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Beginning Assumptions

Accounting is the process


of identifying, measuring,
and communicating
economic information to
permit informed judgments
and decisions. Put more
simply, accounting is the
language of business.

To accomplish the process of


accounting, accountants use four
assumptions:

Financial Statements
A financial Statement is a formal record of
the financial activities of a business.
Financial Statement comprises of:

The Income Statement


The Balance Sheet
The Statement of Retained Earnings
The Cash Flow Statement

Reporting Profitability:
The Income Statement

One of the first


questions any
business wants to
know is whether they
are making money or
are profitable.

These answers can be found in the


Income Statement.

The Income Statement


and Terms
An income statement reports
a companys revenues and
expenses.
Matching Principle Expenses should be

Revenue
Expense

recordedin the period resources


are used
An
A
to generate
revenues
increase
decrease
in
in
Terms
resources
resources
resulting
resulting
from the
from the
sale of
sale of
goods or
goods or
services Recognition Principle services
Revenue
A revenue
should be recorded when a resource has
been earned

Income Statement
Example

Basic Structure of the


Income Statement
Revenues Expenses = Net Income
or Net Loss
Reported over a specific period,
like for the year ended December
31, 2010

Reporting Financial
Position: The Balance
Sheet and Related
Terms

The Classified
Balance
Ethics and
Sheet
Decision Making
groups together

accounts of similar
In todays business environment,
nature and reports
companies have to be aware
not
only
of
them in
a few
major
the economic impact of their
decisions, but
classifications.
also of their ethical impact.
Informat

ion

being
used
for?

d
e
e
exc ment
o
T
rn ?
e
v
go mits?
li

Equity
To falsi

Current assets
Long-term
investments
Fixed assets
Intangible assets
Other assets
re
To igno
Current
ct
duLong-term
pro&
?
safety?

Retained Earnings
Contributed Capital

fy
records
??

Balance Sheet Classifications


Items are grouped by category in the
balance sheet.
Current
Assets
(Convert to
Cash in 1
year or less)

Noncurrent
Assets
(All other
assets)

ASSETS

Current
Liabilities
(Paid with
Cash in 1 year
or less)

Noncurrent
Liabilities
(All other
liabilities)

LIABILITIES
11

Users of Accounts

Investors
Lenders
Creditors
Debtors
Government Bodies
Employee
Analyst
Public

The Conceptual
The grammar or terms, explaining financial
Framework
accounting
language in this chapter, are more formally
known as components of the conceptual
framework of accounting.

The conceptual framework of


accounting is the collection of
concepts that guide the manner in
which accounting is practiced.

Terms Used to Identify and


Describe Economic
Information
Term
Definition
Reported on the
Asset

A resource of a business

Balance sheet

Liability

An obligation of a business

Balance sheet

Equity

The difference between assets


and liabilities

Balance sheet

Contributed Capital

Equity resulting from


contributions from owners

Balance sheet

Retained Earnings

Equity resulting from profitable


operations

Balance sheet
and statement of
retained earnings

Revenue

An increase in assets resulting


from selling a good or providing
a service

Income Statement

Expense

A decrease in assets resulting


from selling a good or providing
a service

Income Statement

Dividend

A distribution of profits to
owners

Statement of
retained earnings

Principles Used to Measure


Economic Information
Principle

Definition

Ramification

Revenue
Recognition

Revenues are
The receipt of cash
recorded when they is not required to
are earned.
record a revenue.

Matching

Expenses are
recorded in the time
period when they
are incurred to
generate revenues.

For many assets,


the cost of the asset
must be spread
over the periods
that it is used.

Cost

Assets are recorded


and maintained at
their historical
costs.

Except in a few
cases, market
values are not used
for reporting asset
values.

Assumptions Made When


Communicating Economic
Information
Assumption
Definition
Ramification
Economic entity

The financial activities of a


business can be accounted
for separately from the
business's owners.

We do not have to worry


that the financial information
of the owner is mixed with
the financial information of
the business.

Monetary unit

The rupee, unadjusted for


All transactions in foreign
inflation, is the best means
currencies are converted to
of communicating
rupees.
accounting information in the
India.

Time period

Accounting information can


be communicated effectively
over short periods of time.

Most businesses prepare


quarterly and annual
financial statements.

Going concern

The company for which we


are accounting will continue
its operations indefinitely.

If an entity is not selling its


assets, then the cost
principle is appropriate.

Qualitative Characteristics
of Accounting Information
Term
Understanda
bility

Definition

Ramification

Accounting
information
should be
comprehensibl
e by those
willing to
spend a
reasonable
amount of
time studying
it.

Users must
spend a
reasonable
amount of time
studying
accounting
information for it
to be
understandable.

Relevance

The capacity
of accounting
information to
make a
difference in

Information
should have
predictive or
feedback value
and should be

Qualitative Characteristics
of Accounting Information
(continued)
Term
Reliability

Definition

Ramification

The extent to
which accounting
information can
be depended
upon to
represent what it
purports to
represent, both
in description
and in number.

Information should
be free from error,
a faithful
representation,
and neutral.

Comparab
ility

The ability to use


accounting
information to
compare or
contrast the
financial

Entities must
disclose the
accounting
methods that they
use so that
comparisons

Qualitative
Characteristics of
Accounting Information
(Continued)
Terms

Definition

Ramifications

Consistenc
y

Accounting
information
should be
comparable
across different
time periods
within a
company.

An entity should
use the same
accounting
methods year to
year and
disclose when
they change
methods.

Materiality

The threshold
over which an
item could
begin to affect
decisions.

When an
amount is small
enough, normal
accounting
procedures are
not always
followed.

Qualitative
Characteristics of
Accounting Information
(Continued)

Definition
Terms
Conservatis When
uncertainty
m
exists,

accounting
information
should present
the least
optimistic
alternative.

Ramifications
An entity should
choose
accounting
techniques
that guard
against
overstating
revenues or
assets.

Financial Statements Used


to Communicate Economic
Information
Statement

Purpose

Structure

Links to Other
Statements

Balance
sheet

Shows a
companys
assets,
liabilities, and
equity at a
specific point in
time.

Assets =
Liabilities +
Equity

The balance in
retained
earnings comes
from the
statement of
retained
earnings.
The balance in
cash should
agree with the
ending cash
balance on the
statement of
cash flows.

Income
statement

Shows a
companys

Revenue Expenses =

Net income/loss
goes to the

Financial Statements Used


to Communicate Economic
Information
Statement

Purpose

Statement
of
retained
earnings

Statement
of cash
flows

(continued)

Structure

Links to Other
Statements

Shows the
changes in a
companys
retained
earnings over a
specific
period of time.

Beginning
Retained
Earnings +/Net
Income/Loss
- Dividends =
Ending
Retained
Earnings

Ending retained
earnings goes to
the balance
sheet.

Shows a
companys
inflows and
outflows of cash
over a specific
period of time.

Operating
Cash Flows
+/- Investing
Cash Flows
+/- Financing
Cash Flows =
Net change
in cash

The ending cash


balance on the
statement of
cash flows
should agree
with the balance
in cash on the
balance sheet.

Business Forms
Businesses have
three basic
options when
deciding which
form a new
business will take.
These include: sole
proprietorship,
partnership, and
corporation.

A Public Company
Corporations can take several forms, one
of which is a public corporation. A public
corporation is one in which ownership is
available to the public at large. Such
corporations are said to be publicly
traded. Examples of publicly traded
corporations are Tata, Infosys, and
Dabur.
The stock of a public corporation is usually
bought and sold on an open exchange such
as the Bombay Stock Exchange

Generally Accepted
Accounting Principles
Generally accepted
accounting principles
(GAAP) are the
accounting standards,
rules, principles, and
procedures that
comprise authoritative
practice for financial
accounting. These
principles have been
developed over time by
several
regulators.

SEBI

ICAI

Compa
nies
Act

International Accounting
Regulatory Bodies
Accounting is
practiced
throughout the
world, and there
is a movement to
develop one set
of international
accounting
standards to be
used by all
countries.

The IASB is a
board, similar to
the FASB, whose
mission is to
develop a single
set of high quality
international
standards
Those
requiring
standards,and
which
transparent
have both
comparable
similarities to
information.
and differences
from GAAP, are
called
International
Financial

Information Beyond
the Financial
Statements

A companys financial statements


contain a significant amount of
information about the financial activities
and position of the company. However,
they are not exhaustive, and much
information that is useful to creditors
and investors is not included on the
statements. Instead this information is
found in:
Notes to the financial statements
Auditors report

Notes to the Financial


Statements

Auditors Report

Third-party
assurance

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Shareholders
Bed Bath & Beyond Inc.:
We have audited the accompanying consolidated balance sheets of Bed Bath & Beyond Inc. and subsidiaries (the Company) as of February
28, 2009 and March 1, 2008, and the related consolidated statements of earnings, shareholders equity, and cash flows for each of the fiscal
years in the three-year period ended February 28, 2009. In connection with our audits of the consolidated financial statements, we have also
audited the financial statement schedule. These consolidated financial statements and financial statement schedule are the responsibility of
the Companys management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Unqualifi
ed
opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bed
Bath & Beyond Inc. and subsidiaries as of February 28, 2009 and March 1, 2008, and the results of their operations and their cash flows for
each of the fiscal years in the three-year period ended February 28, 2009, in conformity with U.S. generally accepted accounting principles.
Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information set forth therein.
As discussed in the Notes to the consolidated financial statements, the Company changed its methods of accounting for the fair value
option for certain financial assets and financial liabilities and for fair value measurements in the fiscal year ended February 28, 2009 due to
the adoption of Statement of Financial Accounting Standards (SFAS) No. 159, The Fair Value Option for Financial Assets and Financial
LiabilitiesIncluding an amendment of FASB Statement No. 115 and SFAS No. 157, Fair Value Measurements. Further, as discussed in
the Notes to the consolidated financial statements, the Company changed its method of accounting for uncertain tax positions in the fiscal
year ended March 1, 2008 due to the adoption of the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes
an Interpretation of FASB Statement No. 109.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Companys
internal control over financial reporting as of February 28, 2009, based on criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated April 28, 2009 expressed
an unqualified opinion on the effectiveness of the Companys internal control over financial reporting.
KPMG, LLP.

CPA firm performing the audit

Managements Discussion
and Analysis (excerpt)