Introduction to Management Accounting

all Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahle

Introduction to Management Accounting

Chapter
15

Basic Accounting:
Concepts, Techniques,
And Conventions

all Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahle

The Need for Accounting

Managers, investors, and other internal groups

want the answers to two important questions:
How well did
the organization
perform?

Where does
the organization
stand?

all Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahle

Learning
Objective 1

The Need for Accounting

Accountants answer these questions

with three major financial statements:
Income
statement

Balance
sheet
Statement of
cash flows

all Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahle

Balance Sheet

The balance sheet (also called statement of

financial position or statement of financial
condition) is a snapshot of the financial
status of an organization at a point in time.

all Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahle

Balance Sheet

Assets = Liabilities + Owners equity

Assets are economic resources that
are expected to benefit future
activities of the organization.
Liabilities are the entitys economic
obligations to nonowners.
Owners equity is the excess
of the assets over the liabilities.

all Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahle

Balance Sheet

The owners equity of a corporation

is called stockholders equity.
Stockholders equity

Paid-in
capital

Retained
earnings

all Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahle

Revenues and Expenses

Revenues are increases in ownership

claims arising from the delivery
of goods or services.
Expenses are decreases in ownership
claims arising from delivering goods
or services or using up assets.

all Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahle

Learning
Objective 5

Dividends

Dividends are distributions of assets to

stockholders that reduce retained earnings.
Cash dividends are distributions of cash
rather than some other asset.
The distribution is made possible
by profitable operations.

all Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahle

Retained Earnings

Retained earnings is
a result of profitable
operations, it is not a
pot of cash awaiting
distribution to
stockholders.

all Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahle

Learning
Objective 6

King Hardware Company

Income Statement
for the Month Ended April 30, 20xx
Sales
$85,000
Cost of goods sold
70,000
Gross profit
$15,000
Operating expenses:
Rent
$1,000
Wages
6,600 7,600
Net income
$ 7,400

all Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahle

King Hardware Company

Statement of Retained Earnings
for the Month Ended April 30, 20xx
Retained earnings, March 31, 20XX $29,000
Add: Net income for April
7,400
Total
36,400
Deduct: Dividends
18,000
Retained earnings, April 30, 20xx
$ 18,400

all Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahle

King Hardware Company

Balance Sheet as of April 30, 20xx
Assets
Cash
$ 70,000
Accounts receivable
102,000
Inventory
20,000
Prepaid rent
1,000
Total assets

$193,000

all Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahle

King Hardware Company

Balance Sheet as of April 30, 20xx

Liabilities and Stockholders Equity

Liabilities
Accounts payable
$ 71,000
Accrued wages payable
600
Unearned sales revenue
3,000
$ 74,600
Stockholders equity
Paid-in capital
$100,000
Retained income
18,400
118,400
Total equities
$193,000

all Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahle

Learning
Objective 7

Sole Proprietorships and

Partnerships

A sole proprietorship is a business

entity with a single owner.
A partnership is an organization
that joins two or more individuals
together as co-owners.

all Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahle

The End

End of Chapter 15

all Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahle