logging in or signing up Accounting ankush85 Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINT lite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: (To copy code, click on the text box) Embed: URL: Thumbnail: WordPress Embed Customize Embed The presentation is successfully added In Your Favorites. Views: 1065 Category: Education License: All Rights Reserved Like it (2) Dislike it (0) Added: July 05, 2009 This Presentation is Public Favorites: 1 Presentation Description No description available. Comments Posting comment... By: sherathejatt (31 month(s) ago) good one Saving..... Post Reply Close Saving..... Edit Comment Close Premium member Presentation Transcript Basic Accounting Principles : Basic Accounting Principles The Financial Statements Accounting Terms : Accounting Terms Account A group of items having common characteristics Types of Accounts Asset Liability Income Expense Equity Chart of Accounts : Chart of Accounts Listing of all of the accounts used by a business Asset Accounts : Asset Accounts Items of Value Characterized as current and non-current Liability Accounts : Liability Accounts Claims that others have against the assets Have a known: Amount Date to be paid Person to whom payment owed Also current and non current Equity Accounts : Equity Accounts Claims that the owner has against the assets Sometimes called net worth Difference between value of assets and liabilities Income and Expense Accounts : Income and Expense Accounts Types of equity accounts Simple accounting systems often only contain these accounts Double vs Single Entry Accounting : Double vs Single Entry Accounting Single – One account entry for each transaction Double – Two account entries for each transaction One debit and one credit Hybrid systems May not match income with expenses May not distinguish cash, check, or credit Basic Accounting Equation : Basic Accounting Equation Always maintained in double entry accounting Assets will always equal liabilities plus equity Transactions : Transactions Will be equal and offsetting Two types: Income & Expenses Transfers between accounts Cash and Accrual Accounting : Cash and Accrual Accounting Refers to the timing of entries into the accounting system Cash Based Records : Cash Based Records Transactions are recorded when cash is received or paid out Accrual Based Records : Accrual Based Records Transactions are recorded when they take place Regardless of whether cash is involved Accrual Adjusted Statements : Accrual Adjusted Statements Cash based records are kept throughout the year Non-Cash adjustments are made to the cash based income statement at the end of the year Account Valuation : Account Valuation Income Accounts Value received is recorded Expense Accounts Value paid is recorded Liability Accounts Value is dollar amount owed Account Valuation : Account Valuation Asset Accounts More difficult because they may not be traded routinely Asset Valuation : Asset Valuation Cost Basis Market Value Basis Cost Basis Asset Valuation : Cost Basis Asset Valuation Original cost minus depreciation Must establish a depreciation method Market Basis Asset Valuation : Market Basis Asset Valuation Recorded as the price they could bring if sold, less selling expenses Based on recent auctions, appraisals, etc. Depreciation : Depreciation Section II page 29, (FFSTF Guidelines) Allocation of the expense that reflects the “using up” of capital assets employed by the business Conceptually, this is done over the useful life of the asset in a “systematic and rational” manner Depreciation : Depreciation Allocation applied to original cost minus salvage value Accelerated versus straight line methods Example of difference between management records and tax records Can overstate or understate true income Financial Reports : Financial Reports Balance Sheet Income Statement Statement of Cash Flows Statement of Owner Equity Balance Sheet : Balance Sheet Represents a financial situation at a single point in time Has a date on it Broken down by: Type of Asset or liability Time or life of the account type Balance Sheet : Balance Sheet Current Assets Cash and other assets that will be converted into cash during one operating cycle Non-Current Assets Those not expected to be converted into cash in one operating cycle Balance Sheet : Balance Sheet Current Liabilities Debts that will come due within one year from the balance sheet date Non-Current Liabilities Those debts due more that one year from the balance sheet date Balance Sheet : Balance Sheet Intermediate Assets and Liabilities Long term Assets and Liabilities Can use cost or market valuations or both Supporting Schedules are very helpful Will need a balance sheet for beginning and ending of accounting period Income Statement : Income Statement Summary of income and expenses Represents a period of time between two balance sheets Explains the change in equity between two balance sheets Can be divided into enterprise reports Can be cash or accrual Slide 28: Assets Liabilities Equity Assets Liabilities Equity +/- Net Income +/- Valuation Changes Family living withdrawals + Capital contributions Beginning Balance Sheet Ending Balance Sheet Income Statement : Income Statement Will have more than one profit line Definition of Profit Financial profit is the net return to business equity Accrual Adjusted Income Statement : Accrual Adjusted Income Statement Cash incomes and expenses must be adjusted by: Changes in non-cash assets Inventories Pre paid expenses Receivables Changes in non-cash liabilities Payables Accrued interest Statement of Cash Flows : Statement of Cash Flows Not the same as a cash flow plan (Budget) Is a historical record of sources and uses of funds Divisions of Statement: Cash from operating activities Cash from investing activities Cash from financing activities Statement of Owner Equity : Statement of Owner Equity Explains the change in owners equity between two balances