A86012 Management and Principles of Accounting (2019/2020) Session

A86012 Management and Principles of Accounting (2019/2020) Session

A86012 Management and Principles of Accounting (2019/2020) Session 9 Finance Accounting & Financial Statements Paul G. Smith B.A., F.C.A SESSION OBJECTIVES & OVERVIEW A 86012 Management and Principles of Accounting 2 PGS Course Overview 1. What is business 15. Accounting: glossary, vocabulary, terms

2. Types of business 16. Introduction to financial accounting 3. Management 17. Accounting for business transactions 4. Review session 1 18. Recording transactions, journal and ledger 5. Marketing 19. Recording owners contributions & financing 6. Marketing strategy 20. Review session 1

7. Review session 2 21. Recording long-lived assets and investments 8. Operations 22. Recording purchases 9. Finance 23. Recording sales and employee compensation 10. Financial management 24. Review session 2 11. Review session 3 25. Adjusting and closing entries

12. Human resources 26. Adjusting and closing entries continued 13. Review session 4 27. Cases and exercises 14. Exam 28. Exam A 86012 Management and Principles of Accounting SG PT 3

Session Objectives At the end of this session students will be able to define accounting and illustrate the different uses of accounting information, demonstrate the accounting process, understand the purpose and content of the income statement, balance sheet and cash flow statement. Students will also understand the difference between financial accounting and management accounting and the principal control mechanisms over Public Interest Entities (PIEs). A 86012 Management and Principles of Accounting 4 Session 9 Overview Session objectives and outline Mins 5

Recap of key points from session 8 Operations 15 The accounting process: The nature of accounting, accountants, the accounting equation 30 Financial accounting: Accounting standards (GAAP), double entry bookkeeping, the accounting cycle, the income statement, balance sheet, statement of cash flows. 30 Management accounting: Budgeting and forecasting and budgetary control, cost accounting for decision taking, fixed and variable costs, break-even analysis, variance analysis

20 Audit and control: Audit committees, supervisory boards, reporting on internal control (COSO), internal audit, external audit. 20 Required reading and research Reading Business Chapter 14 Research RA 9 Europes top companies How are they Financed? 5 Overview of session 10 Financial Management 5 Summary and validation 5

135 A 86012 Management and Principles of Accounting 5 RECAP OF SESSION 8 - OPERATIONS A 86012 Management and Principles of Accounting 6 Session 8 Summary The nature of operations management in manufacturing and service industries Planning and designing operations systems Supply chain management, inventory control Managing quality

A 86012 Management and Principles of Accounting 7 Recap Session 8 What do we mean by operations management? How does this differ between manufacturing and service organizations? What decisions need to be made in planning and designing operations systems? What do we mean by supply chain management? Name some of the quality frameworks applied by organizations A 86012 Management and Principles of Accounting 8

Overview of Session 9 The nature of accounting, accountants, bookkeeping, uses of accounting information, The accounting process, the accounting equation, double-entry bookkeeping, the accounting cycle Financial statements, accounting standards (GAAP) Ratio analysis Importance of integrity in accounting A 86012 Management and Principles of Accounting 9 THE NATURE OF ACCOUNTING A 86012 Management and Principles of Accounting 10

The Nature of Accounting 1 of 9 Accounting Recording, measurement, and interpretation of financial information Accountants Certified public accountant (CPA) State certified to provide accounting services Source: M Business 6th Edition The Nature of Accounting 2 of 9 Accountants continued Legislation After accounting scandals of Enron and Worldcom in early 2000s, Congress passed Sarbanes-Oxley Act Required firms to be more rigorous in their accounting and reporting practices

During latest financial crisis, banks developed questionable lending practices, leading to Dodd Frank Act Strengthens oversight of financial institutions Source: M Business 6th Edition World Com https://youtu.be/hXSWAK0K5L4 Motivation Rationalization Opportunity The Fraud Triangle A 86012 Management and Principles of Accounting 13

The Nature of Accounting 3 of 9 Accountants continued Forensic accounting Fit for legal review Analyzes financial documents in search of fraudulent entries or financial misconduct Function as much like detectives as accountants Used since 1930s, but booming since accounting scandals of early 2000s Root out evidence of cooked books for federal agencies Source: M Business 6th Edition ACCOUNTANTS A 86012 Management and Principles of Accounting 15

