Accounting

Information
System
© Copyrright Doug Hillman 1997
 Major Accounting Bodies

 American Institute of Certified Public

Accountants
 Financial Accounting Standards Board
 Government Accounting Standards
Board
 Securities and Exchange Commission

© Copyrright Doug Hillman 1997

 Ethics

The process that individuals use

© Copyrright Doug Hillman 1997

 Ethics

The process that individuals use

to evaluate their conduct

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 Ethics

The process that individuals use

to evaluate their conduct in light
of moral principles and values

© Copyrright Doug Hillman 1997

 Assets

 Anything of value held by an

organization
 Assets have

© Copyrright Doug Hillman 1997

 Assets

 Anything of value held by an

organization
 Assets have

» Potential usefulness

© Copyrright Doug Hillman 1997

 Assets

 Anything of value held by an

organization
 Assets have

» Potential usefulness
» Future usefulness

© Copyrright Doug Hillman 1997

 Assets

 Anything of value held by an

organization
 Assets have

» Potential usefulness
» Future usefulness
» Economic Value

© Copyrright Doug Hillman 1997

 Assets

 Cost principle
 Going-concern concept
 Objectivity principle
 Stable dollar concept

© Copyrright Doug Hillman 1997 1

 Equities

 Claims against the total assets of an

organization
 Liabilities

» Claims of nonowners
 Owner's Equity

» Claims of owners

© Copyrright Doug Hillman 1997 1

 Retained Earnings

 Cumulative total of net income, net loss,

and dividends since start of business

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 Revenues

 Inflows of assets that result from

performing services or selling goods
 Revenues are realized when

» the service is performed or

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 Revenues

 Inflows of assets that result from

performing services or selling goods
 Revenues are realized when

» the service is performed or

» the goods are delivered

© Copyrright Doug Hillman 1997 1

 Expenses

 Outflows of assets or incurrence of

liabilities while earning revenues
 A business incurrs expenses to earn
revenues

© Copyrright Doug Hillman 1997 1

 The Accounting Equation

 Things of Value = Claims

 Assets = Equities
 Assets = Liabilities + Owner's Equity
 Assets - Liabilities = Net Assets

© Copyrright Doug Hillman 1997 1

 Analyzing Transactions

 Use accounting equation

 Is there a change in assets?

» Which asset?
» How much was the change?
 Is there another change in assets?

© Copyrright Doug Hillman 1997 1

 Analyzing Transactions

 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?

© Copyrright Doug Hillman 1997 1

 Four Basic Financial
Statements

 Income Statement
 Statement of Owners’ Equity
 Classified Balance Sheet
 Statement of Cash Flows

© Copyrright Doug Hillman 1997 1

 Income Statement

 Reports changes in owners’ equity from

operating activities
 Revenues - Expenses = Net
Income(Loss)

© Copyrright Doug Hillman 1997 2

 Statement of Owners’ Equity

 Changes in owners’ interest in assets

 Issuances of new stock
 Retained earnings

» Net income or loss

» Dividends

© Copyrright Doug Hillman 1997 2

 Classified Balance Sheet

 Classification - arrangement of financial

statement items into groupings that have
common basis
 Assets

» Current
» Property, plant, and equipment

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 Classified Balance Sheet

 Liabilities
» Current
» Long-tern
 Owners’ Equity

» Common stock
» Retained earnings

© Copyrright Doug Hillman 1997 2

 Statement of Cash Flows

 Reports cash flows during period

 Categories of activities

» Operating activities
» Investing activities
» Financing activities

© Copyrright Doug Hillman 1997 2

 Analyzing Information

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 Balance Sheet Analysis

 Are 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?

© Copyrright Doug Hillman 1997 2

 Income Statement Analysis

 Are revenues higher or lower?

 What is the precentage change in total
revenues?
 Is the percentage of total expenses to
total revenues increasing or decreasing?

© Copyrright Doug Hillman 1997 2

 Integrative Analysis
 Is 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

© Copyrright Doug Hillman 1997 2