Chapter 16

Introduction to Management Accounting
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Management
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Introduction to Management Accounting
Chapter
16
Understanding Corporate
Annual Reports: Basic Financial
Statements
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The Balance Sheet
Assets
Liabilities
Equity
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Operating Cycle
Cash
$100,000
Buy Merchandise Sell

inventory
$100,000
Accounts
receivable
$160,000
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Objective 1
Assets Example
May 31
Balance sheet (in millions)

2006
rrent assets:
2005
Cash and equivalents
$ 954.2 $1,388.1
Short-term investments
1,348.8
4,36.6
Accounts receivable, net
2,395.9
2,262.1
nventories
2,076.7
1,811.1
Deferred Income Taxes
203.3
110.2
Prepaid expenses and other current assets
380.1
343
tal current assets
$7,359.0 $6,351.1
ncurrent assets:
Property, plant, and equipment, net 1,657.7
1,605.8
dentifiable intangible assets
405.5
406.1
Goodwill
130.8
135.4
Deferred Income Taxes and Other assets
316.6
295.2
Total noncurrent assets
$2,510.6
$2,442.5
tal assets
$9,869. 6
$8,793.6
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Cash Equivalents
Cash equivalents are short-term

investments that can easily be
converted into cash with little delay.
What are some examples?
Treasury bills
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Depreciation
Cost
Expense
Acquisition cost Estimated residual value
= Amount to be charged as expense
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Depreciation
Straight-line method
Accelerated methods
Units-of-production method
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Intangible Assets
Intangible assets are a class of
long-lived assets that are not
physical in nature.
What are some examples?
Patents
Copyrights
Goodwill
Trademarks
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Objective 2
Liabilities Example
2006
May 31
2005
rent liabilities:
urrent portion of long-term debt
$ 255.3
$
6.2
otes payable
43.4
69.8
ccounts payable
952.2
775.0
ccrued liabilities
1,286.9
1,053.2
ncome taxes payable
85.5
95.0
al current liabilities
$2,623.3
$1,999.2
ncurrent liabilities:
ong-term debt
410.7
687.3
eferred income taxes and other liabilities
550.1
462
al noncurrent liabilities
$ 960.8
$ 1,149.9
al liabilities
$3,584.1 $3,149.1
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Liabilities
Current Liabilities are an organizations
debts
that fall due within the
coming year or within
the normal
operating cycle whichever is longer.
Notes
Accrued
Payable
Liabilities
Current portion
Of long-term
debt
Accounts
Payable
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Liabilities
Noncurrent Liabilities (long-term) are
an organizations debts that fall due
beyond one year.
Deferred
Income Taxes
Notes
Payable
Long-Term
Debt
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Objective 3
Stockholders Equity Example
May 31
2006
2005
holders equity:
mable preferred stock
$
0.3
$
0.3
on stock at stated value:
s A convertible-63.9 and 71.9 shares outstanding
.1
s B-192.1 and 189.2 shares outstanding
2.7
2.7
l in excess of stated value
1,451.4
1,182.9
ed earnings
4,713.4
4,396.5
117.6
62.0
l shareholders equity
$6,285.5
$5,644.5
iabilities and shareholders equity
$9,869.6
$8,793.6
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Stockholders Equity
The main elements of stockholders

equity arise from two sources:
Contributed or paid-in capital
Retained earnings
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Common Stock
Common stock has no predetermined

rate of dividends and is the last to
obtain a share in the assets when
the corporation is dissolved.
Common shares usually have
voting power to elect the board
of directors of the corporation.
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Preferred Stock
Preferred stock has some priority over
other shares regarding dividends or the
distribution of assets upon liquidation.
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Treasury Stock
This is a corporations own stock

that was issued and subsequently
repurchased by the company and
is being held for a specific purpose.
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Objective 4
Operating Performance
An income statement can take

one of two major forms:
Single step
Multiple step
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Objective 5
Statement of
Retained Earnings
An analysis of the changes in retained

earnings is frequently placed in a
separate financial statement, the
statement of retained earnings.
The major reasons for changes in retained
earnings are dividends and net income.
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Statement of Cash Flows
This reports the cash receipts and

cash payments of an organization
during a particular period.
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Objective 6
Activities Affecting Cash

List the activities that increased
or decreased cash.
Place each cash inflow and outflow

into one of three categories.
Operating activities
Investing activities
Financing activities
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Objective 10
Appendix 16 A: Accounting for

Inventories
Specific identification
FIFO
LIFO
Weighted average
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Appendix 16 A: Accounting for Inventories
Specific identification: recognizes

the actual cost paid for the
specific physical item.
FIFO: First-In-First-Out
assumes that a company sells or uses
up first the stock acquired earliest. It uses
the latest costs to measure the ending inventory.
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Appendix 16 A: Accounting for Inventories
LIFO: Last-In-First-Out
Assumes that a company sells or uses up
first the stock acquired most recently. It
treats the most recent costs as cost of goods sold.
Weighted-Average-Cost:
Assigns the same unit cost to each unit available
for sale. Unit cost is the cost of all units available
for sale divided by the number of units available.
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The End
End of Chapter 16
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Chapter 16

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Chapter 16

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Introduction to Management Accounting

Introduction to Management Accounting

The Balance Sheet

Buy Merchandise Sell

Balance sheet (in millions)

Cash equivalents are short-term

Balance sheet (in millions)

Stockholders Equity Example

Balance sheet (in millions)

The main elements of stockholders

Common stock has no predetermined

This is a corporations own stock

An income statement can take

An analysis of the changes in retained

Statement of Cash Flows

This reports the cash receipts and

Activities Affecting Cash

Place each cash inflow and outflow

Appendix 16 A: Accounting for

Appendix 16 A: Accounting for Inventories

Specific identification: recognizes

Appendix 16 A: Accounting for Inventories

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