What is an Accountant? A man past middle age, spare, wrinkled, intelligent, cold, passive, noncommittal, with eyes like a codfish; polite in contact but at the same time unresponsive, calm and damnably composed as a concrete post or a plaster of Paris cast; a petrification with a heart of feldspar and without charm of the friendly germ, minus bowels, passion or a sense of humour. Happily they never reproduce and all of them finally go to hell. Elbert Hubbard Or A highly skilled technician well educated, complex, confident, intelligent, optimistic who abhors detailed direction. He expects to be influenced, persuaded and enlightened. He wants to be confronted with choices and alternatives, demanding freedom to structure his work, select his alternatives, present his solutions and speak for himself. He refuses to be considered as an automaton who is supposed to respond eagerly to orders, edicts and ultimatums. Joseph R. Dugan Accountants in Europe - FEE

A 86012 Management and Principles of Accounting Source:Fdration des Experts-comptables Europens - Federation of European Accountants | 18 The Evolution of the Big 4 1984 1. Arthur Andersen (AA) 1989 Failed Ceased business in 2002 post Enron 2. Arthur Young (AY) 3. Coopers & Lybrand (C&L) 4. Deloitte, Haskins & Sells (DHS)

DTT 1990 5. Ernst & Whinney (E&W) EY 1989 6. Peat, Marwick, Mitchell (PMM) KPMG 1987 7. Price Waterhouse (PW) PwC

1998 A 86012 Management and Principles of Accounting 19 8. Touche Ross (TR) Klynvelt, Main, Goerdeler (KMG) ACCOUNTANTS A 86012 Management and Principles of Accounting 20 The Nature of Accounting 4 of 9 Accountants continued

Private accountants Employed by large corporations, government agencies, and other organizations to prepare and analyze their financial statements Deeply involved in most important financial decisions Certified management accountants (CMAs) Private accountants who, after rigorous examination, are certified by the National Association of Accountants and who have some managerial responsibility Source: M Business 6th Edition Accountants Accountants Financial CPA (US) ACA (UK) ACCA (UK)

Management Governmental CMA (US) CIMA (UK) AGA (US) CIPFA (UK) A 86012 Management and Principles of Accounting 22 The Nature of Accounting 5 of 9 Accounting or Bookkeeping? Bookkeeping is typically limited to the routine, day-to-day recording of business transactions

Much narrower and far more mechanical Require less training Responsible for obtaining and recording information accounts require to analyze firms financial position Accountants usually complete course work beyond basic four- or five-year college degree Source: M Business 6th Edition The Nature of Accounting 6 of 9 The Uses of Accounting Information Managers and owners use financial statements: 1. To aid in internal planning and control 2. For external purposes such as reporting to the Internal Revenue Service, stockholders, creditors, customers, employees, and other interested parties Source: M Business 6th Edition

Figure 14-1 The Users of Accounting Information Source: Adapted from Needles, Belverd E., Anderson, Henry R., and Caldwell, James C., Principles of Accounting, 4th ed. New York: Houghton Mifflin Company, 1990. Source: M Business 6th Edition Jump to long description in appendix The Nature of Accounting 7 of 9 The Uses of Accounting Information continued Internal uses Managerial accounting Used in planning and directing activities Cash flow Movement of money through organization Budget Forecasts expenses and income Source: M Business 6th Edition

FINANCIAL ACCOUNTING A 86012 Management and Principles of Accounting 27 The Nature of Accounting 8 of 9 The Uses of Accounting Information continued External uses Used for filing income taxes, obtaining credit, and reporting results to stockholders Annual report Summary of financial information, products, and growth plans Audited financial statements are signed off on by certified public accountant Source: M Business 6th Edition

Annual Reports Many investors look at a firms annual report to determine how well the company is doing financially. Source: M Business 6th Edition kenary820/Shutterstock.com RF The Nature of Accounting 9 of 9 The Uses of Accounting Information continued Greece and deceptive accounting practices During global financial crisis, Greece was engaging in deceptive accounting practices Used financial techniques to hide massive amounts of debt from public balance sheet European Union and International Monetary Fund gave loans

and credit relief Many states, including Illinois and California, had same debt overload problems Source: M Business 6th Edition Fraudsters and Tipsters: Achieving Balance in the Accounting World Fraud in Businesses Remains difficult to spot One-third lasts two years before detection Up to employees to blow whistle Methods for Curbing Fraud Anonymous employee hotlines Watch for employee lifestyle changes Source: M Business 6th Edition

