procter and gamble

PROCTER & GAMBLECOST ACCOUNTING

Mission Statement

We will provide branded products and services of superior quality and value that improve the lives of the world's consumers. As a result, consumers will reward us with leadership sales, profit, and value creation, allowing our people, our shareholders, and the communities in which we live and work to prosper.

Procter & Gamble

ValuesP&G is its people and the values by which we live.We attract and recruit the finest people in the world. We build our organization from within, promoting and rewarding people without regard to any difference unrelated to performance. We act on the conviction that the men and women of Procter & Gamble will always be our most important asset.

Leadership We are all leaders in our area of responsibility, with a deep commitment to deliver leadership results. We have a clear vision of where we are going. We focus our resources to achieve leadership objectives and strategies. We develop the capability to deliver our strategies and eliminate organizational barriers.Ownership We accept personal accountability to meet our business needs, improve our systems, and help others improve their effectiveness. We all act like owners, treating the Company's assets as our own and behaving with the Company's long-term success in mind.Integrity We always try to do the right thing. We are honest and straightforward with each other. We operate within the letter and spirit of the law. We uphold the values and principles of P&G in every action and decision. We are data-based and intellectually honest in advocating proposals, including recognizing risks.Passion for Winning We are determined to be the best at doing what matters most. We have a healthy dissatisfaction with the status quo. We have a compelling desire to improve and to win in the marketplace.Trust We respect our P&G colleagues, customers, and consumers, and treat them as we want to be treated. We have confidence in each other's capabilities and intentions. We believe that people work best when there is a foundation of trust.

Our principles

We Show Respect for All Individuals We believe that all individuals can and want to contribute to their fullest potential. We value differences. We inspire and enable people to achieve high expectations, standards, and challenging goals. We are honest with people about their performance. The Interests of the Company and the Individual Are Inseparable We believe that doing what is right for the business with integrity will lead to mutual success for both the Company and the individual. Our quest for mutual success ties us together. We encourage stock ownership and ownership behavior.We Are Strategically Focused in Our Work We operate against clearly articulated and aligned objectives and strategies. We only do work and only ask for work that adds value to the business. We simplify, standardize, and streamline our current work whenever possible. Innovation Is the Cornerstone of Our Success We place great value on big, new consumer innovations. We challenge convention and reinvent the way we do business to better win in the marketplace. We Are Externally Focused We develop superior understanding of consumers and their needs.

We create and deliver products, packaging, and concepts that build winning brand equities. We develop close, mutually productive relationships with our customers and our suppliers. We are good corporate citizens. We Value Personal Mastery We believe it is the responsibility of all individuals to continually develop themselves and others. We encourage and expect outstanding technical mastery and executional excellence. We Seek to Be the Best We strive to be the best in all areas of strategic importance to the Company. We benchmark our performance rigorously versus the very best internally and externally. We learn from both our successes and our failures. Mutual Interdependency Is a Way of Life We work together with confidence and trust across business units, functions, categories, and geographies. We take pride in results from reapplying others' ideas. We build superior relationships with all the parties who contribute to fulfilling our Corporate Purpose, including our customers, suppliers, universities, and governments.

