowght {ebay when the fsonl contest nha which the reports are pupae and thet undertood onsscrive ‘ace set it of Fuca, ss Sarbwem he eit ‘arbi rd none ae Fans th i ly be Reale eromey oe sider prot Accounts papal ae ony ‘rsd fom them sate Financial Histories: The Financial Statements periodically provides a balance sheet, which ist the economic resources avalabe 1 a ‘rgniation ats pot inne. A blaceshet lo dase an onanation com mitment o sve up economic resources to he organizations and inde inl, Tulane sheet shows th xcs (or dic) of esasce svat ove thoe cmt, aha shows aune set or Union Masa of Deir 31,200 The bl ance shee nas comin the name ofthe gist (nt ante ext date of he report bscatac the lance set provides 4 mapot ofthe ovarian’ anal onion sa partial point nine: Union Pla balance set estes economic ‘erouce (sand conor omits) through at of caters oF ‘ccoune' Union P's secs ince Cash and Cash Equivalents Accounts Ree She lnventoie of Food Beverage, ts repaid Expense; Property aid Equipment aad Oter Ase ts abies ince Assos Payable, Accrued Listes, Other {CareatLisbliiee, Long Term Debt, aod Obligations under Capital Leases The di ference betwen iste abi called Sieber? Equity, Union Paral Stock holder Equity const of Connon Stack, AdtonalPaid-in Capital ant Retained seni lhe sale of ts ova shits thas epurchsted 2 eeaatry Stock (dela ia Oru) Accounts eeiable, nt 786 Acad Habis Inventors of fod tererage, et 103 Ot cet bits Pepi epee, 293 Tal ent abies TotLeunencamee T5354 and $1012 Odtguions under capi lise. Balinge ssoat "TOTAL LIABILITIES sata inprovenets 366 Frnreandcqupment 314659 STOCKHOLDERS EQUITY and amortization (53.903) _Adktonal paid-in capital Neopet asd egupment $3437? Resined ering iter ats es tena ack Bury sas som asses ‘TOCRROLDERS eau” ESTE Numbers at tached ots ats of resumes (ast and commitment (lai ss), One ofthe sr ebllenges of scouming 0 undrtan the meaning ofthese numbers which temp to mesure the clo actions and deco taken by Union Pais management but ae subjected othe accounting filtering process. The member "vege more rg defn fet Iti in Chap scully havea varity of meanings, Fr esp, we wil se that he $786 thous as Signal to Azsunts Reaable sam estimate of the acto smu Union Plea expecta tocllect dm the amounts awed toby customers The $8472 fowand assigned to Property aod Equipment I another mats. The $7.92 thoasand fran i pty the amount Union Plza pid forthe ab. Te amount Union Plea pai snot ses sells good approximation of what the lind woul brig if sl. The B al improvements and Friar and Equigment amounts te also what Union Pea Pl. A deduction applies however for Ascmulted Deprsation and Amorezaton Cost less Accumulated Depaciaion sway nots good aporocimation ht the sipoent would bring ad ‘The numbers on the Ble sheet, whatever their origin, do add up that ithe total of al ofthe at S413 thous, the sue athe oe ofl fables and tocolder qty For that reson its alld. ance sheet. The cout (ec) ae {qual to (balance he libs (commitments and stockholder ely (he eat of Accounting final sory sao debs the fof onomic sources no and ion operas or sh forte yat ended Deere 3,201 1c desis the ows of Union Pau’ economic evens lth dr ‘succes om al, er wlocoFthecnts os ithe co ofl theo and sold under Reverse {Spsumed fr gel si Inrange Depreciation and amar > Depron ad otsion ‘xpnizaion ding ptod of time An income statements the enomic cqired by an onginiztion trough i operons daring peo’ of tine Tt "btsctsthe economic eoures consumed toh options ding ero of tne "hows an income statement for Union Pata. The income tart Income Ssteent fr the Yor: End Deer 3.2001 ‘data in owen) oe coos revevurs ~ Greeaming xeenses Redd beenge foci! peepie Cite sv matenoee Prion cael aout OPERATING INCOME (LOSS) OTHER INCOME (EXPENSE) NETLOSS ‘ersing and Promotion, Usiltes and Maintenance, Depreciition and Amortization, Fig. Sa ine Pee = Provision for Doubtful Accouts, Interest Expense and Other, Union Plata took a ae Loss on Sle of Assets. All tld, Union Plaza recorded 3 net fu or the yea of $2,914 = "Number reattached to ich ye of keen and expense or example the se oe re ried by slr of Food std Beverage wns $10,351 thousand. That expt come ftom restaurant and bar sales The expense of $8997 thousand for Food and Bev gee the conto the fod and beverage sold inte restaurant and bor fet the Union Para was only restaurant sol bar and hd revenues only tom tho sou he expen or food and betrage woud probly be called Cast of Gans SOM ot ek Av ith the nce ses th even ae expense number in sul fos eros cleats and we wil ean to understand them Thediference betwen evens and expenses Net Income poste and Nt Loss negative. Net income represents a increxe in Stockholders’ Egy onthe bane Ths an income mater hep explain why one ofthe rein the lnc ss