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1.2 Discussion: Course Preparation Material and Connect   Getting Started This discussion forum encourages you to explore the abundance of supplemental resources linked directly into this course or provided to you through external sources, such as Connect. These resources are designed to help ensure you will have every opportunity to succeed regardless of your past experience with accounting, finance, or Excel. Upon successful completion of this discussion, you will be able to: Access the assignments and student resources, supplemental materials, and learning technology support items. Evaluate what resources would be most beneficial to success in the course. Resources Website: Connect Background Information Students come into this course with widely varying levels of comfort and experience with accounting, finance, and Excel. This course seeks to strike a balance. Those who are already proficient with the fundamentals will have an opportunity to stretch themselves further and prepare for more complex topics in the future. Those who need more assistance are provided with an extensive library of helpful aids to ensure they too can achieve their learning goals. These resources are offered merely as helpful guides, with no points attached, to enable you to do your best. This assignment helps you identify resources that will aid you in achieving the learning goals of the course. You will explore both the course and Connect. Then you will share three resources you uncovered that you feel will be particularly valuable to you and your classmates. After you have made your post, be sure to check back to see what resources others have found, as they may be helpful to you as well. Instructions You will earn 10 points upon successful completion of the following tasks: Access your eBook and Connect assignments through Connect in the table of contents. Select Connect in the Table of Contents. Select McGraw Hill Deep Integration. Select Go to my Connect Section. If you need Connect registration assistance, contact McGraw-Hill Tech Support at 800-331-5094 or at www.mhhe.com/support. Direct any issues with Connect to Connect Tech Support first and then your instructor if there is no resolution. Once you have entered your Connect course, be sure to select the “Library” tab in your Connect course where you can find several helpful learning technology support items. Explore the other Assignments in this course, reading each of the assignment instructions for upcoming assignments. As you read, take note of the resources, supplemental materials, or learning technology support items linked to each assignment. As you read, test a few of the resources, supplemental materials, or learning technology support items to see how they work and how they may help you prepare for your assignments as you make progress through the course. Navigate to the threaded discussion and respond to the following: List three resources, supplemental materials, or learning technology support items you discovered, either elsewhere in the course or in Connect that you feel will be particularly valuable to you as you make progress through the course. For each of the three resources, supplemental materials, or learning technology support items that you list, give a short description and explain why you think it will be useful. Provide a click path and screenshot(s) as appropriate to identify where each of the three resources, supplemental materials, or learning technology support items is located so that classmates can find them. This is a Complete/Incomplete assignment. Fulfilling the post requirements as outlined in 7(a) and 7(b) above, listing and explaining three helpful course resources, will result in full credit being awarded. Make your post by the end of the fourth day of the workshop. ============================================================   1.3 Discussion: Collaboration Forum   Getting Started This forum is a general collaboration forum that serves as a venue to discuss, interact with, communicate about, and genuinely engage the subject matter of the workshop in order to increase each other’s understanding. Importantly, it provides you with a chance to ask questions about the reading, problems, and anything in general, and so represents another opportunity to get assistance with the course concepts and your assignments. Upon successful completion of this discussion, you will be able to: Receive timely advice and assistance with assignments to help achieve learning objectives. Resources Textbook: Analysis for Financial Management Textbook: Principles of Accounting: Volume 1, Financial Accounting Video: Collaboration Forum Introduction Background Information The purpose of this collaboration forum is for students to work together (collaborate) in an effort to better understand assignments. While this forum is not a place to provide all your answers (it is NOT designed to facilitate cheating), it is intended for you to help each other if someone is struggling with a particular problem. Participate early and often. Ask your question in this forum by providing needed problem details for reference, then move on to work another problem. Later, come back and see if anyone has provided help for you or if you can provide assistance to a classmate. Instructions There are no points awarded for this activity. However, you will benefit from completing the exercise, as it will provide helpful academic learning opportunities that correlate with the textbook reading, as well as additional activities that support the topics of both your current and future workshop sessions. Watch the Collaboration Forums Introduction video: Respond by making at least one comment or post that addresses one of the following: Ask a