Intr的oduction To IE Chapter10 Financial Management and Engineering Economy.ppt

4/4/2006 Filename, optional: View, Header Footer Introduction to IE Financial Management and Engineering Economy accounting Accounting is the function of recording ,summarizing , and presenting the historical financial data of business. The amounts of and the changes in the company’s asset, liabilities, and net worth are recorded and reported Terminologies Asset: Anything of monetary value a company owns (e. g., cash, supplies on hand, inventories, prepaid expenses, land buildings, equipment) Liability : Debt a company owes to its creditors (e. g., accounts payable, notes payable, taxes payable, mortgages payable) Net worth: ownership interest in the company. Its made up of capital stock (the amount of money originally invested by the owners) and retained earnings (the net total of all previous earnings not paid out, but reinvested) Accounting equation Net worth = assets – liabilities A formal presentation of the accounting equation is called a balance sheet, which is a statement of the financial position of a company at a point in time When a company has revenue and expense, the accounting equation must be revised to show theses items. Terminologies A Revenue is the income due to the sale of a product or service eventually resulting in an increasing in net assets or net worth A expense is the a cost of production or service eventually resulting in monetary outflow Some observations: An income statement will not balance in general The balanced sheet will not balance until the resultant profit or loss from the income statement has been added. Since revenues and expenses reflect performance over a period of time, periodically the amounts should be set equal to zero, so that a fresh start can be made. cost accounting Cost accounting system can generate many different reports showing the performance of individual products, individual department or shops. It also tell us the cost of goods made and the cost of goods sold, knowing the cost materi