Retained Farming, changer a rev of an organizations ttc ‘Cash isch a important exon resouree it deserves spec atenton A thicd cashflow suatement de- fmol statement the cash low statement, descr the ova ch nto ap xt crib the dows feat nto of an orgenzation during an accounting period, The ca ows ate dsied son oe peed tine liaies The accounting choke behind hes caseation willbe discus ingress deat te Eshibit 13 shows the stutement of eth fw for Union Plc. Like Union Plans income sstrien, the gash ew stent i fora peso of time te yeu snd De th fons contributed $1,086 thusar i ties oneal 283 thousand, Toston the tee amounts tel us thal Union Pleas cash Increned by $217 (in thous ove The ya Nat eat ow from fnancingotves Nett Bow onal vce ures As ike income statements eh low statements reae oa change ina balance see sume, The cashflow statement aay provide x ecoelaton of how the as ba ance changed from the bepnning fo the ed ofthe period "We wl see many examples of balance sess Income siemens nd cis ows mets Enowing ho hse arent ar constructed and whe tee 0 each oie il enable you to get the oat information out of «ot of final Statements Bt wh tp through al the ouble Wha are Enancia statements wed fr any The ets Hon decries ctl mn citer of docions that canbe inpeoved by sing the Formation contsne in nancl sateen senile 1.3 Conese Sateen Css Row ah ar fed Decor 31,200 (Goa es) Scns tended geese Coheed ensues (os pid to open ademplopest nee ced Ines pit NET CASH PROVIDED BY (USED nang atv seo ‘CASH FLOWS FROM INVESTING ACTIVITIES | tine tt pete re Praca ome of proper arcs | romorppmens to a Paice of propery tn caper | sof money te fm NET CASH USED ININVESTING ACTIVITIES | coe una aa ‘CASHLFLOWS FROM FINANCING ACTIVITIES Shoe Hey at Proceeds foto tem dt brite Princip omen on one de Pencil armen on ep eas [NETINCREASE (DECREASE) Iv {CASH AND CASH FQUNALENS {CASH AND CASH EQUIVALENTS. Banning he Et AND CASH EQUIVALENTS ce tthe peat | | Review Questions fe long ems a ern xg 2 ne a et A oF relomed Morgge ie atk Sink | 2 Gasset loi te peta (nig a na tomes mean Ck ssa ad nn Cok poo ws ps tn | (Catena sm mat | | Why Study Accounting? oprecreve | Manages anothers making Sani cbs tendo be pag pop itd an aw canines: | in the poem of hee and ow Thy ae rested in hor oly to ie ext tha Sion. A wel-deigned act of statements wl contin us information abou + The economic consequences of past deiions 1 Thecamont conor performance afte organization + The econeni performance ofthe orators management + Thecuen economic sts of the ogunizton Decision Making Many decison can he immrove eth accounting formation, For example manager ght mle eet decom ar whether eed eat os coma by kro the cistomers caret indcbledne ad past payment history. Information sbow ex reo debt might best be oun ia dhe easter coming eed Inoraton bou Fost payment hor might he found in the sconnting recor of the managers ih [A investor cnsering whee o buy ate of stock i IBM fr S133 wl n= proveler chances of making we econ by npg 1 eps help ives identify and aes company's busin sti financial sources, te Gant obligation and tthe fas ban abet operate a2 profit in the past Tithe management of Union Plas was to borrow money from bak wo finance the puree of ne egugent improve is chaser of ting te lo by proving information that shows thatthe oan and inert ae ily toe aan, The type of ‘idence canbe cine from seountng reach and Leper A reglator a publi tty improves the chine of making. wie don about the rates italows she uy to charges easeomyes by looking at he uly’ acount ing repr The regulator sess whether pas ses were slice Yo maintain I servceapd adequate finan seus ooo genstous geste scivee reese ‘potential donor inform dion about wht o donate the Gaggensin Musca by examin the museums accoetingstscmens. These skeet el luting the resources valle to the organization and whether dont resources se aly tobe ued fo the int purpose. ‘Amer of te compensation somite othe bos of istrsofthe General Moos Company eying to determine how the pest of GM fo be somapenated ily ses accounting mmbers to messre the presidents perforant Thee estes right wall Include comparisons wat the reponed revs of othr sonnei ia the suomi inst, 1 potential competitor of Union Paz mpc i chance a making wise state- te dedsons ly becoming thoroughly falar wth Union Plats coun porte 1 jn determnng te damage tobe pid by a defendant who espe endl losin practice impres the chan of making wie devon by examining st ing records of the pri oaned by tone pacts These example ila the many uses of acount information They nds the high rue of sccunting information ‘Accounting Is More Than Just Numbers All the ser inthe examples benefit by Bing ave of ene tha just the numbers and

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