question about this workshop’s assignments. Provide an attempted solution or at least a reference to relevant material in the textbook. Share insights, new understandings, or “ah ha” moments resulting from your reading or work on assignments. Deepen the discussion by raising the application or the implications of a concept presented in the textbook or devotional materials. Post a proposed solution to a question raised by another student and then dialogue about it in this forum, attempting to reach a solution. Your postings should: Clearly state the problem number and problem details as well as the questions that you have. Provide clear questions and proposed answers with evidence of critical thinking by incorporating material from the assigned reading. Add greater depth to the discussion by introducing new ideas or observations. Provide clarification to classmates’ questions and provide insight into the discussion =====================================================================   1.4 Discussion: Pay Terms Debate (Initial Post)   Getting Started To stay in business, a company must manage its cash. Cash is the financial lifeblood of any organization. Cash will inevitably flow in and out of the organization, and understanding where cash comes from and where it goes is important. Poor cash flow is the quickest path to bankruptcy, while strong cash flow can be a significant competitive advantage. Therefore, all of a company’s stakeholders are interested in its cash flow.  Upon successful completion of this discussion, you will be able to: Evaluate the ethical and financial implications of real-world payment practices. Resources Textbook: Analysis for Financial Management Textbook: Principles of Accounting: Volume 1, Financial Accounting Website: Connect File: Higgins Chapter 1 Slides File: Financial Accounting Chapter 1 File: Financial Accounting Chapter 2 Video: Cash Flow and Working Capital Background Information In this assignment, you will learn more about cash, which is the most liquid asset of any organization, business, or individual. The concept of cash in itself is not complicated. However, keep in mind a company can be very good at producing accounting profits but poor at generating or managing cash effectively. For example, if a company sells its product by allowing credit but fails to collect payment from its customers, the revenue claimed is ultimately null and void. Simply put, a business that fails to generate cash through its operations will not be able to pay its bills. Investors and creditors will take note and stop providing funding, intensifying the problem. As a customer, businesses must closely manage their cash flow with their suppliers. Accounts payable, the money owed to suppliers, can be a valuable source of cash. When a company lengthens its pay terms with its suppliers, it is equivalent to taking out a short-term loan. By withholding payments, the company will have more cash on hand, and accounts payable will increase. This cash is then available to fund the company’s project and product ideas. However, this same action has the reverse effect on a supplier. Longer pay terms means the supplier will have less cash on hand, its accounts receivable will increase, and it will have less funding to pursue its own projects. Many a small business has died after their bank becomes concerned about operating cash flows and calls in their credit line. Even large, stable businesses must carefully manage their cash to ensure sufficient liquid resources to pay wages, cover expenses, and fund their projects. The discussion in this assignment revolves around the risks associated with managing cash and the implications of a company’s pay term decisions.  Instructions Review the rubric to make sure you understand the criteria for earning your grade. In your textbook, Analysis for Financial Management, read Chapter 1, “Interpreting Financial Statements,” paying particular attention to the review of the cash flow cycle at the beginning of the chapter. In your textbook, Principles of Accounting, read Chapters 1 and 2, “Role of Accounting in Society” and “Introduction to Financial Statements.” Review the Financial Accounting Chapter 1 and Financial Accounting Chapter 2 PowerPoints to help you further understand the chapter concepts. Review Higgins Chapter 1 Slides. Watch the video “Cash Flow and Working Capital” Respond to the following prompts: From the customer’s perspective, what are the financial implications of lengthening supplier pay terms? What are the financial implications from a supplier’s perspective? What are the ethical implications of lengthening supplier pay terms? Is this a legitimate business strategy? Why or why not? Support your position with at least one biblical principle with a specific Bible verse that you feel is relevant to the situation. Explain how and why it applies. Your post should be based on the chapters, as well as other resources that can contribute to the discussion. Use OCLS to search for relevant scholarly sources you can use to support your position. This initial post should be 200–400 words in length and include at least one academic source that is properly cited. Use APA format and include a reference list. Your post is due by the end of the workshop. For questions on APA style, go to OCLS APA Writing Styles Guides. A single post asserting your position is all that is required for this assignment. However, be prepared to defend your position in the following workshop.  =========================================   1.5 Assignment: Spreadsheet Exercises     Getting Started This assignment will give you an opportunity to practice building balance sheets and income statements. You will also complete some basic cash flow calculations. These exercises will help prepare you for deeper analysis and interpretation later in the course. Upon successful completion of this assignment, you will be able to: Understand the terminology and structure of basic financial statements. Use given financial data to construct basic financial statements. Demonstrate the impact of various managerial decisions on financial statements.  Interpret financial statements to form conclusions about the financial health of an organization. Resources Textbook: Analysis for Financial Management Textbook: Principles of Accounting: Volume 1, Financial Accounting Website: Connect File: Higgins Chapter 1 Slides File: Financial Accounting Chapter 1 File: Financial Accounting Chapter 2 File: Assignment 1.5 Worksheet File: Financial Statement Practice Problems Workbook Background Information An organization’s financial statements reflect history. They show the results of past decisions made by the organization’s leaders. We can review those financial statements to help understand the decisions the organization has made and how it operates. Perhaps more importantly, with a good understanding of financial statements, we can gauge the financial strengths and weaknesses of the organization. This understanding is critical information for making decisions about the future. Whether you are a leader in an organization, a potential investor, or simply an employee, it is crucial you know how to read and interpret financial statements. For this assignment, you will complete a series of short exercises designed to help you practice preparing financial statements and to demonstrate your understanding of basic accounting terminology and procedures. Instructions Review the rubric to make sure you understand the criteria for earning your grade. Review the Higgins Chapter 1 Slides. In your textbook, Analysis for Financial Management, read Chapter 1, “Interpreting Financial Statements.” Review the Financial Accounting Chapter 1 PowerPoint to help you further understand the chapter. In your textbook, Principles of Accounting, read Chapter 2 “Introduction to Financial Statements.” Review the Financial Accounting Chapter 2 PowerPoint to help you further understand the chapter. Study the Workshop One Practice Problems Workbook to help you better understand the processes used to build financial statements. Using the Excel Assignment 1.5 Worksheet, complete all eight of the following problems: Income Statement: Problems 1 and 3 Balance Sheet: Problems 2 and 4 Cash Flow: Problems 5, 6, 7, and 8 Be sure your Excel spreadsheet is prepared in a professional manner, with answers clearly indicated and all your calculations shown. Full credit will not be given if your process for arriving at the answer is not fully displayed, including any intermediate steps. When you have completed your assignment, save a copy for yourself and submit a copy to your instructor by the end of the workshop. ====================================================   1.6 Assignment: Mini Case Study   Getting Started Making informed financial decisions begins with understanding how to use the information available. During this workshop you have become more acquainted with financial statements and how they can be used to support managerial decisions. This mini case presents a common real-life situation: evaluating the strength of an organization to assess whether it is ready for growth.  Upon successful completion of this assignment, you will be able to: Use given financial data to construct basic financial statements. Interpret financial statements to form conclusions about the financial health of an organization. Resources Textbook: Analysis for Financial Management Textbook: Principles of Accounting: Volume 1, Financial Accounting Website: Connect File: Higgins Chapter 1 Slides File: Financial Accounting Chapter 2 File: Assignment 1.6 Worksheet Background Information In this workshop, you have learned about the vital nature of cash flow to a company’s survival, much less success. To the surprise and dismay of many business leaders, success and growth often lead to cash flow problems. This is the problem faced by Tad Marks of Sunset Boards. The company is profitable, and demand for its products is quickly growing. As a result, Tad Marks is considering expanding the business and has brought you in as a financial analyst to weigh in on the decision. As a consultant, you will first construct income statements, balance sheets, and a cash flow statement for a company and then attempt to apply your understanding to evaluate the company’s growth plans. Instructions Review the rubric to make sure you understand the criteria for earning your grade. Review Higgins Chapter 1 Slides and the Financial Accounting Chapter 2 PowerPoints. Using Assignment 1.6 Worksheet, prepare the following financial statements for the mini-case “Financial Statements for Sunset Boards, Inc.” Income Statement for 2018 and 2019 Balance Sheet for 2018 and 2019 Cash Flow Statement for 2019 Tad Marks, the company’s founder, is considering expanding the business, which will require a substantial investment.  Evaluate the financial statements you have developed and Sunset Board’s cash flow. In your Excel document or a separate Word document, write a paragraph explaining whether you feel expansion would be a wise choice and why. When you have completed your assignment, save a copy for yourself and submit a copy to your instructor by the end of the workshop.Chapter 1 ROLE OF ACCOUNTING IN SOCIETY Principles of Accounting, Volume 1: Financial Accounting PowerPoint Image Slideshow Chapter Outline 1.1 Explain the Importance of Accounting and Distinguish between Financial and Managerial Accounting 1.2 Identify Users of Accounting Information and How They Apply Information 1.3 Describe Typical Accounting Activities and the Role Accountants Play in Identifying, Recording, and Reporting Financial Activities 1.4 Explain Why Accounting Is Important to Business Stakeholders 1.5 Describe the Varied Career Paths Open to Individuals with an Accounting Education Module 1.1 Explain the Importance of Accounting and Distinguish between Financial and Managerial Accounting Accounting is the process of organizing, analyzing, and communicating financial information that is used for decision-making.  “Accounting is the language of business.” “Accounting is the language of life.” Understanding financial and managerial accounting is valuable and necessary for practically any career you will pursue.   Teacher Notes: While accounting is traditionally thought of from a business context, accounting is used in all facets of an individual’s life. Notice that the definition does not say “business decision-making.” Rather, it simply says “decision-making.” While this course is obviously focused on accounting as the language of business, many of the concepts learned will be applicable directly or abstractly to one’s personal financial decision-making. 3   Distinguish between Financial and Managerial Accounting Financial accounting measures the financial performance of an organization using standard conventions (rules) to prepare and distribute financial reports. The purpose is to communicate information for decision-making by both internal and external users. External users: owners (stockholders), lenders, and governmental entities such as the Securities and Exchange Commission (SEC) and the Internal Revenue Service (IRS) Managerial accounting uses both financial and nonfinancial information as a basis for making decisions within an organization. The purpose is to equip decision makers with information to assist in setting and evaluating business goals by determining what information is needed and how to analyze and communicate this information. Information tends to be used internally, for purposes such as budgeting, pricing, and determining production costs. 4 Module 1.2 Identify Users of Accounting Information and How They Apply Information Users of accounting information are generally divided into two categories: internal and external.  Internal users are those within an organization who use financial information to make day-to-day decisions. They include managers and other employees who use financial information to confirm past results and help make adjustments for future activities. External users are those outside of the organization who use the financial information to make decisions or to evaInterpreting Financial Statements Chapter One Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright © 2019 by McGraw-Hill Education. All rights reserved. 1 Key Points Accounting is the scorecard of business. Managers who understand accounting can diagnose ills and prescribe remedies. Chapter 1 reviews accounting concepts that are essential for financial management. Ch. 1 2 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Higgins, Analysis for Financial Management, 12e 2 The Cash Flow Cycle Finance and operations are integrally connected. Company operations and strategy affect financing. Financial decisions affect company operations. The cash flow–production cycle demonstrates this. Where is production (operations) in this cycle? Ch. 1 3 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Higgins, Analysis for Financial Management, 12e 3 Figure 1.1 The Cash Flow–Production Cycle Ch. 1 4 Higgins, Analysis for Financial Management, 12e Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 4 Questions about the Cash Flow–Production Cycle What is depreciation, and how does it affect the cycle? Did we miss accounts payable? If so, where does it fit in? Where does the initial cash come from? Where is the operating (working capital) cycle? Are profits and cash flow the same? Does depreciation have anything to do with this? Ch. 1 5 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Higgins, Analysis for Financial Management, 12e 5 Principles demonstrated in the Cash Flow–Production Cycle 1. Financial statements are an important window on reality. 2. Profits do not equal cash flow. Ch. 1 6 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Higgins, Analysis for Financial Management, 12e 6 The Balance Sheet The balance sheet is a financial snapshot. Assets = Liabilities + Shareholders’ Equity What do these three items measure? What is double-entry bookkeeping? What happens to the balance sheet when a company: pays $1 million in wages? borrows $100,000 from a bank? Receives a $10,000 payment from a customer? Ch. 1 7 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Higgins, Analysis for Financial Management, 12e 7 TABLE 1.1 Worldwide Sports Financial Transactions 2017 ($ tChapter 2 INTRODUCTION TO FINANCIAL STATEMENTS Principles of Accounting, Volume 1: Financial Accounting PowerPoint Image Slideshow Chapter Outline 2.1 Describe the Income Statement, Statement of Owner’s Equity, Balance Sheet, and Statement of Cash Flows, and How They Interrelate 2.2 Define, Explain, and Provide Examples of Current and Noncurrent Assets, Current and Noncurrent Liabilities, Equity, Revenues, and Expenses 2.3 Prepare an Income Statement, Statement of Owner’s Equity, and Balance Sheet Module 2.1 Describe the Income Statement, Statement of Owner’s Equity, Balance Sheet, and Statement of Cash In business—and accounting in particular—it is necessary to distinguish the business entity from the individual owner(s). Accountants should only record business transactions in business records. This separation is also reflected in the legal structure of the business. Types of Business Structures Table 2.1 Sole Proprietorship Partnership Corporation Number of Owners Single individual Two or more individuals One of more owners Ease of Formation Easier to form Harder to form Difficult to form Ability to Raise Capital Difficult to raise capital Harder to raise capital Easier to raise capital Liability Risk Unlimited liability Unlimited liability Limited liability Taxation Consideration Single taxation Single taxation Double taxation Teacher Notes: The personal transactions of the owners, employees, and other parties connected to the business should not be recorded in the organization’s records. 