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Samenvatting lessen accounting for managers (gastprofessor Ruslana Kuzina)
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Summary of the lessons given by visiting professor Ruslana Kuzina.
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ACCOUNTING FOR MANAGERSCLASS 1: FINANCIAL ACCOUNTING REVIEW SESSION
WHAT IS ACCOUNTING
Accounting consists of three basic activities:
- Identifies
- Records
- And communicates
The economic events of an organization to interested users. A lot of people need this information
USERS
Internal users = Internal users of accounting information are managers who plan, organize, and run the business.
These include marketing managers, production supervisors, finance directors, and company officers. In running a
business, internal users must answer many important questions.
External users = External users are individuals and organizations outside a company who want financial information
about the company. The two most common types of external users are investors and creditors. Investors (owners)
use accounting information to make decisions to buy, hold, or sell ownership shares of a company. Creditors (such as
suppliers and bankers) use accounting information to evaluate the risks of granting credit or lending money. Taxing
authorities, such as the Internal Revenue Service, want to know whether the company complies with tax laws.
Regulatory agencies, such as the Securities and Exchange Commission or the Federal Trade Commission, want to know
whether the company is operating within prescribed rules.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Common set of standards is called generally accepted accounting principles (GAAP). These standards indicate how to
report economic events.The annual accounts of Belgian companies must be drafted in accordance with Belgian
Generally Accepted Accounting Principles (GAAP). In the United States, these standards are known as U.S. GAAP.
Companies required to meet GAAP standards must do so in all financial reporting or risk facing significant
consequences → big companies that are public are obliged to use these guidelines.
Many countries outside of the United States have adopted the accounting standards issued by the International
Accounting Standards Board (IASB). These standards are called International Financial Reporting Standards (IFRS).
THE FINANCIAL STATEMENTS
Financial statements are written records that illustrates the business activities and the financial performance of a
company. In most cases they are audited to ensure accuracy for tax, financing, or investing purposes. The common
purpose of financial statements is to obtain information that is useful for their economic decisions from financial
statements. Now it is financial information, but in a few years it will also maybe include non-financial information
because it is important to understand how a company creates value. It is not only assets and labour, but a company
can also create environmental value, social value etc. This will be another type of capital. Accountants criticize financial
statements because it is not all included, it is only about the digits and not about the real value of the company.
Consists of :
- Balance Sheet
- The income statement (Profit & loss account) = profit is not the same as cash. You can have profit but no cash
at the same moment of time.
- Cash flow statement = it is important to have money, you have three types of cash (operation, financial,
investment). We use the cash flow to understand how a company receives money.
- Statement of changes in stock holder’s equity = include profit in the changes in capital
- The notes to financial statements
BALANCE SHEET
Balance Sheet is a snapshot at a point in time. On the top half you have the company’s assets and on the bottom half
its liabilities and Shareholders’ Equity (or Net Worth). The assets and liabilities are typically listed in order of liquidity
and separated between current and non-current.
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,The Balance sheet has 3 main categories:
1. Assets:
a. Current = Expected to be converted into cash in less than 1 year (Accounts receivable, inventory)
b. Non-current = Expected to be held greater than 1 year (Property, plant, and equipment)
2. Liabilities
a. Current = Will be paid in less than 1 year (Trade accounts payable)Non-current
b. Repayment terms longer than 1 year (Loan repayable over a 5 year)
3. Equity
Formula that summarizes what a balance sheet shows:
Assets = liabilities + shareholders’ equity
A company's assets have to equal, or "balance," the sum of its liabilities and shareholders' equity
INTERPRETING THE BALANCE SHEET
Balance statements only show the state of the company at the end of the reporting period, not the activities along the
way.
Components of a Balance Sheet
- Assets are valuable properties, cash, investments, patents, or trademarks owned by a company. Assets can be
current (can be liquidated within a year) or noncurrent (will take longer than a year to sell). Some noncurrent
assets are fixed, or not sellable, because they are needed to operate the business, such as vehicles or office
furniture.
- Liabilities are debts the company owes for supplies, business loans, rent on a property, payroll, and other
obligations. Liabilities can also be current or long term.
- Shareholders’ equity, also called capital or net worth, is the cash value of the company if all assets were to be
sold and all liabilities paid off. Shareholders’ equity is the amount owners invested in the company’s stock plus
or minus the company’s earnings or losses since its inception
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,INCOME STATEMENT
The income statement covers a period of time, such as a quarter or year. It illustrates the profitability of the company
from an accounting (accrual and matching) perspective. It starts with the revenue line and after deducting expenses
derives net income.
COST OF SALES
Cost of goods sold or Cost of sales May be shown
as summarised line item or May be broken Down
to its expense items:
- Direct Materials (e.g. materials used in
manufacturing): EG. You sell clothes, so
this will be fabric
- Direct Labor ((e.g. professional services
delivered) EG. People who make the
clothes
- Direct overhead (to the production of the
goods or services) EG. Using specific
equipment
Managerial accounting is all about how to manage
expenses.
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, INTERPRETING THE INCOME STATEMENT
Components of an Income Statement:
- The report starts with the “gross revenue,” or the total amount of revenue earned through the sale of
products or services. “Gross” indicates that this total is not final, as it does not reflect the whole story because
expenses have not been addressed.
- After stating the revenue earned, the statement will list and deduct the amount of money the company cannot
collect from the sales it made (due to such things as returns or discounts). The “net” revenues, or the amount
of money remaining after the deductions, will be stated.
- Several expenses then are taken from the net revenue. These deductions vary, but usually start with the cost
of making sales. The total after deducting these expenses is called the “gross profit” or “gross margin.” Once
again, “gross” indicates that the figure is not final as more deductions for expenses are to come. Operating
expenses such as marketing costs, staff salaries, and product research are then deducted from the total.
QUIZ
Historical cost = cost you made in the past
Fair value = what something it worth today vb. a car that you bought 5 years ago for 10.000$ is now worth 5000$
Investment in equity securities = financial instrument, you make an investment to make a profit, equity: you are the
owner
Investment in debt securities = the company owes you the money you invested, they owe you some kind of debt
CLASS 2: INTRODUCTION IN COST ACCOUNTING
THE NATURE AND PURPOSE OF MANAGEMENT ACCOUNTING
DATA AND INFORMATION: WHAT IS THE DIFFERENCE?
‘Data’ means facts. Data consists of numbers, letters, symbols, raw facts, events and transactions which have been
recorded but not yet processed into a form suitable for use
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