Chapter 17 – Understanding Accounting and Financial Information
counting journals is accumulated into specific
categories and posted so that managers can find
all the information about one account in the same
place.
5. The six-step accounting cycle includes:
a. Step 1. ANALYZING and CATEGORIZING
documents
b. Step 2. Putting the information into JOUR-
NALS
PPT 17-23
Technology and Accounting
(See complete PowerPoint slide notes on page 17.59.)
Chapter 17 – Understanding Accounting and Financial Information
PACKAGES (such as QuickBooks and
3. The work of an accountant requires training and
Explain how the major financial statements differ.
a. The BALANCE SHEET, which reports the
firm’s financial condition on a specific date.
Chapter 17 – Understanding Accounting and Financial Information
progress
assessment
(Text page 471)
PPT 17-24
Progress Assessment
(See complete PowerPoint slide notes on page 17.60.)
PPT 17-25
Financial Statements
(See complete PowerPoint slide notes on page 17.60.)
Chapter 17 – Understanding Accounting and Financial Information
c. The STATEMENT OF CASH FLOWS, which
3. The DIFFERENCES among the financial state-
pany owns and owes on a certain day.
2. The FUNDAMENTAL ACCOUNTING EQUA-
1. A BALANCE SHEET is the financial statement that
liabilities, and owners’ equity.
2. The term balance sheet implies that the report
Chapter 17 – Understanding Accounting and Financial Information
PPT 17-26
The Fundamental Accounting
Equation
(See complete PowerPoint slide notes on page 17.60.)
PPT 17-27
The Balance Sheet
(See complete PowerPoint slide notes on page 17.61.)
Chapter 17 – Understanding Accounting and Financial Information
shows a BALANCE BETWEEN TWO FIG-
3. It is important to follow GENERALLY ACCEPT-
ED ACCOUNTING PRINCIPLES (GAAP).
ue) owned by the company.
b. An ACCOUNT RECEIVABLE is the amount
Chapter 17 – Understanding Accounting and Financial Information
TEXT FIGURE 17.5
Sample Very Vegetarian
Balance Sheet
(Text page 473)
This text figure presents a sample balance sheet for Very
Vegetarian, showing the major accounts.
PPT 17-28
Assets
(See complete PowerPoint slide notes on page 17.61.)
lecture link 17-7
FINDING A FRIENDLY FACTOR
Factoring companies such as Receivables Exchange let
businesses exchange accounts receivables for badly needed
cash. (See the complete lecture link on page 17.74 in this
manual.)
PPT 17-29
Classifying Assets
(See complete PowerPoint slide notes on page 17.61.)
3. ASSETS ARE CHARACTERIZED BASED ON
LIQUIDITY.
a. CURRENT ASSETS are items that can or will
be converted to cash within one year (exam-
year or less.
b. LONG-TERM LIABILITIES are debts not due
Chapter 17 – Understanding Accounting and Financial Information
PPT 17-30
Classifying Liabilities
(See complete PowerPoint slide notes on page 17.62.)
17–31
2. EQUITY is the value of things you OWN (assets)
minus the amount of money you OWE others (lia-
bilities).
a. The value of what stockholders own in a firm
(minus liabilities) is called STOCKHOLDERS’
(or SHAREHOLDERS’) EQUITY.
resulting net income.
Chapter 17 – Understanding Accounting and Financial Information
PPT 17-31
Owners’ Equity Accounts
(See complete PowerPoint slide notes on page 17.62.)
TEXT FIGURE 17.6
You, Incorporated
(Text page 475)
This text figure helps students develop a personal balance
sheet.
progress
assessment
(Text page 475)
PPT 17-32
Progress Assessment
(See complete PowerPoint slide notes on page 17.62.)
PPT 17-33
The Income Statement
(See complete PowerPoint slide notes on page 17.63.)
lecture link 17-8
WHEN IS A SALE A SALE?
Small-business owners need to understand the distinction
between cash-based and accrual-based accounting. (See the
complete lecture link on page 17.75 in this manual.)
3. The income statement reports the results of oper-
ations over a particular period of time.
4. This statement includes valuable financial infor-
mation for stockholders, lenders, investors, and
5. The income statement is arranged according to
GENERALLY ACCEPTED ACCOUNTING
Revenue
3. GROSS SALES are the total of all sales the firm
completed.
H. COST OF GOODS SOLD
1. COST OF GOODS SOLD (or COST OF GOODS
MANUFACTURED) is a measure of the cost of
supplies used for producing items for resale.
Chapter 17 – Understanding Accounting and Financial Information
TEXT FIGURE 17.7
Sample Very Vegetarian Income
Statement
(Text page 477)
This text figure shows the calculations involved in creating
Very Vegetarian’s income statement.
PPT 17-34
The Income Statement
(See complete PowerPoint slide notes on page 17.63.)
PPT 17-35
Accounts of the Income Statement
(See complete PowerPoint slide notes on page 17.64.)
Chapter 17 – Understanding Accounting and Financial Information
a. The cost of goods sold includes the purchase
price plus any costs associated with obtaining
3. A service firm may have no cost of goods sold—
gross profit would equal net revenue.
I. OPERATING EXPENSES
1. OPERATING EXPENSES are costs involved in
2. DEPRECIATION is the systemic write-off of the
cost of a tangible asset over its estimated useful
a. Assets such as equipment and machinery are
17–36
PPT 17-36
Accounts of the Income Statement
(See complete PowerPoint slide notes on page 17.64.)
critical thinking
exercise 17-2
THE PIZZA STAND
A student organization plans to operate a pizza stand during
homecoming weekend. This exercise asks students to prepare
a budget and calculate expected profit. (See complete exercise
on page 17.79 of this manual.)
Chapter 17 – Understanding Accounting and Financial Information
a. SELLING EXPENSES are expenses related
3. Users of financial information are very interested
K. THE STATEMENT OF CASH FLOWS
1. The STATEMENT OF CASH FLOWS is the fi-
Chapter 17 – Understanding Accounting and Financial Information
SPOTLIGHT ON
small
business
(Text page 478)
PPT 17-37
What’s Coming
and Going at the
College Bookstore
(See complete PowerPoint slide notes on page 17.64.)
critical thinking
exercise 17-3
PREPARING FINANCIAL
STATEMENTS
This exercise directs students to use a given list of accounts
to create a balance sheet and income statement. (See complete
exercise on page 17.83 of this manual.)
PPT 17-38
The Statement of Cash Flows
(See complete PowerPoint slide notes on page 17.64.)
Chapter 17 – Understanding Accounting and Financial Information
17–39
c. FINANCING: Cash raised from the issuance
3. Cash flow analysis answers questions such as:
1. A business can increase sales and increase profit
and still suffer cash flow problems.
business buys more and more goods on cred-
it.
Chapter 17 – Understanding Accounting and Financial Information
lecture link 17-9
USING THE STATEMENT OF
CASH FLOWS
Companies do not go out of business because they report
net losses—they fail because they run out of cash. (See the
complete lecture link on page 17.75 in this manual.)
PPT 17-39
Understanding Cash Flow
(See complete PowerPoint slide notes on page 17.65.)
TEXT FIGURE 17.8
Sample Very Vegetarian Statement
of Cash Flows
(Text page 480)
This text figure shows a statement of cash flows, again us-
ing the example of Very Vegetarian.
bonus case 17-1
THE BEST-LAID PLANS OFTEN
GO AWRY
This case discusses how offering credit to customers affect-
ed the finances of a pottery import firm. (See the complete
case, discussion questions, and suggested answers beginning
on page 17.92 of this manual.)