F1 ACCOUNTING AND ORGANIZATIONS What we need to know to start a business? I n December of 2003, Maria and Stan were very excited about starting a company to sell cookies made using their mother’s recipes To honor their mother, they decided to call the business Mom’s Cookie Company Realizing they did not have much money and had little business experience, the brother and sister made plans to start with a small company They hope the business will grow as more customers become aware of their products Maria and Stan know that accountants provide advice to help managers of companies better understand their businesses Because they had never started a company before, they made an appointment with Ellen Coleman, an accountant who had provided helpful business advice to several of their friends FOOD FOR THOUGHT Suppose you were in Maria and Stan’s position What would you want to know in order to start a business? What goals would you have for the business, and how would you plan to reach those goals? What resources would you need in your business, and how would you finance those resources? How would you organize your company? Who would your customers be? How would you know whether you are reaching your goals or not? These are issues Ellen poses to Maria and Stan Ellen: Maria: Stan: Ellen: Stan: Ellen: Maria: Ellen: Creating a successful business is not an easy task You need a good product, and you need a plan to produce and sell that product Stan and I think we have an excellent product We don’t have a lot of money for equipment and other resources, but we have identified a bakery that could produce our products using our recipes and according to our specifications Also, we have spoken with several local grocery chains that have been impressed with samples and have agreed to sell our products Good A primary goal of every successful business is to create value for customers If you focus on delivering a product that customers want at a price they are willing to pay, you are also likely to create value for yourselves as owners of the company You have to make sure you know what it will cost to run your company and decide how you will obtain the money you need to get started We have some money in savings, and we plan to obtain a loan from a local bank Those financial resources should permit us to rent a small office and purchase equipment we need to manage the company Also, we will need to acquire a truck for picking up the cookies from the bakery and delivering them to the grocery stores You will need a system for measuring your costs and the amounts you sell That system is critical for helping you determine whether you are accomplishing your goals Stan and I don’t know much about accounting Can you help us get started? I’ll be happy to help you First, let’s explore in more detail some of the issues you need to consider F3 CHAPTER F1: Accounting and Organizations Accounting and Organizations OBJECTIVES Once you have completed this chapter, you should be able to: Identify business ownership structures and their advantages and disadvantages Identify how accounting information helps decision makers Identify uses of accounting information for making decisions about corporations Compare major types of organizations and explain their purpose Explain the purpose and importance of accounting regulations Describe how businesses create value Explain why ethics are important for business and accounting Explain how accounting helps investors and other decision makers understand businesses INFORMATION OBJECTIVE Identify how accounting information helps decision makers FOR DECISIONS All of us use information to help us make decisions Information includes facts, ideas, and concepts that help us understand the world To use information, we must be able to interpret it and understand its limitations Poor information or the improper use of information often leads to poor decisions As an example, assume you wish to drive from Sevierville to Waynesville The drive will take several hours and require several turns on unfamiliar secondary roads Therefore, you use a map, as illustrated in Exhibit 1, to provide information to help guide you along the way Exhibit Map from Sevierville to Waynesville Waynesville 441 15 12 17 446 11 Townsend Sevierville 15 Binfield Nough Why is the map useful? The map can help you plan your trip You have selected a primary goal: arrive at Waynesville You may have other goals as well, such as getting there as quickly as possible Or perhaps you wish to stop at various points along the way The map provides information about alternative routes so that you can select the F4 SECTION F1: The Accounting Information System INTERNATIONAL Accounting and Organizations one that is shortest, fastest, or most scenic Using the map along the way helps you make decisions about where to turn or stop It helps you determine how far you have traveled and how much farther you have left to go It helps you decide whether you are on the right road or where you made a wrong turn It helps you decide where you are, how you got there, and where you are going Accounting provides information to help in making decisions about organizations This information is like a map of an organization Accounting information helps decision makers determine where they are, where they have been, and where they are going Rather than measuring distances in miles or kilometers, accounting measures an organization’s activities by the dollar amounts associated with these activities The primary measurement unit for accounting information is dollars in the United States or the local currency for other countries Maria and Stan have decided to start a business selling cookies Their company will pay a bakery to produce the cookies and will sell the cookies to local grocery stores An early decision they have to make is to identify the resources they will need to start and run their business They will need