THE ACCOUNTING EQUATION A 86012 Management and Principles of Accounting 32 The Accounting Process 1 of 4 The Accounting Equation Assets = Liabilities + Owners Equity Assets Economic resources or items of value Liabilities Debts Owners equity Assets minus liabilities Source: M Business 6th Edition

ACCOUNTING STANDARDS GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) A 86012 Management and Principles of Accounting 34 14-35 Accounting Standards Different entities have different standards for their accounting methods Public and private businesses follow the Generally Accepted Accounting Principles (GAAP) method

GAAP is generally used in the United States as the standard for accounting methods (established by the Financial Accounting Standards Board (FASB)) Local government entities have a different set of accounting standards which are set by the Governmental Accounting Standards Board (GASB) Federal government follows yet another set of standards determined by the Federal Accounting Standards Advisory Board (FASAB)

Another set of standards for international companies which follow the International Financial Reporting Standards (IFRS) Source: M Business 6th Edition Source: M Business 5th edition Accounting Standards FRS 100 Cover.qxd 31/07/2015 10:37 Page 1 Standard Accounting and Reporting

Financial Reporting Council Generally Accepted Accounting Principles No. 2016-15 August 2016 September 2015 FR S 100 A p p lic a t io n o f F in a n c ia l R e p o r t in g R e q u ir e m e n ts

Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments Further copies, 12.00 (post-free) can be obtained from: FRC Publications Lexis House 30 Farringdon Street London EC4A 4HH a consensus of the FASB Emerging Issues Task Force Tel: 0845 370 1234 Email: [email protected] Or order online at: www.frcpublications.com OIC ORGANISMO ITALIANO DI CONTABILIT PRINCIPI CONTABILI

del Consiglio Nazionale dei Dottori Commercialisti e del Consiglio Nazionale dei Ragionieri modificati dallOIC in relazione alla riforma del diritto societario An Amendment of the FASB Accounting Standards Codification I bilanci intermedi aprile 2006 Sostituisce il principio n. 30 del gennaio 2002 Copyright OIC A 86012 Management and Principles of Accounting 36 The nature of accounting

Recognition Measurement Subsequent measurement Presentation Disclosure De-recognition A 86012 Management and Principles of Accounting Language of the Accounting Standards 37

BOOKKEEPING A 86012 Management and Principles of Accounting 38 The Accounting Process 2 of 4 Double-Entry Bookkeeping Requires classification and balancing To keep accounting equation in balance, each transaction must be recorded in two separate accounts All transactions classified as either assets, liabilities, or owners equity Assets broken down into cash, inventory, and equipment Liabilities broken down into bank loans, supplier credit, and other debts Source: M Business 6th Edition

Double-entry Bookkeeping Every debit must have a credit Income Statement Revenues - Expenses = Profit/Loss Debit Credit Balance Sheet Assets

Debit - Liabilities = Credit A 86012 Management and Principles of Accounting Shareholders Equity Credit 40 THE ACCOUNTING CYCLE

A 86012 Management and Principles of Accounting 41 The Accounting Process 3 of 4 The Accounting Cycle Four-step procedure of an accounting system 1. Examining source documents 2. Recording transactions in accounting journal 3. Posting recorded transactions 4. Preparing financial statements Source: M Business 6th Edition The Accounting Process 4 of 4 The Accounting Cycle continued Journal Time-ordered list of account transactions

Ledger Book or computer file with separate sections for each account Source: M Business 6th Edition The Accounting Cycle Management Accounting Purchase Invoices Purchase Invoices Purchase Invoices Purchase Invoices Purchase Invoices

Journal General Ledger Management Accounts Financial Statements (COGE/COIN) Examine Source documents Codify: Supplier Account type (asset/expense) Record

transactions Record Debits and Credits Post transactions Post to asset or expense accounts and supplier account Post to cost centers A 86012 Management and Principles of Accounting Prepare Financial Statements Extract account balances at period end

44 Table 14-2 Equivalent Terms in Accounting Term Revenues Gross profit Operating income Income before taxes (IBT) Net income (NI) Income available to common stockholders Source: M Business 6th Edition Equivalent Term Sales Goods or services sold Gross income