3 All businesses, regardless of legal structure, generate financial statements: Income Statement Statement of Owner’s Equity Balance Sheet Statement of Cash Flows Purpose of financial statements:  Stakeholders, such as investors, creditors, regulators, and employees are interested in the performance of an organization for various reasons, but the common goal of using the financial statements is to understand the information each contains that is useful for making financial decisions. Financial Statements Teacher Notes: Each of these statements will be discussed in detail in the upcoming slides. 4 Figure 2.5 Baking requires an understanding of the different ingredients, how the ingredients are used, and how the ingredients will impact the final product (a). If used correctly, the final product will be beautiful and, more importantly, delicious, like the cake shown in (b). In a similar manner, the study of accounting requires an understanding of how the accounting elements relate to the final product—the financial statements. (credit (a): modification of “U.S. Navy Culinary Specialist Seaman Robert Fritschie mixes cake batter aboard the amphibious command ship USS Blue Ridge (LCC 19) Aug. 7, 2013, while underway in the Solomon Sea 130807-N-NN332-044” by MC3 Jarred Harral/Wikimedia Commons, Public Domain; credit (b): modification of “Easter Cake with Colorful Topping” by Kaboompics .com/Pexels, CC0) 5 The #1 Assignment 1.5 Exercises Problem 1: Building an Income Statement 5 Points Violas Medical Supplies, Inc., had product sales of $817,000 and rental sales of $121,000 for 2019. The cost of the products sold was $389,000. In addition, the company incurred $143,000 in expense for its workers, $14,000 for utilities, and $83,000 to lease its warehouse space. Viola was paid $85,000 for his management of the business. The company purchased $80,000 of new equipment during the year. Depreciation of warehouse equipment was $51,000, and interest expense on the companys credit line was $38,000. The company has an effective tax rate of 21 percent. Complete the full Income Statement for Violas Medical Supplies. What is the Net Income for this firm? Use the Template Provided Below to Create Your Solution - Pay close attention to the formulas and formatting of the inputs. Input area: Product Sales ($) Rental Sales ($) Cost of Goods Sold ($) Wages Expense ($) Utilities Expense ($) Warehouse Lease ($) Management Salaries ($) Depreciation expense ($) Interest expense ($) Tax rate (\%) Output area: Violas Medical Supplies, Inc. Income Statement For Year Ended Dec 31st, 2019 Product Sales Revenue $ - 0 Rental Sales Revenue - 0 Total Revenue $ - 0 Expenses: Costs of Goods Sold $ - 0 Wages Expense - Utilities Expense - Warehouse Expense - Management Salaries - Depreciation expense - 0 EBIT $ - Interest expense - EBT $ - 0 Taxes (0\%) - Net income $ - 0 This is the Student Template file, provided in the assignment instructions October 2019 #2 Assignment 1.5 Exercises Problem 2: Building a Balance Sheet 5 Points As of January 31st, 2020, Spooner Company owes its suppliers $1070, and owes its employees $1420 in future wages. The company has $8400 in cash on hand and is storing $5470 of inventory. Equipment worth $27,000, net of accumulated depreciation, is supporting the operation. The company also has an outstanding loan to its local bank of $15,000. Sales in 2019 was $432,000. Complete the full Balance Sheet for Spooner Company. What is the Owners Equity for this firm? Use the Template Provided Below to Create Your Solution - Pay close attention to the formulas and formatting of the inputs. Input area: Accounts Payable ($) Wages Payable ($) Cash ($) Inventory ($) Net Fixed Assets ($) Bank Loan ($) Output area: Spooner Company Balance Sheet January 31st, 2020 Current Assets: Current Liabilities: Cash $ - 0 Accounts Payable $ - 0 Inventory - Wages Payable - Total Current Assets $ - 0 Total Current Liabilities $ - 0 Net Fixed Assets - Long-Term Debt - Example 1 Workshop One Practice Exercises Example 1: Building an Income Statement Tiger Enterprises maintains and sells vintage recording equipment, which are still popular with some artists. In 2019, the company earned $828,000 from sales, plus another $523,000 from service contracts. The cost of the equipment they sold during the year was $545,000. They also paid $450,000 in wages to their retail sales associates and technicians. The lease on their retail space was $38,000 for the year, and they had $14,000 in utilities and other expenses. Management salaries totaled $85,000 for the year, and depreciation on their office and retail equipment was 11,000. They paid $8,000 of interest on an outstanding credit line, which is currently extended to $85,000. The companys tax rate is 21\%. Complete the full Income Statement for Tiger Enterprises. What is the Net Income for this firm? Use the space below to create your solution. If you get stuck, or when you are ready to check your answer, go to the next worksheet tab for the solution. This is the practice problem file, provided in the assignment instructions October 2019 Ex # 1 Solution Workshop One Practice Exercises Example 1: Building an Income Statement Tiger Enterprises maintains and sells vintage recording equipment, which are still