merchandise (cookies) to sell and will purchase those products from a supplier (the bakery) They will need a place to operate the business and someone to pick up the products and deliver them to sellers (grocery stores) They will need money to pay for the merchandise, rent for their office, wages, equipment, and miscellaneous costs such as supplies and utilities As an initial step in deciding whether to start the business, Maria and Stan might consider how much they expect to sell Suppose that after discussing this issue with grocery store owners, they determine that the company will sell about $12,000 of merchandise each month Next, they consider how much money they will need to operate their business A discussion with the bakery indicates the cost of the merchandise will be $8,000 each month After consideration of their other needs, they calculate their monthly costs will be: Merchandise Wages Rent Supplies Utilities $ 8,000 1,000 600 300 200 Total $10,100 From this information, they decide they should expect to earn a profit of $1,900 ($12,000 – $10,100) each month as shown in Exhibit Profit is the amount left over after the cost of doing business is subtracted from sales Exhibit Expected Monthly Earnings for Mom’s Cookie Company Costs of Resources Used Sales Sales of merchandise $12,000 Profit Merchandise sold Wages Rent Supplies Utilities Total $1,900 $ 8,000 1,000 600 300 200 $10,100 Accounting and Organizations CHAPTER F1: Accounting and Organizations Does this appear to be a good business for Maria and Stan? Suppose they each have $5,000 to invest in the business They will use this money to purchase merchandise and to pay for rent, wages, and the miscellaneous costs for the first month Would investing their money in the business be a good idea? If they don’t invest in the business, they could earn interest of about $50 a month on their $10,000 of combined savings The expected profit of $1,900 is considerably larger However, they also should consider the wages they could earn if they worked for someone else instead of working in their own company Additionally, they should consider how certain they are about the amount they can earn from their business and how much risk they are willing to take Investing in a business is always risky Risk is uncertainty about an outcome, such as the amount of profit a business will earn If the company sells less than Maria and Stan expect, its earnings also will be less than expected If the company does not well, they could lose their investments Are they willing to take that risk? Accounting can help with these decisions by providing information about the results that owners and other decision makers should expect will occur Decision makers then have to evaluate that information and make their decisions Accounting is a way of looking at a business It measures the activities of a business by the dollars it receives and spends It helps decision makers determine where they started and where they should end up It helps determine whether expectations are being met In the case of Mom’s Cookie Company, accounting identifies the company’s starting point by the $10,000 Maria and Stan invest in their business It identifies an expected ending point as the amount of profit of $1,900 they expect to earn each month It provides a means of determining whether expectations are being met by measuring business activities each month to determine whether the company is actually earning $1,900 each month Like a map, accounting can help decision makers determine that they are not where they want to be It can help them determine what went wrong and what they might to get back on the proper route Accounting provides a model of a business by measuring the business activities in dollar amounts Underlying this model is an information system This system provides a process for obtaining facts that can be converted into useful information Understanding the system and its processes will help you understand the information provided by accounting The purpose of accounting is to help people make decisions about economic activities Economic activities involve the allocation of scarce resources People allocate scarce resources any time they exchange money, goods, or services These activities are so common that almost every person in our society uses the accounting process to assist in decision making Accounting provides information for managers, owners, members, and other stakeholders who make decisions about organizations Stakeholders include those who have an economic interest in an organization and those who are affected by its activities An organization is a group of people who work together to develop, produce, and/or distribute goods or services The next section of this chapter discusses the purpose of organizations and the role of accounting in organizations THE PURPOSE OBJECTIVE Compare major types of organizations and explain their purpose OF ORGANIZATIONS Many types of organizations exist to serve society Why these organizations exist? Most exist because people need to work together to accomplish their goals The goals are too large, too complex, or too expensive to be achieved without cooperation All organizations provide goods and/or services By working together, people can produce more and better goods and services Organizations differ as to the types of goods or services they offer (Exhibit 3) Merchandising (or retail) companies sell to consumers goods that are produced by other companies Grocery, department, and hardware stores are examples Mom’s Cookie Company is a merchandising company It purchases merchandise from a bakery and F5 F6 SECTION F1: The Accounting Information System Accounting and Organizations sells the merchandise to grocery stores Manufacturing companies produce goods that they sell to consumers, to merchandising companies, or to other manufacturing companies Examples include automobile manufacturers, petroleum