sheets Changes due to : Net income Change in inventory valuation Family living withdrawals Capital contributions Capital distributions Financial Analysis : Financial Analysis All business owners should have a basic set of financial statements at their disposal and they should know how to analyze and interpret them. Financial Analysis : Financial Analysis Two Objectives Measure financial condition of the business Measure financial performance of the business Financial Analysis : Financial Analysis Horizontal Analysis Vertical Analysis Ratio Analysis Horizontal Analysis : Horizontal Analysis Looks at trends in performance and strength over time For example, percent change in net income from year to year Vertical Analysis : Vertical Analysis Looks at within year events rather than over time For example, interest expense as a percent of total expenses Ratio Analysis : Ratio Analysis Allows for consistent comparison of a single business over time as well as comparison between businesses Converts nominal dollar amounts to a common basis Source of data for Ratio Analysis : Source of data for Ratio Analysis Balance Sheet Income Statement Farm Financial Standards Council (Five Criteria) : Farm Financial Standards Council (Five Criteria) Liquidity Solvency Profitability Financial Efficiency Repayment Capacity Ratio Analysis : Ratio Analysis 16 different ratios commonly used Each has limitations Proper interpretation is critical Liquidity : Liquidity Ability of a business to pay current liabilities as they come due Liquidity : Liquidity Current Ratio Current Assets/Current Liabilities Less than one is bad Working capital Current assets minus current liabilities Negative number is bad Solvency : Solvency Ability of the firm to repay all of its financial obligations Solvency : Solvency Debt to Asset Ratio Total liabilities/total assets Greater than one bad Equity to Asset Ratio Total equity/total assets Debt to Equity Ratio Leverage ratio Less than one better Profitability : Profitability Rate of return on assets Rate of return on equity Operating profit margin ratio Financial Efficiency : Financial Efficiency Measures the intensity with which a business uses its assets to generate gross revenues and the effectiveness of production Financial Efficiency : Financial Efficiency Asset turnover ratio Operating expense ratio Depreciation ratio Interest expense ratio Net income from operations ratio Repayment Capacity : Repayment Capacity Measures the borrower’s ability to repay term debts and capital leases rather than financial position or performance Repayment Capacity : Repayment Capacity Term debt and capital lease coverage ratio Capital replacement and term repayment margin Cautions : Cautions Measures are only as good as the data used Methods must be consistent between years and between operations Example – Asset valuation methods Measures ask the right questions but do not provide the answers You do not have the permission to view this presentation. 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Accounting ankush85 Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINT lite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: (To copy code, click on the text box) Embed: URL: Thumbnail: WordPress Embed Customize Embed The presentation is successfully added In Your Favorites. Views: 1065 Category: Education License: All Rights Reserved Like it (2) Dislike it (0) Added: July 05, 2009 This Presentation is Public Favorites: 1 Presentation Description No description available. Comments Posting comment... By: sherathejatt (31 month(s) ago) good one Saving..... Post Reply Close Saving..... Edit Comment Close Premium member Presentation Transcript Basic Accounting Principles : Basic Accounting Principles The Financial Statements Accounting Terms : Accounting Terms Account A group of items having common characteristics Types of Accounts Asset Liability Income Expense Equity Chart of Accounts : Chart of Accounts Listing of all of the accounts used by a business Asset Accounts : Asset Accounts Items of Value Characterized as current and non-current Liability Accounts : Liability Accounts Claims that others have against the assets Have a known: Amount Date to be paid Person to whom payment owed Also current and non current Equity Accounts : Equity Accounts Claims that the owner has against the assets Sometimes called net worth Difference between value of assets and liabilities Income and Expense Accounts : Income and Expense Accounts Types of equity accounts Simple accounting systems often only contain these accounts Double vs Single Entry Accounting : Double vs Single Entry Accounting Single – One account entry for each transaction Double – Two account entries for each transaction One debit and one credit Hybrid systems May not match income with expenses May not distinguish cash, check, or credit Basic Accounting Equation : Basic Accounting Equation Always maintained in double entry accounting Assets will always equal liabilities plus equity Transactions : Transactions Will be equal and offsetting Two types: Income & Expenses Transfers between accounts Cash and Accrual Accounting : Cash and Accrual Accounting Refers to the timing of entries into the accounting system Cash Based Records : Cash Based Records Transactions are recorded when cash is received or paid out Accrual Based Records : Accrual Based Records Transactions are recorded when they take place Regardless of whether cash is involved Accrual Adjusted Statements : Accrual Adjusted Statements Cash based records are kept throughout the year Non-Cash adjustments are made to the cash based income statement at the end of the year Account Valuation : Account Valuation Income Accounts Value received is recorded Expense Accounts Value paid is recorded Liability Accounts Value is dollar amount owed Account Valuation : Account Valuation Asset Accounts More difficult because they may not be traded routinely