Gross earnings Operating profit Earnings before interest and taxes (EBIT) Earnings before taxes (EBT) Profit before taxes (PBT) Earnings after taxes (EAT) Profit after taxes (PAT) Earnings available to common stockholders Financial Statements INCOME STATEMENT A 86012 Management and Principles of Accounting 46 Financial Statements 1 of 10

The Income Statement Income statement Shows profitability over period of time Revenue Total amount of money received from sale Cost of goods sold Amount of money firm spent Source: M Business 6th Edition Financial Statements 2 of 10 The Income Statement continued Gross income (or profit) Revenues minus cost of goods sold Expenses Costs incurred in day-to-day operations Selling, general, and administrative expenses (includes

depreciation) Research, development, and engineering expenses Interest expenses Source: M Business 6th Edition Financial Statements 3 of 10 The Income Statement continued Depreciation Spreading costs of long-lived assets over total number of accounting periods in which they are expected to be used Example: 1. Manufacturer purchases $100,000 machine expected to last about 10 years 2. Manufacturer allowed depreciation expenses of $10,000 per

year in each of next 10 years Better matches cost of equipment to years item is used 3. Source: M Business 6th Edition Depreciation written off as expense and book value of machine is also reduced by $10,000 Financial Statements 4 of 10 The Income Statement continued Net income Total profit or loss Most companies present current years results along with previous two years income statements Temporary nature of income statement accounts Gross profit, earnings before interest and taxes, and net income are results of calculations made from revenues and

expenses accounts; they are not actual accounts When corporation elects to pay dividends, it decreases cash account as well as capital account Source: M Business 6th Edition Financial Statements BALANCE SHEET A 86012 Management and Principles of Accounting 51 Financial Statements 5 of 10 The Balance Sheet Shows assets and funding used to pay for these, such as bank debt or owners equity Takes its name from reliance on accounting equation:

assets must equal liabilities plus owners equity Accumulation of all financial transactions since companys founding Traditional format places assets on left side and liabilities and owners equity on right Vertical format has assets on top followed by liabilities and owners equity Source: M Business 6th Edition Financial Statements 6 of 10 The Balance Sheet continued Assets Listed in descending order of liquidityhow fast they can be turned into cash Current assets Used or converted into cash within calendar year Cash, temporary investments, accounts receivable, and inventory

Accounts receivable Money owed by clients or customers Source: M Business 6th Edition Financial Statements 7 of 10 The Balance Sheet continued Liabilities Current liabilities Financial obligation to short-term creditors Accounts payable Amount owed to suppliers Accrued expenses All unpaid financial obligations Source: M Business 6th Edition Financial Statements 8 of 10

The Balance Sheet continued Owners equity Includes: Owners contributions to organization Income earned by organization retained to finance continued growth and development Accounts listed as owners equity on balance sheet may differ dramatically from company to company Corporations sell stock to investors, who then become owners of firm Many corporations issue several different classes of common and preferred stock Source: M Business 6th Edition Financial Statements CASH FLOW STATEMENT

A 86012 Management and Principles of Accounting 56 Financial Statements 9 of 10 The Statement of Cash Flows Explains how cash changed from beginning to end of accounting period Balance sheet shows cash account in one point of time Most investors want better picture of how cash flows into and out of company Takes cash balance from one years balance sheet and compares it with next while providing detail about how the firm used the cash Source: M Business 6th Edition Financial Statements 10 of 10

The Statement of Cash Flows continued Cash from operating activities Calculated by combining changes in revenue, expense, current assets, and current liability accounts Cash from investing activities Calculated from changes in long-term or fixed asset accounts Cash from financing activities Calculated from changes in long-term liability accounts and contributed capital accounts in owners equity Source: M Business 6th Edition RATIO ANALYSIS SECOND SEMESTER A 86012 Management and Principles of Accounting

59 MANAGEMENT ACCOUNTING A 86012 Management and Principles of Accounting 60 Budgeting & Forecasting Budget Sales Actual Variance 100,000 120,000

+20,000 Expenses 60,000 90,000 +30,000 Profit/(loss) 40,000 30,000 -10,000 Daily, weekly, monthly, quarterly, annually

By product, by product line, by division, by company By location, country, region Variance analysis: Price Quantity Materials, labour, overheads Efficiency A 86012 Management and Principles of Accounting Why? 61 Product Costing Bill of Materials Materials RM 1 3Kg @ 10 RM 2 pieces @ 20 Job Costing