refineries, furniture manufacturers, computer companies, and paper companies The bakery from which Mom’s Cookie Company purchases its cookies is a manufacturing company Service companies sell services rather than goods These companies include banks, insurance companies, hospitals, universities, law firms, and accounting firms Some companies may be a combination of types For example, many automobile dealers are both retail and service companies Restaurants are both manufacturing and service companies Exhibit Types of Organizations Business Nonbusiness Retail Manufacturing Government Service Other Nonprofit Organizations may be classified by whether or not they attempt to earn a profit Profits result from selling goods and services to customers at prices greater than the cost of the items sold Organizations that sell their goods and services to make a profit are business organizations Governmental and nonprofit organizations, sometimes referred to as nonbusiness organizations, provide goods or, more typically, services without the intent of making a profit Nonbusiness organizations include civic, social, and religious organizations Some types of services, such as education and healthcare services, are provided by both business and nonbusiness organizations Although the products are similar, the goals of the organizations providing these services are different Nevertheless, all organizations need accounting information for decision making This book focuses primarily on accounting for business organizations Transformation of Resources A common purpose of organizations is to transform resources from one form to a different, more valuable, form to meet the needs of people Resources include natural resources (such as minerals and timber), physical resources (such as buildings and equipment), management skills, labor, financial resources, legal rights (such as patents and trademarks), information, and the systems that provide information The transformation process combines these resources to create goods and services Transformation may involve making goods or services easier or less expensive for customers to obtain, as in most merchandising and service companies Or it may involve physically converting resources by processing or combining them, as in manufacturing companies An easy way to understand the transformation of resources is by thinking about how a bakery takes resources like flour and sugar and transforms them through the mixing and baking process to become cookies Exhibit illustrates this transformation process Organizations are created because many transformations are too difficult or too expensive for individuals to accomplish without working together By combining their managerial skills, labor, and money, individuals create organizations to provide value that otherwise would be unavailable Value is added to society when an organization transforms resources from a less desirable form or location to a more desirable form Exhibit F7 CHAPTER F1: Accounting and Organizations Accounting and Organizations Transformation Resources Goods and Services Transformation of Resources into Goods and Services or location The transformation, if it meets a need of society, creates value because people are better off after the transformation than before For example, a company that manufactures shirts creates value because the shirts are more useful to those who purchase them than the material from which the shirts are made or the cotton or synthetic fibers used to make the material To improve its welfare, a society must encourage organizations to increase the value they create Because resources are in scarce supply, a society should attempt to use its resources wisely A major purpose of accounting information is to help decide how to get the most value from scarce resources Creating Value How can society determine how to use its resources? Decisions about using scarce resources wisely are not easy Because society is made up of many individuals, disagreeDescribe how businesses ment often exists as to how resources should be used In our society and many others, create value markets are the means used to promote the wise use of many resources Markets exist to allocate scarce resources used and produced by organizations A market is any location or process that permits resources to be bought and sold Competition in a market determines the amount and value of resources available for exchange The more valuable a resource is in meeting your needs, the more you are willing to pay for it as a buyer, or the more you want for it as a seller The price paid for a resource in a competitive market is an indication of the value assigned to it at the particular time the buyer and seller negotiate an exchange For example, when you buy a box of cookies, you exchange money for it The amount of money is a measure of the value you place on the product Thus, the price of goods and services in a market is a basis for measuring value Accounting measures the increase in value created by a transformation as the difference between the total price of goods and services sold and the total cost of reLEARNING NOTE sources consumed in developing, producing, and selling the goods and services Distinguish between prices charged by a business to its cusWhat value results when you purchase cookies? tomers and prices paid by a business for resources it consumes The amount you pay for the cookies is an indication A price charged by a business is a sales price A price paid by of the value you expect to receive However, resources a business to purchase resources that will be consumed in providing goods and services is a cost to the business were consumed in producing the cookies and making them available to you as illustrated in Exhibit OBJECTIVE Exhibit Value Created by Transforming Resources Sales Price of Box of Cookies $3.50 Value Added Total Cost of Resources Consumed to Produce and Make