Chart of accountsAsset AccountsCurrent Assets

1000Cash and Cash Equivalents

1010Investment Money Market

1020Investment- Certificates Deposits

1100Accounts Receivable

1140 Other Receivables

1150Allowance for doubtful accounts

1200Raw Material Inventory

1205Supplies Inventory

1210Work In Progress Inventory

1215Finish Goods Inventory Product # 1



1400Prepaid Expenses

1410Employee advances

1420Note Receivable-Current

1430Prepaid Interest

1470Other Current Assets

Fixed Assets1500Furniture and Fixtures

1510Equipment

1520Vehicles

1530Other Depreciable Property

1540Leasehold Improvements

1550Building

1560Building Improvements

1690Land

1700Accumulated Depreciation, Furniture and Fixtures

1710Accumulated Depreciation, Equipment

1720Accumulated Depreciation, Vehicles

1730Accumulated Depreciation, Other

1740Accumulated Depreciation, Leasehold

1750Accumulated Depreciation, Building

1760Accumulated Depreciation, Building Improvement

Other Assets1900Deposits

1910Organization Costs

1915Accumulated Amortization, Organization Costs

1920Notes Receivable, Non-Current

1990Other Non-Current Assets

Liability AccountsCurrent Liabilities2000Accounts Payable

2300Accrued Expenses

2310Sales Tax Payable

2320Wages Payable

2330401-K Deduction Payable

2335Health Insurance Payable

2340Federal Payroll Taxes Payable

2350FUTA Tax Payable

2360State Payroll Taxes Payable

2370SUTA Payable

2380Local Payroll Taxes Payable

2390Income Taxes Payable

2400Other Taxes Payable

2410Employee Benefit Payable

2420Current Portion of Long-term Debt

2440Deposit from Customer

2480Other Current Liabilities

Long-Term Liability2700Notes Payable

2702Land Payable

2704Equipment Payable

2706Vehicles Payable

2708Bank Loans Payable

2710Differed Revenue

2740Other Long-Term Liabilities

Equity Account3010Stated Capital

3020Capital Surplus

3030Retained Earnings

Revenue Accounts4000Product # 1 Sales

4020Product # 2 Sales

4040Product # 3 Sales

4060Interest Income

4080Other Income

4540Finance Charge Income

4550Shipping Charges Reimbursed

4800Sales Returns and Allowances

4900Sales Discounts

Cost of Goods Sold5000Product # 1 Cost

5010Product # 2 Cost

5020Product # 3 Cost

5050Raw Material Purchases

5100Direct Labor Costs

5150Indirect Labor Cost

5200Heat and Power

5300Miscellaneous Factory Cost

5700Cost of Goods Sold, Salaries and Wages

5730Cost of Goods Sold, Contract Labor

5750Cost of Goods Sold, Freight

5800Cost of Goods Sold, Other

5850Inventory Adjustments

5900Purchase Return and Allowances

5950Purchase Discount

Expenses6000Default Purchase Expense

6010Advertising Expense

6050Amortization Expense

6100Auto Expense

6150Bad Debt Expense

6200Bank Fees

6250Cash Over and Short

6300Charitable Contributions Expense

6350Commissions and Fees Expense

6400Depreciation Expense

6450Dues and Subscription Expense

6500Employee Benefit Expenses, Health Insurance

6510Employee Benefit Expenses, Pension Plans

6520Employee Benefit Expenses, Profit Sharing Plan

6530Employee Benefit Expenses, Other

6550Freight Expenses

6600Gift Expenses

6650Income Tax Expense, Federal

6660Income Tax Expense, State

6670Income Tax Expense, Local

6700Insurance Expense, Product Liability

6710Insurance Expense, Vehicle

6750Interest Expense

6850Legal and Professional Expense

6900Licenses Expense

6950Loss on NSF Checks

7000Maintenance Expense

7100Office Expense

7200Payroll Tax Expense

7250Penalties and Fines Expense

7300Other Taxes

7350Postage Expenses

7400Rent or Lease Expenses

7450Repair and Maintenance Expense, Office

7460Repair and Maintenance Expense, Vehicle

7550Supplies Expense, Office

7600Telephone Expenses

7620Training Expense

7650Travel Expense

7700Salaries Expense, Officer

7750Wages Expense

7800Utilities Expense

8900Other Expenses

9000Gain/Loss on Sales of Assets

Financial StatementsConsolidated Statement of EarningsAmounts in millions except per share amounts; Years ended June 30201120102009

NET SALES$82,559$78,938$76,694

Cost of products sold40,76837,91938,690

Selling, general and administrative expense25,97324,99822,630

OPERATING INCOME15,81816,02115,374

Interest expense8319461,358

Other non-operating income/(expense), net202(28)397

EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES15,18915,04714,413

Income taxes on continuing operations3,3924,1013,733

NET EARNINGS FROM CONTINUING OPERATIONS11,79710,94610,680

NET EARNINGS FROM DISCONTINUED OPERATIONS1,7902,756

NET EARNINGS$11,797$12,736$13,436

BASIC NET EARNINGS PER COMMON SHARE:

Earnings from continuing operations$4.12$3.70$3.55

Earnings from discontinued operations0.620.94

BASIC NET EARNINGS PER COMMON SHARE4.124.324.49

DILUTED NET EARNINGS PER COMMON SHARE:

Earnings from continuing operations3.933.533.39

Earnings from discontinued operations0.580.87

DILUTED NET EARNINGS PER COMMON SHARE3.934.114.26

DIVIDENDS PER COMMON SHARE$1.97$1.80$1.64

Consolidated Balance SheetAmounts in millions; June 30

Assets20112010

CURRENT ASSETS

Cash and cash equivalents$2,768$2,879

Accounts receivable6,2755,335

INVENTORIES

Materials and supplies2,1531,692

Work in process717604

Finished goods4,5094,088

Total inventories7,3796,384

Deferred income taxes1,140990

Prepaid expenses and other current assets4,4083,194

TOTAL CURRENT ASSETS21,97018,782

PROPERTY, PLANT AND EQUIPMENT

Buildings7,7536,868

Machinery and equipment32,82029,294

Land934850

Total property, plant and equipment41,50737,012

Accumulated depreciation(20,214)(17,768)