popular with some artists. In 2019, the company earned $828,000 from sales, plus another $523,000 from service contracts. The cost of the equipment they sold during the year was $545,000. They also paid $450,000 in wages to their retail sales associates and technicians. The lease on their retail space was $38,000 for the year, and they had $14,000 in utilities and other expenses. Management salaries totaled $85,000 for the year, and depreciation on their office and retail equipment was 11,000. They paid $8,000 of interest on an outstanding credit line, which is currently extended to $85,000. The companys tax rate is 21\%. Complete the full Income Statement for Tiger Enterprises. What is the Net Income for this firm? Check below for a detailed solution to this problem. Remember the basic format of the Income Statement: Revenue - Expenses = Net Income Output area: These word problems can be difficult to follow. Start by organizing your information. Just make a list of the data given. Tiger Enterprises You can then sort the information into the correct order: Income Statement First Sales (Revenue), then Operating Expenses (leading to EBIT), then Interest (leading to EBT), and last Taxes (leading to Net Income). For Year Ended Dec 31st, 2019 Product Sales Revenue $ 828,000 Note the two types of Sales here. Both forms of revenue (individually or combined) create the top line of the income statement. Service Contract Revenue 523,000 Interpreting Financial Statements Chapter One Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright © 2019 by McGraw-Hill Education. All rights reserved. 1 Key Points Accounting is the scorecard of business. Managers who understand accounting can diagnose ills and prescribe remedies. Chapter 1 reviews accounting concepts that are essential for financial management. Ch. 1 2 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Higgins, Analysis for Financial Management, 12e 2 The Cash Flow Cycle Finance and operations are integrally connected. Company operations and strategy affect financing. Financial decisions affect company operations. The cash flow–production cycle demonstrates this. Where is production (operations) in this cycle? Ch. 1 3 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Higgins, Analysis for Financial Management, 12e 3 Figure 1.1 The Cash Flow–Production Cycle Ch. 1 4 Higgins, Analysis for Financial Management, 12e Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 4 Questions about the Cash Flow–Production Cycle What is depreciation, and how does it affect the cycle? Did we miss accounts payable? If so, where does it fit in? Where does the initial cash come from? Where is the operating (working capital) cycle? Are profits and cash flow the same? Does depreciation have anything to do with this? Ch. 1 5 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Higgins, Analysis for Financial Management, 12e 5 Principles demonstrated in the Cash Flow–Production Cycle 1. Financial statements are an important window on reality. 2. Profits do not equal cash flow. Ch. 1 6 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Higgins, Analysis for Financial Management, 12e 6 The Balance Sheet The balance sheet is a financial snapshot. Assets = Liabilities + Shareholders’ Equity What do these three items measure? What is double-entry bookkeeping? What happens to the balance sheet when a company: pays $1 million in wages? borrows $100,000 from a bank? Receives a $10,000 payment from a customer? Ch. 1 7 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Higgins, Analysis for Financial Management, 12e 7 TABLE 1.1 Worldwide Sports Financial Transactions 2017 ($ tChapter 1 ROLE OF ACCOUNTING IN SOCIETY Principles of Accounting, Volume 1: Financial Accounting PowerPoint Image Slideshow Chapter Outline 1.1 Explain the Importance of Accounting and Distinguish between Financial and Managerial Accounting 1.2 Identify Users of Accounting Information and How They Apply Information 1.3 Describe Typical Accounting Activities and the Role Accountants Play in Identifying, Recording, and Reporting Financial Activities 1.4 Explain Why Accounting Is Important to Business Stakeholders 1.5 Describe the Varied Career Paths Open to Individuals with an Accounting Education Module 1.1 Explain the Importance of Accounting and Distinguish between Financial and Managerial Accounting Accounting is the process of organizing, analyzing, and communicating financial information that is used for decision-making.  “Accounting is the language of business.” “Accounting is the language of life.” Understanding financial and managerial accounting is valuable and necessary for practically any career you will pursue.   Teacher Notes: While accounting is traditionally thought of from a business context, accounting is used in all facets of an individual’s life. Notice that the definition does not say “business decision-making.” Rather, it simply says “decision-making.” While this course is obviously focused on accounting as the language of business, many of the concepts learned will be applicable directly or abstractly to one’s personal financial decision-making. 3   Distinguish between Financial and Managerial Accounting Financial accounting measures the financial performance of an organization using standard conventions (rules) to prepare and distribute financial reports. The purpose is to communicate information for decision-making by both internal and external users. External users: owners (stockholders), lenders, and governmental entities such as the Securities and Exchange Commission (SEC) and the Internal Revenue Service (IRS) Managerial accounting uses both financial and nonfinancial information as a basis for making decisions within an organization. The purpose is to equip decision makers with information to assist in setting and evaluating business goals by determining what information is needed and how to analyze and communicate this information. Information tends to be used internally, for purposes such as budgeting, pricing, and determining production costs. 