Box of Cookies Available ؊ $3.00 ‫؍‬ $0.50 F8 SECTION F1: The Accounting Information System Accounting and Organizations If you pay $3.50 for a box of cookies and the total cost of producing the cookies and making them available to you is $3.00, the value added by the transformation is $0.50 The difference between the price you pay and the total cost of the cookies is profit for those who produce and sell the cookies Profit is the difference between the price a seller receives for goods or services and the total cost to the seller of all resources consumed in developing, producing, and selling these goods or services during a particular period Thus, profits are the net resources generated from selling goods and services (resources received from the sales minus resources used in making the sales) Several types of markets are important in our economy Markets exist for resources used by organizations Organizations compete in financial markets for financial resources Investors choose where to put their money to work by selecting among competing organizations Organizations compete in supplier markets for other resources needed to produce goods and services Competition in these markets determines the costs of materials, labor, equipment, and other resources available to organizations Organizations compete in product markets (markets for goods and services) These markets determine the prices of goods and services available to customers From the perspective of organizations, financial and supplier markets are input markets; product markets are output markets All of these markets allocate scarce resources Exhibit reports the actual profit earned by Mom’s Cookie Company in January, its first month of operations (Keep in mind, the information presented earlier was the estimated amount of sales, costs, and profit.) The profit of $1,700 represents the difference between the amount of resources created by selling goods to customers and the total cost of resources consumed in providing those goods Of course, a business venture may not produce a profit It produces a loss if it consumes more resources than it creates Exhibit Mom’s Cookie Company Profit Earned For January Profit Earned by Mom’s Cookie Company in January Resources created from selling cookies Resources consumed: Cost of merchandise sold Wages Rent Supplies Utilities Total cost of resources consumed Profit earned $11,400 $7,600 1,000 600 300 200 9,700 $ 1,700 This exhibit reports results of activities that occurred during January These results can be compared with expected results Mom’s Cookie Company had sales of $11,400 compared with expected sales of $12,000 The cost of merchandise sold during January was $7,600 rather than the expected amount of $8,000, and profit earned by the company was $1,700 rather than the expected amount of $1,900 By examining the differences between expected and actual results, Maria and Stan can determine whether they need to make changes in their business Perhaps they need to find more stores to sell their products, or perhaps they need to advertise their products THE ROLE OF ACCOUNTING IN BUSINESS ORGANIZATIONS Businesses earn profits by providing goods and services demanded by society Owners invest in a business to receive a return on their investments from profits earned by their business By investing in a business, owners are forgoing the use of their money for Accounting and Organizations OBJECTIVE Explain how accounting helps investors and other decision makers understand businesses CHAPTER F1: Accounting and Organizations other purposes In exchange, they expect to share in a business’s profits Return on investment (ROI) is the amount of profit earned by a business that could be paid to owners Return on investment often is expressed as a ratio that compares the amount of profit to the amount invested in a business by its owners: Return on Investment ϭ Profit Amount Invested Profits represent net resources that have been earned through sales transactions A business may distribute profits to its owners Alternatively, owners (or managers acting on their behalf) may decide to reinvest profits in a business to acquire additional resources The business can use the additional resources to earn more profits by expanding its size or by expanding into new locations or product lines Either way, the owners are usually better off They receive cash from their investments if profits are withdrawn, or they add value to the business if profits are reinvested As shown in Exhibit 6, Mom’s Cookie Company earned $1,700 during January As the owners, Maria and Stan may choose to withdraw some or all of this amount for personal use It is their return on investment Alternatively, they might choose to reinvest all or a portion of this profit to enlarge their company by buying a larger amount of merchandise for sale in February Return on investment for Mom’s Cookie Company for January was $1,700, or 17% ($1,700 Ϭ $10,000), relative to the owners’ initial investment If Maria and Stan withdraw more than $1,700 from their business, the additional amount withdrawn is a return of investment, not a return on investment That additional amount is a return of a portion of the amount they originally invested For a company to maintain its capital (the amount invested by its owners), it must pay a return to owners from profits the company has earned Otherwise, the company is reducing its capital by returning a portion of owners’ investments to them The amount of return owners receive from a company depends on the company’s success in earning a profit If you are the primary owner of a business, you are actively involved in managing the business, and its success depends largely on your ability and effort If you are one of many who invest in a company, you probably are not actively involved in the business, and its success depends largely on the abilities and efforts of those who are managing the