Anthony, Hawkins, and Merchant
ACCOUNTING:
TEXT AND CASES
Tenth Edition
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Task Force Clip Art included
in this electronic presentation
is used with the permission of
New Vision Technology of
Nepean Ontario, Canada
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The Nature
and Purpose
of Accounting
Part One: Financial Accounting
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Planning
Slide 1-1
Planning is the
process of
deciding what
….actions should be
taken in the
future.
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Planning
Slide 1-2
Planning involves making decisions. Decisions are
arrived at by- recognizing that a problem or an opportunity




exists
specifying and ranking the criteria to be used to
determine the best solution
identifying alternative ways of addressing the
problem or opportunity
analyzing the consequences of each alternative
comparing these consequences to each other and
the criteria so as to decide which is best
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The Nature and Purpose of Accounting
Slide 1-3
Information
Nonquantitative
information
Quantitative
information
Consists of
Nonaccounting
information
Accounting
information
Consists of
Operating
information
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Financial
accounting
Management
accounting
Tax
accounting
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Relationship of Management Functions
Slide 1-4
Planning
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Relationship of Management Functions
Planning
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Slide 1-5
Implementation
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Relationship of Management Functions
Planning
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Implementation
Slide 1-6
Control
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Relationship of Management Functions
Planning
Implementation
Slide 1-7
Control
Appropriate action
Feedback
Plan revision
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The Balance Sheet
Slide 1-8
HOLDEN COMPANY
Balance Sheet
As of December 31, 1999
(000 omitted)
Assets
Current assets:
Cash
Marketable securities
Accounts receivable, net
Inventories
Prepaid expenses
$ 1,449
246
9,944
10,623
389
Total current assets
$22,651
Liabilities and Owners’ Equity
Current liabilities:
Accounts payable
$ 5,602
Bank loan payable
1,000
Accrued liabilities
876
Estimated tax liability
1,541
Current portion of longterm debt
500
Total current liabilities
$ 9,519
Current Section
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The Balance Sheet
Slide 1-9
Assets
Liabilities and Owners’ Equity
Noncurrent assets:
Noncurrent liabilities:
Property, plant, equipment
Long-term debt, less
at cost
$26,946
current portion
$ 2,000
Less: Accumulated
Deferred income taxes
824
Depreciation
13,534
Total liabilities
12,343
Property, plant, equipment
net
13,412 Owners’ equity:
Investments
1,110
Common stock
1,000
Patents and trademarks
403
Additional paid-in capital
11,256
Goodwill
663
Total paid-in capital
12,256
Retained earnings
13,640
Total owners’ equity
25,896
Total liabilities and owners’
Total assets
$38,239 and owners’ equity
$38,239
Noncurrent Section
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The Accounting Equation
Slide 1-10
Assets = Liabilities + Owners’ Equity
Assets are economic resources
which are owned by a business
and are expected to benefit
future operations.
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The Accounting Equation
Slide 1-11
Assets = Liabilities + Owners’ Equity
Liabilities are obligations
of the entity to outside
parties who have
furnished resources
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Income Statement
Slide 1-12
HOLDEN COMPANY
Income Statement
For the Year 1999
(000 omitted)
Sales revenue
Less cost of sales
Gross margin
Less operating expenses
Income before taxes
Provision for income taxes
Net income
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$75,478
52,227
23,251
10,785
12,466
6,344
$ 6,122
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Financial Statement Objectives
Slide 1-13
Financial reporting should provide information:




Useful to present and potential investors and creditors in
making rational investment and credit decisions
Comprehensible to those who have a reasonable
understanding of business and economic activities and are
willing to study the information with reasonable diligence
About the economic resources of an enterprise, the claims
to those resources, and the effects of transactions and
events that change resources and claims to those resources
About an enterprise’s financial performance during a
period
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A “Package” of Accounting Reports
Slide 1-14
Condensed Balance Sheet
As of December 31, 1999
Assets
Current assets
Building and equip.
Other assets
Total assets
$22,651
13,412
2,176
$38,239
Liabilities and Owners’ Equity
Liabilities
$12,343
Owners’ Equity
Paid-in capital
12,256
Retained earnings
13,640
Total liabilities and
owners’ equity
$38,239
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
A “Package” of Accounting Reports
Condensed Balance Sheet
As of December 31, 1999
Assets
Current assets
Building and equip.