4 Module 1.2 Identify Users of Accounting Information and How They Apply Information Users of accounting information are generally divided into two categories: internal and external.  Internal users are those within an organization who use financial information to make day-to-day decisions. They include managers and other employees who use financial information to confirm past results and help make adjustments for future activities. External users are those outside of the organization who use the financial information to make decisions or to evaChapter 2 INTRODUCTION TO FINANCIAL STATEMENTS Principles of Accounting, Volume 1: Financial Accounting PowerPoint Image Slideshow Chapter Outline 2.1 Describe the Income Statement, Statement of Owner’s Equity, Balance Sheet, and Statement of Cash Flows, and How They Interrelate 2.2 Define, Explain, and Provide Examples of Current and Noncurrent Assets, Current and Noncurrent Liabilities, Equity, Revenues, and Expenses 2.3 Prepare an Income Statement, Statement of Owner’s Equity, and Balance Sheet Module 2.1 Describe the Income Statement, Statement of Owner’s Equity, Balance Sheet, and Statement of Cash In business—and accounting in particular—it is necessary to distinguish the business entity from the individual owner(s). Accountants should only record business transactions in business records. This separation is also reflected in the legal structure of the business. Types of Business Structures Table 2.1 Sole Proprietorship Partnership Corporation Number of Owners Single individual Two or more individuals One of more owners Ease of Formation Easier to form Harder to form Difficult to form Ability to Raise Capital Difficult to raise capital Harder to raise capital Easier to raise capital Liability Risk Unlimited liability Unlimited liability Limited liability Taxation Consideration Single taxation Single taxation Double taxation Teacher Notes: The personal transactions of the owners, employees, and other parties connected to the business should not be recorded in the organization’s records. 3 All businesses, regardless of legal structure, generate financial statements: Income Statement Statement of Owner’s Equity Balance Sheet Statement of Cash Flows Purpose of financial statements:  Stakeholders, such as investors, creditors, regulators, and employees are interested in the performance of an organization for various reasons, but the common goal of using the financial statements is to understand the information each contains that is useful for making financial decisions. Financial Statements Teacher Notes: Each of these statements will be discussed in detail in the upcoming slides. 4 Figure 2.5 Baking requires an understanding of the different ingredients, how the ingredients are used, and how the ingredients will impact the final product (a). If used correctly, the final product will be beautiful and, more importantly, delicious, like the cake shown in (b). In a similar manner, the study of accounting requires an understanding of how the accounting elements relate to the final product—the financial statements. (credit (a): modification of “U.S. Navy Culinary Specialist Seaman Robert Fritschie mixes cake batter aboard the amphibious command ship USS Blue Ridge (LCC 19) Aug. 7, 2013, while underway in the Solomon Sea 130807-N-NN332-044” by MC3 Jarred Harral/Wikimedia Commons, Public Domain; credit (b): modification of “Easter Cake with Colorful Topping” by Kaboompics .com/Pexels, CC0) 5 The Sunset Boards Case Assignment 1.6 Mini-Case Study: Financial Statements for Sunset Boards Sunset Boards is a small company that manufactures and sells surfboards in Malibu. Tad Marks, the founder of the company, is in charge of the design and sale of the surfboards, but his background is in surfing, not business. As a result, the companys financial records are not well maintained. 2018 2019 The initial investment in Sunset Boards was provided by Tad and his friends and family. Because the initial investment was relatively small, and the company made surfboards only for its own store, the investors havent required detailed financial statements from Tad. But thanks to word of mouth among professional surfers, sales have picked up recently, and Tad is considering a major expansion. His plans include opening another surfboard store in Hawaii, as well as supplying his sticks (surfer lingo for boards) to other sellers. Cost of goods sold $ 196,619 $ 248,263 Cash 28,372 42,865 Depreciation 55,506 62,738 Interest expense 12,067 13,831 Selling & Administrative Expenses 38,668 50,469 Accounts payable 20,143 34,091 Tads expansion plans require a significant investment, which he plans to finance with a combination of additional funds from outsiders plus some money borrowed from banks. Naturally, the new investors and creditors require more organized and detailed financial statements than Tad has previously prepared. At the urging of his investors, Tad has hired financial analyst Christina Wolfe to evaluate the performance of the company over the past year. Fixed assets (without depreciation) 344,881 461,088 Accumulated Depreciation 85,506 148,244 Sales 385,724 470,172 Accounts receivable 20,104 26,078 Notes payable 22,855 24,955 Long-term debt 123,607 140,000 After rooting through old bank statements, sales receipts, tax returns, and other records, Christina has assembled the financial information shown in the table to the right. ======> Inventory 38,706 52,057 New equity issued (Common Stock) - 15,000 As Christinas assistant, you are asked to prepare financial calculations and then use them to evaluate the wisdom of Tads expansion plans. The financial statements and calculations you must prepare include: Tax rate (average on all Taxable Income) 30\% Dividend Payout Ratio (of Net Income) 40\% 1) Prepare an Income Statement for both 2018 and 2019 2) Prepare a Balance Sheet for both 2018 and 2019 *All Data as of year end, December 31st 3) Create a Cash Flow Statement for 2019 4) Finally, using the above calculations as a foundation for your analysis, comment on the wisdom of Tads expansion plans. Should the company expand at this time? Why or why not? Provide a few sentences of discussionInterpreting Financial Statements Chapter One Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Copyright © 2019 by McGraw-Hill Education. All rights reserved. 