Asset Valuation : Asset Valuation Cost Basis Market Value Basis Cost Basis Asset Valuation : Cost Basis Asset Valuation Original cost minus depreciation Must establish a depreciation method Market Basis Asset Valuation : Market Basis Asset Valuation Recorded as the price they could bring if sold, less selling expenses Based on recent auctions, appraisals, etc. Depreciation : Depreciation Section II page 29, (FFSTF Guidelines) Allocation of the expense that reflects the “using up” of capital assets employed by the business Conceptually, this is done over the useful life of the asset in a “systematic and rational” manner Depreciation : Depreciation Allocation applied to original cost minus salvage value Accelerated versus straight line methods Example of difference between management records and tax records Can overstate or understate true income Financial Reports : Financial Reports Balance Sheet Income Statement Statement of Cash Flows Statement of Owner Equity Balance Sheet : Balance Sheet Represents a financial situation at a single point in time Has a date on it Broken down by: Type of Asset or liability Time or life of the account type Balance Sheet : Balance Sheet Current Assets Cash and other assets that will be converted into cash during one operating cycle Non-Current Assets Those not expected to be converted into cash in one operating cycle Balance Sheet : Balance Sheet Current Liabilities Debts that will come due within one year from the balance sheet date Non-Current Liabilities Those debts due more that one year from the balance sheet date Balance Sheet : Balance Sheet Intermediate Assets and Liabilities Long term Assets and Liabilities Can use cost or market valuations or both Supporting Schedules are very helpful Will need a balance sheet for beginning and ending of accounting period Income Statement : Income Statement Summary of income and expenses Represents a period of time between two balance sheets Explains the change in equity between two balance sheets Can be divided into enterprise reports Can be cash or accrual Slide 28: Assets Liabilities Equity Assets Liabilities Equity +/- Net Income +/- Valuation Changes Family living withdrawals + Capital contributions Beginning Balance Sheet Ending Balance Sheet Income Statement : Income Statement Will have more than one profit line Definition of Profit Financial profit is the net return to business equity Accrual Adjusted Income Statement : Accrual Adjusted Income Statement Cash incomes and expenses must be adjusted by: Changes in non-cash assets Inventories Pre paid expenses Receivables Changes in non-cash liabilities Payables Accrued interest Statement of Cash Flows : Statement of Cash Flows Not the same as a cash flow plan (Budget) Is a historical record of sources and uses of funds Divisions of Statement: Cash from operating activities Cash from investing activities Cash from financing activities Statement of Owner Equity : Statement of Owner Equity Explains the change in owners equity between two balances sheets Changes due to : Net income Change in inventory valuation Family living withdrawals Capital contributions Capital distributions Financial Analysis : Financial Analysis All business owners should have a basic set of financial statements at their disposal and they should know how to analyze and interpret them. Financial Analysis : Financial Analysis Two Objectives Measure financial condition of the business Measure financial performance of the business Financial Analysis : Financial Analysis Horizontal Analysis Vertical Analysis Ratio Analysis Horizontal Analysis : Horizontal Analysis Looks at trends in performance and strength over time For example, percent change in net income from year to year Vertical Analysis : Vertical Analysis Looks at within year events rather than over time For example, interest expense as a percent of total expenses Ratio Analysis : Ratio Analysis Allows for consistent comparison of a single business over time as well as comparison between businesses Converts nominal dollar amounts to a common basis Source of data for Ratio Analysis : Source of data for Ratio Analysis Balance Sheet Income Statement Farm Financial Standards Council (Five Criteria) : Farm Financial Standards Council (Five Criteria) Liquidity Solvency Profitability Financial Efficiency Repayment Capacity Ratio Analysis : Ratio Analysis 16 different ratios commonly used Each has limitations Proper interpretation is critical Liquidity : Liquidity Ability of a business to pay current liabilities as they come due Liquidity : Liquidity Current Ratio Current Assets/Current Liabilities Less than one is bad Working capital Current assets minus current liabilities Negative number is bad Solvency : Solvency Ability of the firm to repay all of its financial obligations Solvency : Solvency Debt to Asset Ratio Total liabilities/total assets Greater than one bad Equity to Asset Ratio Total equity/total assets Debt to Equity Ratio Leverage ratio Less than one better Profitability : Profitability Rate of return on assets Rate of return on equity Operating profit margin ratio Financial Efficiency : Financial Efficiency Measures the intensity with which a business uses its assets to generate gross revenues and the effectiveness of production Financial Efficiency : Financial Efficiency Asset turnover ratio Operating expense ratio Depreciation ratio Interest expense ratio Net income from operations ratio Repayment Capacity : Repayment Capacity Measures the borrower’s ability to repay term debts and capital leases rather than financial position or performance Repayment Capacity : Repayment Capacity Term debt and capital lease coverage ratio Capital replacement and term repayment margin Cautions : Cautions Measures are only as good as the data used Methods must be consistent between years and between operations Example – Asset valuation methods Measures ask the right questions but do not provide the answers