Other assets
Total assets
$22,651
13,412
2,176
$38,239
Slide 1-15
Income Statement
For the Year 1999
Sales revenue
Less cost of sales
Gross margin
Less operating exp.
Income before taxes
Provision for taxes
Net income, 1999
$75,478
52,222
23,351
10,785
12,466
6,344
$ 6,122
Liabilities and Owners’ Equity
Liabilities
$12,343
Owners’ Equity
Paid-in capital
12,256
Retained earnings
13,640
Total liabilities and
owners’ equity
$38,239
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1999
A “Package” of Accounting Reports
Condensed Balance Sheet
As of December 31, 1999
Assets
Current assets
Building and equip.
Other assets
Total assets
$22,651
13,412
2,176
$38,239
Liabilities and Owners’ Equity
Liabilities
$12,343
Owners’ Equity
Paid-in capital
12,256
Retained earnings
13,640
Total liabilities and
owners’ equity
$38,239
Irwin/McGraw-Hill
Slide 1-16
Income Statement
For the Year 1999
Sales revenue
Less cost of sales
Gross margin
Less operating exp.
Income before taxes
Provision for taxes
Net income, 1999
$75,478
52,222
23,351
10,785
12,466
6,344
$ 6,122
Statement of Retained Earnings
Retained earnings
Add net income
Less dividends
Retained earnings
$13,640
6,122
19,762
4,390
$15,372
© The McGraw-Hill Companies, Inc., 1999
A “Package” of Accounting Reports
Condensed Balance Sheet
As of December 31, 1999
Assets
Current assets
Building and equip.
Other assets
Total assets
$22,651
13,412
2,176
$38,239
Liabilities and Owners’ Equity
Liabilities
$12,343
Owners’ Equity
Paid-in capital
12,256
Retained earnings
13,640
Total liabilities and
owners’ equity
$38,239
Irwin/McGraw-Hill
Slide 1-17
Income Statement
For the Year 1999
Sales revenue
Less cost of sales
Gross margin
Less operating exp.
Income before taxes
Provision for taxes
Net income, 1999
$75,478
52,222
23,351
10,785
12,466
6,344
$ 6,122
Statement of Retained Earnings
Retained earnings
Add net income
Less dividends
Retained earnings
$13,640
6,122
19,762
4,390
$15,372
© The McGraw-Hill Companies, Inc., 1999
A “Package” of Accounting Reports
Slide 1-18
Condensed Balance Sheet
As of December 31, 2000
Assets
Current assets
Building and equip.
Other assets
Total assets
Statement of Retained Earnings
Retained earnings
Add net income
Less dividends
Retained earnings
Irwin/McGraw-Hill
$13,640
6,122
19,762
4,390
$15,372
$24,062
14,981
3,207
$42,250
Liabilities and Owners’ Equity
Liabilities
$14,622
Owners’ Equity
Paid-in capital
12,256
Retained earnings
15,372
Total liabilities and
owners’ equity
$42,250
© The McGraw-Hill Companies, Inc., 1999
A “Package” of Accounting Reports
Slide 1-19
Condensed Balance Sheet
As of December 31, 2000
Assets
Current assets
Building and equip.
Other assets
Total assets
Statement of Retained Earnings
Retained earnings
Add net income
Less dividends
Retained earnings
Irwin/McGraw-Hill
$13,640
6,122
19,762
4,390
$15,372
$24,062
14,981
3,207
$42,250
Liabilities and Owners’ Equity
Liabilities
$14,622
Owners’ Equity
Paid-in capital
12,256
Retained earnings
15,372
Total liabilities and
owners’ equity
$42,250
© The McGraw-Hill Companies, Inc., 1999
Summary
Slide 1-20
An organization has four types of accounting
information:
 Operating information, which has to do with the
details of operations
 Management accounting information, which is
used internally for planning, implementation, and
control
 Financial accounting information, which is used
both by management and external parties
 Tax accounting information, which is used to file
tax returns with taxing authorities
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Chapter 1
The End
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