1 Key Points Accounting is the scorecard of business. Managers who understand accounting can diagnose ills and prescribe remedies. Chapter 1 reviews accounting concepts that are essential for financial management. Ch. 1 2 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Higgins, Analysis for Financial Management, 12e 2 The Cash Flow Cycle Finance and operations are integrally connected. Company operations and strategy affect financing. Financial decisions affect company operations. The cash flow–production cycle demonstrates this. Where is production (operations) in this cycle? Ch. 1 3 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Higgins, Analysis for Financial Management, 12e 3 Figure 1.1 The Cash Flow–Production Cycle Ch. 1 4 Higgins, Analysis for Financial Management, 12e Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 4 Questions about the Cash Flow–Production Cycle What is depreciation, and how does it affect the cycle? Did we miss accounts payable? If so, where does it fit in? Where does the initial cash come from? Where is the operating (working capital) cycle? Are profits and cash flow the same? Does depreciation have anything to do with this? Ch. 1 5 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Higgins, Analysis for Financial Management, 12e 5 Principles demonstrated in the Cash Flow–Production Cycle 1. Financial statements are an important window on reality. 2. Profits do not equal cash flow. Ch. 1 6 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Higgins, Analysis for Financial Management, 12e 6 The Balance Sheet The balance sheet is a financial snapshot. Assets = Liabilities + Shareholders’ Equity What do these three items measure? What is double-entry bookkeeping? What happens to the balance sheet when a company: pays $1 million in wages? borrows $100,000 from a bank? Receives a $10,000 payment from a customer? Ch. 1 7 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Higgins, Analysis for Financial Management, 12e 7 TABLE 1.1 Worldwide Sports Financial Transactions 2017 ($ tChapter 2 INTRODUCTION TO FINANCIAL STATEMENTS Principles of Accounting, Volume 1: Financial Accounting PowerPoint Image Slideshow Chapter Outline 2.1 Describe the Income Statement, Statement of Owner’s Equity, Balance Sheet, and Statement of Cash Flows, and How They Interrelate 2.2 Define, Explain, and Provide Examples of Current and Noncurrent Assets, Current and Noncurrent Liabilities, Equity, Revenues, and Expenses 2.3 Prepare an Income Statement, Statement of Owner’s Equity, and Balance Sheet Module 2.1 Describe the Income Statement, Statement of Owner’s Equity, Balance Sheet, and Statement of Cash In business—and accounting in particular—it is necessary to distinguish the business entity from the individual owner(s). Accountants should only record business transactions in business records. This separation is also reflected in the legal structure of the business. Types of Business Structures Table 2.1 Sole Proprietorship Partnership Corporation Number of Owners Single individual Two or more individuals One of more owners Ease of Formation Easier to form Harder to form Difficult to form Ability to Raise Capital Difficult to raise capital Harder to raise capital Easier to raise capital Liability Risk Unlimited liability Unlimited liability Limited liability Taxation Consideration Single taxation Single taxation Double taxation Teacher Notes: The personal transactions of the owners, employees, and other parties connected to the business should not be recorded in the organization’s records. 3 All businesses, regardless of legal structure, generate financial statements: Income Statement Statement of Owner’s Equity Balance Sheet Statement of Cash Flows Purpose of financial statements:  Stakeholders, such as investors, creditors, regulators, and employees are interested in the performance of an organization for various reasons, but the common goal of using the financial statements is to understand the information each contains that is useful for making financial decisions. Financial Statements Teacher Notes: Each of these statements will be discussed in detail in the upcoming slides. 4 Figure 2.5 Baking requires an understanding of the different ingredients, how the ingredients are used, and how the ingredients will impact the final product (a). If used correctly, the final product will be beautiful and, more importantly, delicious, like the cake shown in (b). In a similar manner, the study of accounting requires an understanding of how the accounting elements relate to the final product—the financial statements. (credit (a): modification of “U.S. Navy Culinary Specialist Seaman Robert Fritschie mixes cake batter aboard the amphibious command ship USS Blue Ridge (LCC 19) Aug. 7, 2013, while underway in the Solomon Sea 130807-N-NN332-044” by MC3 Jarred Harral/Wikimedia Commons, Public Domain; credit (b): modification of “Easter Cake with Colorful Topping” by Kaboompics .com/Pexels, CC0) 5 The