Financial Principles and
Project Cost Management
FINANCIAL ACCOUNTING
Selected Readings
Accounting introduction
http://ocw.mit.edu/courses/sloan-school-of-management/15-501-introduction-tofinancial-and-managerial-accounting-spring-2004/lecture-notes/lecture1.pdf
Financial statements overview
http://highered.mheducation.com/sites/0073324833/student_view0/ebook/chapte
r1/chbody1/the_four_basic_financial_statements__an_overview.html
Income statement terminology
http://johanhburger.com/understanding-the-income-statement/
Accrual accounting (beyond the scope of this course)
http://www.inc.com/articles/2000/04/19194.html
Financial Statements
Balance sheet
Income statement
Statement of cash flows
Statement of changes in stockholders’ equity
Balance Sheet
Assets (current and long term)
Liabilities (current and long term)
Equity (for NGOs, this is “net assets”)
The accounting equation:
Assets = Liabilities + Equity
Balance Sheet Example
Overnight Auto Service
Balance Sheet
December 31, 2015
Assets
Current assets
Cash
Accounts receivable
Inventories
Supplies
Notes receivable
Total current assets
Long term assets
Property, plant, and equipment
Intangible assets
Total assets
$
$
5,000
20,000
18,000
1,000
26,000
70,000
50,000
6,000
$ 126,000
Liabilities and Equity
Current liabilities
Accounts payable
Accrued liabilities
Notes payable, current
Total current liabilities
Long-term liabilities
Notes payable, long term
Total liabilities
Equity
Capital stock
Retained earnings
Total liabilities and equity
$
$
10,000
8,000
6,000
24,000
$
$
16,000
40,000
$
30,000
56,000
126,000
$
Balance Sheet Exercise
Company name:
Balance sheet date:
Accounts payable
Accounts receivable
Accrued liabilities
Capital stock
Cash
Intangible assets
Inventory
Notes payable, due in 5 years
Notes payable, due in 6 months
Property, plant, and equipment
Retained earnings
Supplies
West End Tires, Inc.
October 31, 2015
$
$
$
$
$
$
$
$
$
$
$
$
22,000
18,000
4,000
100,000
9,000
4,500
1,500
10,000
3,000
119,000
15,000
2,000
Balance Sheet Exercise Solution
Income Statement
Sales
Expenses
Net income
The income statement equation:
Sales – expenses = net income
Income Statement Example
Innovative Systems Corp.
Income Statement
For the year ending March 31, 2013
Sales
Expenses
Cost of goods sold
SGA expense
R&D expense
Interest expense
Income tax expense
Total expenses
Net income
$ 345,000
$ 93,000
$ 80,000
$ 22,000
$ 10,000
$ 35,000
$ 240,000
$ 105,000
Expense Accounts
Cost of goods sold (COGS, also called “cost of sales”)
Selling, general, and administrative expense (SGA)
Research and development expense (R&D)
Interest expense
Income tax expense
Depreciation Expense
Depreciation is the accounting allocation of fixed
assets purchases to the income statement.
Depreciation is usually classified as SGA expense.
Example: machine
$10,000 cost
5 year life
$10,000/5 = $2,000/year depreciation expense
Income Statement Exercise
West End Tires, Inc.
October 31, 2015
Company name:
Date:
Transactions
Sales
SGA expenses
Cost of goods sold
Income tax expense
R&D expenses
Interest expense
$
$
$
$
$
$
60,000
22,500
16,900
3,500
1,200
900
Income Statement Exercise Solution