= = 30 40 = = 160 180 = 100 510 Labour

Process Costing 4 hours @ 40 6 hours @ 30 Standard costing Overhead 10 hours @ 10 Overhead absorbtion rate = Fixed overheads Plant capacity 1,000,000 100,000 hours = 10 per hour A 86012 Management and Principles of

Accounting 62 Variance analysis Total Cost Variance Direct material variance Price Overhead variance Direct labour variance Usage

Rate Efficiency Volume Mix Cost Efficiency Yield A 86012 Management and Principles of Accounting 63 Fixed and Variable Costs

Variable Cost Cost + Fixed Cost Quantity = Total Cost A 86012 Management and Principles of Accounting 64 Break-even analysis le Sa

Cost/ Revenue s Profit Variable Cost + Fixed Cost Loss Quantity Break-even point A 86012 Management and Principles of Accounting = Total Cost

65 AUDIT & CONTROL A 86012 Management and Principles of Accounting 66 Internal Audit vs External External Audit Internal Audit Reports to shareholders or members who are outside the organisations governance structure.

The board and senior management who are within the organisations governance structure. Objectives Add credibility and reliability to financial reports from the organisation to its stakeholders by giving opinion on the report Evaluate and improve the effectiveness of governance, risk management and control processes. This provides members of the boards and senior management with assurance that helps them fulfil their duties to the organisation and its stakeholders.

Coverage Financial reports, financial reporting risks. All categories of risk, their management, including reporting on them. Responsibility for improvement None, however there is a duty to report problems. Improvement is fundamental to the purpose of internal auditing. But it is done by advising, coaching and facilitating in order to not undermine the responsibility of management.

Source: Chartered Institute of Internal Auditors A 86012 Management and Principles of Accounting 67 Reporting on Internal Control Report of Novartis Management on Internal Control over Financial Reporting The Board of Directors and management of the Group are responsible for establishing and maintaining adequate internal control over financial reporting. The Novartis Groups internal control system was designed to provide reasonable assurance to the Novartis Groups management and Board of Directors regarding the reliability of financial reporting and the preparation and fair presentation of its published consolidated financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls

may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Novartis Group management assessed the effectiveness of the Groups internal control over financial reporting as of December 31, 2015. In making this assessment, it used the criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on its assessment, management has concluded that, as of December 31, 2015, the Novartis Groups internal control over financial reporting was effective based on those criteria. PricewaterhouseCoopers AG, Switzerland, an independent registered public accounting firrm, has issued an opinion on the effectiveness of the Groups internal control over financial reporting which is included in this financial report on the following pages 243 and 244. Joseph Jimenez A 86012 Management andOfficer Principles of26, 2016

Chief Executive Basel, January Accounting Harry Kirsch 68 Independent Audit 244 | Novartis Annual Report 2015 FINANCIAL REPORT REPORT ON THE EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL REPORTING tions and dispositions of the assets of the company; (ii) pro- W e h a v e a l s o a u d i t e d t h e e Y e c t i v e n e s s o f N o v a r t i s G r o u p s n e c e s s a r y to p e r m it p r e p a r a t io n o f Y n a n c ia l s ta te m e n t s in

in te r n a l c o n tr o l o v e r Y n a n c ia l r e p o r t in g a s o f D e c e m b e r 3 1 , a c c o r d a n c e w ith th e a p p lic a b le a c c o u n tin g s t a n d a r d s , a n d th a t 2015, based on criteria established in Internal Control Inte- r e c e ip t s a n d e x p e n d itu r e s o f th e c o m p a n y a r e b e in g m a d e grated Framework (2013) issued by the Committee of Sponsor- o n ly in a c c o r d a n c e w ith a u th o r iz a t io n s o f m a n a g e m e n t a n d ing Organizations of the Treadway Commission (COSO). directors of the company; and (iii) provide reasonable assur- vide reasonable assurance that transactions are recorded as T h e B o a r d o f D ir e c to r s a n d m a n a g e m e n t o f N o v a r tis G r o u p

ance regarding prevention or timely detection of unauthorized are responsible for maintaining eY ective internal control over acquisition, use, or disposition of the companys assets that Y n a n c ia l r e p o r tin g a n d m a n a g e m e n t is r e s p o n s ib le f o r th e could have a material eY ect on the Y nancial statements. assessment of the eY ectiveness of internal control over Y nan- B e c a u s e o f i t s i n h e r e n t l i m i t a t i o n s , in t e r n a l c o n t r o l o v e r cial reporting included in the accompanying Report of Novartis Y nancial reporting may not prevent or detect misstatements. Management on Internal Control Over Financial Reporting in this