business When you invest in a business, you have no guarantee that it will be successful You are taking a risk that you may not receive a return on your investment, that the return may be smaller than you expected, or even that you might lose your investment Why invest in a business if the investment is risky? If a business is successful, its owners can expect to earn a higher rate of return on their investments than they could earn on a safer alternative, such as a savings account By investing $10,000 in Mom’s Cookie Company, Maria and Stan expect to earn $1,900 each month from their investment If they invested their money in a savings account, they would expect to earn $50 each month In general, it is necessary to take greater risks in order to earn higher returns Accounting information helps owners evaluate the risks and returns associated with their investments so they can make good decisions To earn profits and pay returns to owners, businesses must operate effectively and efficiently An effective business is one that is successful in providing goods and services demanded by customers Effective management involves identifying the right products and putting them in the right locations at the right times An efficient business is one that keeps the costs of resources consumed in providing goods and services low relative to the selling prices of these goods and services Managers must control costs by using the proper mix, qualities, and quantities of resources to avoid waste and to reduce costs The risk of owning a business is lower if the business is effective and efficient than if it is ineffective or inefficient Efficient and effective businesses are competitive in financial, supplier, and product markets Mom’s Cookie Company will be effective if it sells products desired by customers and if the products are made available in locations convenient for customers to purchase them The company will be efficient if it can keep the costs of resources it consumes low F9 F10 SECTION F1: The Accounting Information System Accounting and Organizations relative to the price of the goods it sells During January, the company was less effective than Maria and Stan had planned because it sold fewer goods than expected The company was efficient in controlling the cost of resources consumed because its costs were less than the prices of goods sold, thus permitting the company to earn a profit Business owners expect to receive a return on their investments Investors choose among alternative investments by evaluating the amount, timing, and uncertainty of the returns they expect to receive Businesses that earn high profits and are capable of paying high returns have less difficulty in obtaining investors than other businesses A business that cannot earn sufficient profits will be forced to become more effective and efficient or to go out of business The accounting information system is a major source of the information investors use in making decisions about their investments Accounting information helps investors assess the effectiveness and efficiency of businesses It helps them estimate the returns that can be expected from investing in a business and the amount of risk associated with their investments Financial, supplier, and product markets create incentives for businesses to provide products that society demands These markets help ensure that scarce resources are used to improve society’s welfare Markets help allocate scarce resources to those organizations that can best transform them to create value Accounting is an information system for the measurement and reporting of the transformation of resources into goods and services and the sale or transfer of these goods and services to customers Accounting uses the prices and costs of resources to measure value created by the transformation process and to trace the flow of resources through the transformation process By tracing the flow of resources, managers and other decision makers can determine how efficiently and effectively resources are being used SELF-STUDY PROBLEM John Bach owns a music store in which he sells and repairs musical instruments and sells sheet music The following transactions occurred for Bach’s Music Store during December 2004: Sold $8,000 of musical instruments that cost the company $4,300 Sold $1,400 of sheet music that cost the company $870 The price of repair services provided during the month was $2,200 Rent on the store for the month was $650 The cost of supplies used during the month was $250 The cost of advertising for the month was $300 The cost of utilities for the month was $200 Other miscellaneous costs for December were $180 Required A Determine the profit earned by Bach’s Music Store for December B Explain how profit measures the value created by Bach’s Music Store The solution to Self-Study Problem appears at the end of the chapter THE STRUCTURE OBJECTIVE Identify business ownership structures and their advantages and disadvantages OF BUSINESS ORGANIZATIONS Many types of decisions are made in organizations Accounting provides important information to make these decisions For example, organizations require financial resources to buy other resources used to produce goods and services Primary sources of financing for businesses are owners and creditors Business Ownership Businesses may be classified into two categories: those that are distinct legal entities apart from their owners and those that are not distinct legal entities A corporation is 10 Accounting and Organizations CHAPTER F1: Accounting and Organizations a legal entity with the right to enter into contracts; the right to own, buy, and sell property; and the right to sell stock Resources are owned by the corporation rather than by individual owners Corporations may be very large or fairly small organizations Small corporations often are managed by their owners The owners of most large corporations not manage