8/24/23:
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Financial
o External Users:
 Lenders
 Creditors
 Shareholders
o Financial Statements (GAAP):
 Income Statement
 Statement of Shareholder’s Equity
 Balance Sheet
 Statement of Cash Flows
Managerial
o Internal Users:
 Purchasing Managers
 Production Managers
 Marketing Managers
o Quantitative Vs. Qualitative:
 Make vs. Buy
 CVP Analysis
 Forecasting
 Budgeting
Financial Statements:
o Income Statement – over a stated period of time
 Revenue – Expenses + Net Income or Net Loss
o Statement of Shareholder’s Equity – over a stated period of time
 Contributed Capital + Earned Capital
 Beginning Retained Earnings + Net Income – Dividends = Ending Retained
Earnings
o Balance Sheet – as of a specific date
 Assets = Liabilities + Owner’s Equity
o Statement of Cash Flows – over a stated period of time
 Cash in – Cash Out
 Operating + Investing + Financing = Net Cash Flow + Beginning Cash
Balance = Ending Cash Balance
o The order is important – as information flows from one statement to the next
Accounting has Rules – GAAP (US) or IFRS (International)
o Financial accounting is governed by concepts and rules known as generally
accepted accounting principle (GAAP). GAAP wants information to have
relevance and faithful representation.
o For information to be useful, it must be trusted. This demands ethics in
accounting. Ethics are beliefs that separate right from wrong. They are accepted
standards of good and bad behavior.
Accounting Equation:
o Assets (What you own) = Liabilities (What you owe) + Equity (What’s left –
owner’s claim)
8/29/23:
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Expanded Accounting Equation:
o Assets = Liabilities + Common stock – Dividends + Revenues – Expenses
Cash Flow Classification:
o Operating: Everyday routine transactions (general operations of any firm):
 Inflow: Cash from sales, Receive cash interest
 Outflow: Pay suppliers for inventory, for employees’ salaries, pay
expenses such as rent or interest expense
o Investing: Sale and purchase of Long-term assets:
 Inflow: From sale of property and equipment
 Outflow: To purchase plant and equipment, investments in other firms
o Financing: Long-term Liabilities and Equity:
 Inflow: From issuing long-term debt (note payable) or issuing common
stock
 Outflow: To repay long-term debt principal, to pay dividends