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KPPSB THE TEN- DAY MBA TOPIC: ACCOUNTING

KPPSB THE TEN- DAY MBA TOPIC: ACCOUNTING. By: Norani Said. TOPICS. Accounting Rules Accounting Concepts The Financial Statement Ratio analysis Managerial Accounting. Accounting means:. TO CONTROL. TO EVALUATE. and. TO PLAN OPERATIONS. Accounting answers:.

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KPPSB THE TEN- DAY MBA TOPIC: ACCOUNTING

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  1. KPPSBTHE TEN- DAY MBATOPIC:ACCOUNTING By: Norani Said

  2. TOPICS • Accounting Rules • Accounting Concepts • The Financial Statement • Ratio analysis • Managerial Accounting

  3. Accounting means: TO CONTROL TO EVALUATE and TO PLAN OPERATIONS

  4. Accounting answers: What does the company own? How much does the company owe others? How well did a company’s operations perform? How does the company get the cash to fund itself?

  5. Accounting concepts • The Entity • Cash & Accrual Accounting • Objectivity • Conservatism • Going concern • Consistency • Materiality

  6. THE FINANCIAL STATEMENT 1. THE BALANCE SHEET 2. THE INCOME STATEMENT 3. THE STATEMENT OF CASH FLOWS

  7. THE BALANCE SHEET • to show the financial position of the business with • respect to its asset, liabilities and owner’s equity on • that particular day. • show what the business owns is equal to what its owes both its external creditors and its owners. • It is not an account . It is divided into 2 sections. One for assets and another one for liabilities & owners’ equity.

  8. THE BALANCE SHEET ASSETS = LIABILITIES + OWNERS’ EQUITY

  9. RULES FOR ENTRIES INTO ACCOUNTS Liabilities & OE Accounts Asset Accounts Credit increase Debit Increase Credit Decrease Debit decrease

  10. PERMATA PENAGABALANCE SHEET AS AT31/12/1992

  11. BALANCE SHEET: THREE THINGS ARE WORTH NOTING:- FIRST, The total assets equals the total of liabilities and owners’ equity SECOND, The assets are on the left and the liabilities & OE are on the right THIRD, The BS is as of a point certain in time eg 31st Dec 1992

  12. Balance sheet: • The assets & liabilities are listed in order of their • liquidity from most liquid to least. • Working capital - it refers to the assets & liabilities • that a company constantly works with as part of its • daily business. CURRENT ASSETS - CURRENT LIABILITIES = WORKING CAPITAL

  13. THE INCOME STATEMENT • Income statement shows the flow of • activity and transaction over a specific • “period” of time; may be a month, a qtr • or a year. • It is usually set up based on matching or • accrual concept Revenue - Expenses = INCOME

  14. The income statement example: Sales to customers 5,200,000 COGS 3,900,000 ------------ Gross margin 1,300,000 Less: Selling, General and admin exp Payroll 1,000,000 Rent 150,000 utilities 75,000 Advertising 18,000 Depreciation 3,000 Others 10,000 ------------ 1,256,000 ----------- Operating Income (EBIT) 44,000 Less: interest Expense 1,000 ------------ Income before taxes 43,000 Less: Income taxes 13,000 ------------ NET INCOME 30,000 =======

  15. GROSS MARGIN Sales - The ‘Direct’ COGS Note:if the business has a negative margin, either costs are out of control or the pricing structure of the industry does not afford the company profit

  16. COST OF GOODS SOLD Beginning inventory + New Purchases - Ending Inventory

  17. CASH FLOW STATEMENT • Management tool to help avoid liquidity problems • Record the activities of cash inflows and outflows • Cash Flow is the management tools to tell us what’s going on in the business • Both, income statement & the BS are used to form the cash flow

  18. The useful of cash flow: • Operations activities • Investing Activities • Financing Activities

  19. Statement of cash flows example: Operating Activities: Net Income 30,000 Add back Expenses not using cash: Depreciation 3,000 ------------ 33,000 Adjust for changes in Working Capital: Increase & decrease during the year Current assets: Customer receivables (increase) decrease (10,000) Store inventory (increase) decrease (100,000) Current Liabilities: Vendor payable increase (decrease) 80,000 Wages payable increase (decrease) 5,000 Taxes payable increase (decrease) 2,000 -------- 23,000 ------------- CASH FLOW FROM OPERATING ACTIVITIES 10,000

  20. Statement of cash flows example: Cont. Investing Activities: Purchase of store Equipment (30,000) Cash \flow from Investing activities(30, 000) ------------ (20,000) Financing activities: Proceeds from bank borrowing 10,000 Sale of stock to owners 15,000 Payment of dividends to owners - ---------- Cash flow from financing activities 25,000 ------------ Increase in cash for the year 5,000 ======= Cash at beginning of year - ------------ Cash at End of year 5,000 =======

  21. Accounting Ratios 4 categories of ratios 1. Liquidity ratios 2. Capitalization ratios 3. Activity ratios 4. Profitability ratios

  22. Accounting Ratios 1. LIQUIDITY RATIOS - measures how much is on hand that can be converted to cash to pay the bills • Current ratio = current assets • ------------------- • current liabilities E.g RM 115,000 ---------------- = 1.32 RM 87,000 A ratio greater than 1 shows liquidity

  23. Accounting Ratios 2. CAPITALIZATION RATIOS - Is a company heavily burdened with debt? • Financial leverage = Tot liability + OE • --------------------- • OE E.g RM 142,000 ---------------- = 3.155 RM 45,000 Ratios of greater than 2 show an extensive use of debt

  24. Accounting Ratios 2. CAPITALIZATION RATIOS • Long term debt to capital = Long term debt • --------------------- • Liabiliites +OE RM 10,000 ---------------- = 0.07 = 7% RM 142,000 E.g A ratio of greater than 50% shows a high level of debt

  25. Accounting Ratios 3. ACTIVITY RATIOS - how actively are the firm’s assets being deployed? Assets Turnover per period = Sales RM5,200,000 ----------------- e.g ------------------- = 36.6turns Total assets RM142,000

  26. Accounting Ratios 3. ACTIVITY RATIOS COGS Inventory turns per period = ----------------------------- Average inventory held during the period RM 3,900,000 ---------------- = 39 turns per year RM 100,000 E.g

  27. Accounting Ratios 3. ACTIVITY RATIOS Ending inventory Day sales in Inventory = ----------------------------- COGS / 365 RM 100,000 ---------------- = 9.36 days RM 3,900,000/365 E.g

  28. Accounting Ratios 4. PROFITABILITY RATIOS Net Income Return on Sales (ROS) = ----------------------------- Sales RM 30,000 ---------------- = 0.005769 = 0.58% RM 5,200,000 E.g

  29. Accounting Ratios 4. PROFITABILITY RATIOS Net Income Return on Equity (ROE) = ----------------------------- Owners’ Equity RM 30,000 ---------------- = 0.6667 = 67% RM 45,000 E.g

  30. Accounting overview Don’ t struggled too hard: In this chapter, you should have remembered that: • Assets = Liabilities + Owner’s equity • 3 basic financial statement: BS, IS & CFS • Accounting records and statement always balance • The statements can be interpreted by using ratios • Operating results can be analyzed and managed using variances

  31. KEY ACCOUNTING TAKEAWAYS Cash Basis Accounting -The method of recording transactions only when cash changes hands Accrual Basis Accounting - The method of recording transactions that matches revenues and expenses regardless of cash flow movements The Balance Sheet - The listing of what a company owns and owes at a point in time

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