their companies Instead, they hire professional managers These owners have the right to vote on certain major decisions, but they not control the operations of their corporations on a day-to-day basis One reason most large businesses are organized as corporations is that corporations typically have greater access to financial markets than other types of organizations A corporation may be owned by a large number of investors who purchase shares of stock issued by the corporation Each share of stock is a certificate of ownership that represents an equal share in the ownership of a corporation An investor who owns 10% of the shares of a corporation owns 10% of the company and has a right to 10% of the return available to stockholders Stockholders, or shareholders, are the owners of a corporation Shares of stock often are traded in stock markets, such as the New York, London, and Tokyo stock exchanges, which are established specifically for this purpose These markets facilitate the exchange of stock between buyers and sellers Therefore, unlike other businesses, ownership in many corporations changes frequently as stockholders INTERNATIONAL buy or sell shares of stock Major corporations, such as General Motors, Exxon, or IBM, have received billions of dollars from stockholders Percentage of Proprietorships and partnerships are business organizations that not have legal Companies and identities distinct from their owners Proprietorships have only one owner; partnerships Volume of Sales by Type of Organization have more than one owner For most proprietorships and partnerships, owners also manage the business Owners have a major stake in the business because often much of their personal wealth is invested in it The amount of a proprietor’s personal wealth and his or her 73% 91% 4% ability to borrow limit the size of a proprietorship If a 5% proprietorship is profitable, profits earned by the pro21% prietor can be reinvested, and the business can become fairly large 6% Partnerships can include several partners; therefore, the money available to finance a partnership depends on the money available from all the partners Total Companies Total Sales New partners can be added, making new money available to the business While most partnerships are small, Proprietorship large businesses (with as many as a thousand or more owners) sometimes are organized as partnerships The Partnership profit of most proprietorships and partnerships is not taxed Instead, the profit is income for the owners, who Corporation pay income taxes on the profit as part of their personal (Data source: U.S Census Bureau Web site (http://www.census.gov) income taxes Management of Corporations Exhibit describes the organizational structure of a typical corporation A board of directors oversees the decisions of management and is responsible for protecting the interests of stockholders Normally, the board is appointed by management with the approval of stockholders Top managers often serve on the board along with outside directors who are not part of the corporation’s management The chairman of the board often holds the position of chief executive officer (CEO) with the ultimate responsibility for the success of the business The president, as chief operating officer (COO), is responsible for the day-to-day management of a corporation In some cases, the president also may be the CEO The company may appoint any number of vice presidents, F11 614 615 616 617 618 619 620 621 622 623 624 A PPENDIX C Sources of Information about Companies and Industries Many college and public libraries offer print and electronic resources that provide information about companies and industries The following listing describes some of the resources you may find useful The listing is not comprehensive Check with your librarian for other resources that may be available in your library Industry Classification • The North American Industry Classification System (NAICS) categorizes companies using an industry classification code Companies with the same classification code produce similar products Other reference materials often use NAICS codes to identify companies and industries You can find the NAICS codes on the Web at http://www.census.gov/epcd/www/naics.html • The Standard Industrial Classification Manual provides an earlier system for classifying companies and industries Some reference materials still use Standard Industrial Classification (SIC) codes to organize information You can find SIC codes on the Web at http://www.osha.gov/oshstats/sicser.html Business Periodicals • Business Week provides general coverage of a wide variety of business issues, including individual companies and industries Some articles are available on the Web at http://www.businessweek.com/ • Fortune provides descriptive articles on many companies and industries Special issues provide rankings of companies by sales, both overall and within industries Some articles are available on the Web at http://www.fortune.com/ • Forbes provides descriptive articles on many companies and industries Special issues provide summary information for large companies Some articles are available on the Web at http://www.forbes.com/ • The Wall Street Journal provides daily coverage of major events related to specific companies and industries as well as the overall economy Some articles are available on the Web at http://www.wsj.com/ Company Profiles • Hoover’s Handbook of American Business gives profiles of companies, including overview, history, financial data, products and brands, and major competitors Even more company profiles are available at Hoover’s Online at http://www.hoovers.com/ • Standard & Poor’s Corporation Records provides a brief profile and financial information on public companies Standard & Poor’s Stock Reports also provides a brief profile but includes more information about the company’s stock Information C1 625 C2 626 APPENDIX C Appendix: Sources of Information About Companies and Industries • • • • • • • from both sources is also included in the electronic database from Standard & Poor’s called NetAdvantage Mergent (formerly Moody’s) Industrial Manual provides profiles of companies, including history, subsidiaries, financial information, and a description of the company’s long-term debt and equity offerings Other manuals cover other industries, such as transportation and public utilities This information is also available in Mergent’s electronic database called FIS Online Thomson Research (formerly Global Access) is an electronic database that contains extensive information on companies such as financial information, stock data, and so on Factiva.com (formerly Dow Jones Interactive) provides several ways to research a company Look at company filings, review stock price history, or search for articles about the company in the Publications Library Value Line Investment Survey provides analysis and commentary on major industries and companies EDGAR offers free access to public company filings with the Securities and Exchange Commission Visit EDGAR on the Web at http://www.sec.gov/edgar.shtml A company’s annual report to the shareholders often contains useful information about its products and markets in addition to their financial statements Many companies now post their annual report on their Web site Use your favorite search engine (e.g., Google at http://www.google.com/) to search for the company’s home page Look for an “Information for Investors” or “Investor Relations” section to find the company’s annual report International Directory of Company Histories is a large multi-volume set that gives extensive background information on the history of individual companies Industry Profiles • Standard & Poor’s Industry Surveys provides detailed analysis of over 50 major industries This information is also contained in the electronic database from Standard & Poor’s called NetAdvantage • Encyclopedia of American Industries gives profiles of industries arranged by SIC code Almost every code has a profile, so information can be quite specific • U.S Industry & Trade Outlook (formerly U.S Industrial Outlook) contains information on major industries in the United States, along with forecasts of future prospects • Manufacturing & Distribution USA gathers industry statistics from the U.S Census Bureau and other sources and organizes them by SIC code • Marketresearch.com contains market research reports on individual industries and types of products Articles in Magazines and Newspapers There are numerous databases that allow the user to search for articles on a given topic, company, or industry Even general-subject databases usually contain a large number of articles on business topics Here are a few examples of databases that are particularly useful for the business researcher: • ABI/INFORM is a database covering over a thousand business-related magazines and journals Search for articles about a topic, a company, or an industry Many articles are available full-text • Business Source Elite is another database that covers a huge number of business magazines and journals, with many offered full-text • Lexis-Nexis Academic Universe provides access to articles in thousands of magazines, journals, and newspapers It also contains information from other types of sources such as radio and television programs • The Publications Library in Factiva.com contains the full-text of thousands of business magazines, trade journals, and news releases APPENDIX C Appendix: Sources of Information About Companies and Industries Government Information The federal government gathers huge amounts of data about the economy, trade, and industry Much of this information is now distributed freely on the Web Here are a few examples: • Economic Indicators includes the gross national product, consumer price indexes, unemployment rates, interest rates, and many more commonly used economic statistics Find it on the Web at http://www.access.gpo.gov/congress/eibrowse/broecind.html • The Federal Reserve Banks gather economic data about their various regions and share the data through publications on their Web sites A good example is FRED®, a database of economic information compiled by the Federal Reserve Bank of St Louis on the Web at http://research.stlouisfed.org/fred/ • Survey of Current Business provides more detailed economic data, as well as articles about foreign investment, personal income, and other economic topics • The U.S Census Bureau gathers huge amounts of data and offers it to the public at their Web site at http://www.census.gov/ Note particularly the Economic Census, where you can find data on individual industries at the national, state, or local level • Statistical Abstract of the United States gathers into one place the most frequently requested statistics gathered by all the various departments and agencies of the federal government Find it on the Web at http://www.census.gov/prod/www/ statistical-abstract-us.html Industry Ratios Industry averages for a variety of ratios and other accounting measures are available in RMA (formerly Robert Morris Associates) Annual Statement Studies, Dun & Bradstreet’s Industry Norms & Key Business Ratios, and Leo Troy’s Almanac of Business and Industrial Financial Ratios C3 627 ... understand businesses INFORMATION OBJECTIVE Identify how accounting information helps decision makers FOR DECISIONS All of us use information to help us make decisions Information includes facts,... use accounting information to make taxation and regulatory decisions THE REGULATORY ENVIRONMENT OF ACCOUNTING Accounting information prepared for use by external decision makers is financial accounting. .. the end of the chapter ACCOUNTING OBJECTIVE Identify uses of accounting information for making decisions about corporations AND BUSINESS DECISIONS The value of accounting information is determined