A ls o , p r o je c t io n s o f a n y e v a lu a tio n o f e Y e c tiv e n e s s to fu tu r e Y nancial report on page 242. Our responsibility is to express periods are subject to the risk that controls may become inad- a n o p i n i o n o n t h e e Y e c t i v e n e s s o f N o v a r t i s G r o u p s i n t e r n a l equate because of changes in conditions, or that the degree control over Y nancial reporting based on our integrated audit. of compliance with the policies or procedures may deteriorate. We conducted our audit of internal control over Y nancial In our opinion, Novartis Group maintained, in all material reporting in accordance with the standards of the Public Com-

respects, eY ective internal control over Y nancial reporting as p a n y A c c o u n t in g O v e r s i g h t B o a r d o f t h e U n i t e d S t a t e s o f A m e r - of December 31, 2015, based on criteria established in Inter- ic a . T h o s e s t a n d a r d s r e q u ir e t h a t w e p la n a n d p e r fo r m th e nal Control Integrated Framework (2013) issued by the COSO. audit to obtain reasonable assurance about whether eY ective internal control over Y nancial reporting was maintained in all material respects. Our audit of internal control over Y nancial PricewaterhouseCoopers AG r e p o r t in g i n c l u d e d o b t a i n i n g a n u n d e r s t a n d i n g o f i n t e r n a l c o n trol over Y nancial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating eY ectiveness of internal control based on the assessed r i s k . O u r a u d i t a l s o i n c lu d e d p e r f o r m i n g s u c h o t h e r p r o c e d u r e s

as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A companys internal control over Y nancial reporting is a process designed to provide reasonable assurance regarding Bruno Rossi Stephen J ohnson t h e r e lia b ilit y o f Y n a n c ia l r e p o r tin g a n d t h e p r e p a r a t io n o f Audit expert Global relationship partner Y nancial statements for external purposes in accordance with Auditor in charge t h e a p p l i c a b l e a c c o u n t i n g s t a n d a r d s . A c o m p a n y s i n t e r n a l

c o n t r o l o v e r Y n a n c ia l r e p o r tin g in c lu d e s th o s e p o lic ie s a n d procedures that (i) pertain to the maintenance of records that, Basel, J anuary 26, 2016 in reasonable detail, accurately and fairly reY ect the transac- Report on the Financial Statements and Internal Control over Financial Reporting A 86012 Management and Principles of Accounting 69 REQUIRED READING AND RESEARCH ASSIGNMENT SESSION 10 A 86012 Management and Principles of Accounting 70

Required Reading and research assignment Reading M Business Chapter 14 Accounting and Financial Statements Exercises M Business Test Bank Questions Chapter 14 Research assignment 9 Europes Top Companies How are they financed? A 86012 Management and Principles of Accounting 71 Research Assignment 9 Europes Top companies. How are they

financed? A 86012 Management and Principles of Accounting 72 SESSION SUMMARY AND VALIDATION, OVERVIEW SESSION 10 A 86012 Management and Principles of Accounting 73 Session Summary The accounting process: the nature of accounting, accountants, the accounting equation Financial accounting: Accounting standards, double entry bookkeeping, the accounting cycle, the financial statements Management accounting: Budgeting and forecasting,

budgetary control, cost accounting for decision taking, fixed and variable costs, break-even analysis, variance analysis. Audit and control: Audit committees, supervisory boards, reporting on internal control (COSO), internal audit external audit A 86012 Management and Principles of Accounting 74 Session Validation Define accounting What is the difference between a financial accountant and a management accountant? What is the accounting equation? What is double-entry bookkeeping? What are the 4 steps in the accounting cycle? What is the purpose of the income statement, balance sheet, cash flow statement? What is the break-even point?

A 86012 Management and Principles of Accounting 75 Overview of Session 10 Financial management Working capital management: Managing current assets and liabilities Capital budgeting and investment appraisal: Managing fixed assets, assessing risk, pricing longterm money, IRR, NPV; Payback Long-term financing: Financing options using longterm debt or owners equity Investor relations: Stock markets, communicating with investors, measures that matter, TRS A 86012 Management and Principles of Accounting 76

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