NET PROPERTY, PLANT AND EQUIPMENT21,29319,244

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill57,56254,012

Trademarks and other intangible assets, net32,62031,636

NET GOODWILL AND OTHER INTANGIBLE ASSETS90,18285,648

OTHER NONCURRENT ASSETS4,9094,498

TOTAL ASSETS$138,354$128,172

Liabilities and Shareholders Equity20112010

CURRENT LIABILITIES

Accounts payable$8,022$7,251

Accrued and other liabilities9,2908,559

Debt due within one year9,9818,472

TOTAL CURRENT LIABILITIES27,29324,282

LONG-TERM DEBT22,03321,360

DEFERRED INCOME TAXES11,07010,902

OTHER NONCURRENT LIABILITIES9,95710,189

TOTAL LIABILITIES70,35366,733

SHAREHOLDERS EQUITY

Convertible Class A preferred stock, stated value $1 per share (600 shares authorized)1,2341,277

Non-Voting Class B preferred stock, stated value $1 per share (200 shares authorized)

Common stock, stated value $1 per share (10,000 shares authorized; shares issued: 20114,007.9, 20104,007.6)4,0084,008

Additional paid-in capital62,40561,697

Reserve for ESOP debt retirement(1,357)(1,350)

Accumulated other comprehensive income (loss)(2,054)(7,822)

Treasury stock, at cost (shares held: 20111,242.2, 20101,164.1)(67,278)(61,309)

Retained earnings70,68264,614

Noncontrolling interest361324

TOTAL SHAREHOLDERS EQUITY68,00161,439

TOTAL LIABILITIES AND SHAREHOLDERS EQUITY$138,354$128,172

Consolidated Statement of Cash FlowsAmounts in millions; Years ended June 30201120102009

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR$2,879$4,781$3,313

OPERATING ACTIVITIES

Net earnings11,79712,73613,436

Depreciation and amortization2,8383,1083,082

Share-based compensation expense414453516

Deferred income taxes12836596

Gain on sale of businesses(203)(2,670)(2,377)

Change in accounts receivable(426)(14)415

Change in inventories(501)86721

Change in accounts payable, accrued and other liabilities3582,446(742)

Change in other operating assets and liabilities(1,190)(305)(758)

Other1619630

TOTAL OPERATING ACTIVITIES13,23116,07214,919

INVESTING ACTIVITIES

Capital expenditures(3,306)(3,067)(3,238)

Proceeds from asset sales2253,0681,087

Acquisitions, net of cash acquired(474)(425)(368)

Change in investments73(173)166

TOTAL INVESTING ACTIVITIES(3,482)(597)(2,353)

FINANCING ACTIVITIES

Dividends to shareholders(5,767)(5,458)(5,044)

Change in short-term debt151(1,798)(2,420)

Additions to long-term debt1,5363,8304,926

Reductions of long-term debt(206)(8,546)(2,587)

Treasury stock purchases(7,039)(6,004)(6,370)

Impact of stock options and other1,302721681

TOTAL FINANCING ACTIVITIES(10,023)(17,255)(10,814)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS163(122)(284)

CHANGE IN CASH AND CASH EQUIVALENTS(111)(1,902)1,468

CASH AND CASH EQUIVALENTS, END OF YEAR$2,768$2,879$4,781

SUPPLEMENTAL DISCLOSURE

Cash payments for:

Interest$806$1,184$1,226

Income taxes2,9924,1753,248

Assets acquired through non-cash capital leases13208

Divestiture of coffee business in exchange for shares of P&G stock2,466

Ratio Analysis / Trend AnalysisRatio analysis can be done differently depending on what type of ratio you may want. Activity ratios measure how efficiently a company performs day-to-day tasks, such us the collection of receivables and management of inventory. For example, exhibit 1 shows Procter and Gamble co. Short-term (operating) activity ratio.

If we take a closer look at the inventory turnover which is calculated; revenue divided by inventory. We will see how during the 2010 to 2011 inventory turnover deteriorated but then during the year 2011 to 2012 inventory turnover increase by .55. This tells us that Procter & Gamble inventory was being used at a much faster rate than the previous years. Now lets take a look at the whole picture, if we see in exhibit 1 from 2007 to 2012 the ratio turnover for inventory, receivables, working capital began with a very low ratio but each year it increase even though that our economy has been a bit wobbly. But for payable turnover instead of increasing year by year it actually decrease. This is because Procter & Gamble was having a harder time to pay of creditor during the 2007 to 2009 years when the economy was not so good. But during the last 3 years they were able to lower their payable rates ratio dramatically. This meaning that by combining all the information together we can come to conclude that P&G turnover ratio has been improving gradually every year. Trends analyzes calculates the percentage change for one account over a period of two years or more. For example, for 2012 P&G net sales were $83,680(amounts in million) and the 2011 net sales were $81,104(amounts in million). So we subtract $83,680-$81104 which equals to $2576. We then divide $2576 by the previous year sales of $81,104, which equal to .0317626, after this we multiply by 100, which gives us 3.18 percent. What this percent means is that P&G increase in net sales 3.18 percent over the last year. But is this really good? Well in order to really figure out if its actually an improvement we can compare it to the previous 2 years sales (2011-2010). So $81,104 minus $77,867 equals $3237, we then divide by $77,867, which equal .04157 then multiply by 100. This tells us that even thought that sales went up by 3.18 percent in 2012-2011 it increase very little compare to the increase in 2011-2010 of 4.1 percent. This would tell our stockholders and CEO that the company did not do very well in net sales in the year 2012-2011 compare to 2011-2010. But if we want to figure out the percentage trend analyzes for more than two years we would use another formula in order to calculate it. As we can see in exhibit 1, 2008 year will be our base years and then we divide the amount in each non-base year by the amount in the base year and multiply by 100. This will give us the trend percentage for each year.(amounts in million)

Historical Data20122011201020092008

Net Sales$83,680.00$81,104.00$77,567.00$75,295.00$77,714.00

Operating Income$13,292.00$15,495.00$15,732.00$15,188.00$15,743.00

Trend Percentage

Net Sales107.67687104.3621599.81084596.887305100

Operating Income84.43117698.42469799.93012896.474624100

As we can see from the trend analyzes as the years for net sales go from 2008 to 2012, sales decrease from the years 2009-2010 but after this in began to increase slowly each passing year. This could have happen because of bad economy or difficulty in the company. But if we take a look into operating income then we could see that it actually went lower each passing years. But this time this is actually a very good thing, because the company was actually able to cut cost by approximately 15 percent during the 4 years period. So as we see this process of trend analyzes and percentage change can be done for any kind of item like cash, net income, inventory, liabilities, Cost of Goods Sold, etc. This will be a great use for P&G since it will tell them if they are meeting their selling goals, or cutting enough money per year.Information from Annual Report and Footnotes to Financial Statements related to Cost AccountingConsolidated Financial Statements

Use of EstimatesPreparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying disclosures. These estimates are based on managements best knowledge of current events and actions the Company may undertake in the future. Estimates are used in accounting for, among other items, consumer and trade promotion accruals, pensions, post- employment benefits, stock options, valuation of acquired intangible assets, useful lives for depreciation and amortization of long-lived assets, future cash flows associated with impairment testing for goodwill, indefinite-lived intangible assets and other long-lived assets, deferred tax assets, uncertain income tax positions and contingencies. Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the financial statements in any individual year. However, in regard to ongoing impairment testing of goodwill and indefinite-lived intangible assets, significant deterioration in future cash flow projections or other assumptions used in valuation models, versus those anticipated at the time of the valuations, could result in impairment charges that may materially affect the financial statements in a given year.Revenue RecognitionSales are recognized when revenue is realized or realizable and has been earned. Revenue transactions represent sales of inventory. The revenue recorded is presented net of sales and other taxes we collect on behalf of governmental authorities. The revenue includes shipping and handling costs, which generally are included in the list price to the customer. Our policy is to recognize revenue when title to the product, ownership and risk of loss transfer to the customer, which can be on the date of shipment or the date of receipt by the customer.A provision for payment discounts and product return allowances is recorded as a reduction of sales in the same period that the revenue is recognized. Trade promotions, consisting primarily of customer pricing allowances, merchandising funds and consumer coupons, are offered through various programs to customers and consumers. Sales are recorded net of trade promotion spending, which is recognized as incurred, generally at the time of the sale. Most of these arrangements have terms of approximately one year. Accruals for expected payouts under these programs are included as accrued marketing and promotion in the accrued and other liabilities line item in the Consolidated Balance Sheets.

Cost of Products SoldCost of products sold is primarily comprised of direct materials and supplies consumed in the manufacture of product, as well as manufacturing labor, depreciation expense and direct overhead expense necessary to acquire and convert the purchased materials and supplies into finished product. Cost of products sold also includes the cost to distribute products to customers, inbound freight costs, internal transfer costs, warehousing costs and other shipping and handling activity.Selling, General and Administrative ExpenseSelling, general and administrative expense (SG&A) is primarily comprised of marketing expenses, selling expenses, research and development costs, administrative and other indirect overhead costs, depreciation and amortization expense on non-manufacturing assets and other miscellaneous operating items. Research and development costs are charged to expense as incurred and were $2,001 in 2011, $1,950 in 2010 and $1,864 in 2009. Advertising costs, charged to expense as incurred, include worldwide television, print, radio, internet and in-store advertising expenses and were $9,315 in 2011, $8,576 in 2010 and $7,519 in 2009. Non-advertising related components of the Companys total marketing spending include costs associated with consumer promotions, product sampling and sales aids, all of which are included in SG&A, as well as coupons and customer trade funds, which are recorded as reductions to net sales.

Other Non-Operating Income/(Expense), NetOther non-operating income/(expense), net, primarily includes net divestiture gains, interest and investment income and the provision for income attributable to noncontrolling interests.Currency TranslationFinancial statements of operating subsidiaries outside the United States of America (U.S.) generally are measured using the local currency as the functional currency. Adjustments to translate those statements into U.S. dollars are recorded in other comprehensive income (OCI). Currency translation adjustments in accumulated OCI were a gain of $5,632 at June 30, 2011 and a loss of $861 at June 30, 2010. For subsidiaries operating in highly inflationary economies, the U.S. dollar is the functional currency. Remeasurement adjustments for financial statements in highly inflationary economies and other transactional exchange gains and losses are reflected in earnings.

Cash Flow PresentationThe Consolidated Statements of Cash Flows are prepared using the indirect method, which reconciles net earnings to cash flow from operating activities. The reconciliation adjustments include the removal of timing differences between the occurrence of operating receipts and payments and their recognition in net earnings. The adjustments also remove cash flows arising from investing and financing activities, which are presented separately from operating activities. Cash flows from foreign currency transactions and operations are translated at an average exchange rate for the period. Cash flows from hedging activities are included in the same category as the items being hedged. Cash flows from derivative instruments designated as net investment hedges are classified as financing activities. Realized gains and losses from non-qualifying derivative instruments used to hedge currency exposures resulting from intercompany financing transactions are also classified as financing activities. Cash flows from other derivative instruments used to manage interest, commodity or other currency exposures are classified as operating activities. Cash payments related to income taxes are classified as operating activities.

Cash EquivalentsHighly liquid investments with remaining stated maturities of three months or less when purchased are considered cash equivalents and recorded at cost.

InvestmentsInvestment securities consist of readily marketable debt and equity securities. Unrealized gains or losses are charged to earnings for investments classified as trading. Unrealized gains or losses on securities classified as available-for-sale are generally recorded in shareholders equity. If an available-for-sale security is other than temporarily impaired, the loss is charged to either earnings or shareholders equity depending on our intent and ability to retain the security until we recover the full cost basis and the extent of the loss attributable to the creditworthiness of the issuer. Investments in certain companies over which we exert significant influence, but do not control the financial and operating decisions, are accounted for as equity method investments. Other investments that are not controlled, and over which we do not have the ability to exercise significant influence, are accounted for under the cost method. Both equity and cost method investments are included as other noncurrent assets in the Consolidated Balance Sheets.

Inventory ValuationInventories are valued at the lower of cost or market value. Product- related inventories are primarily maintained on the first-in, first-out method. Minor amounts of product inventories, including certain cosmetics and commodities, are maintained on the last-in, first-out method. The cost of spare part inventories is maintained using the average cost method.

Property, Plant and EquipmentProperty, plant and equipment are recorded at cost reduced by accumulated depreciation. Depreciation expense is recognized over the assets estimated useful lives using the straight-line method. Machinery and equipment includes office furniture and fixtures (15-year life), computer equipment and capitalized software (3- to 5-year lives) and manufacturing equipment (3- to 20-year lives). Buildings are depreciated over an estimated useful life of 40 years. Estimated useful lives are periodically reviewed and, when appropriate, changes are made prospectively. When certain events or changes in operating conditions occur, asset lives may be adjusted and an impairment assessment may be performed on the recoverability of the carrying amounts.

Goodwill and Other Intangible AssetsGoodwill and indefinite-lived brands are not amortized, but are evaluated for impairment annually or when indicators of a potential impairment are present. Our impairment testing of goodwill is performed separately from our impairment testing of indefinite-lived intangibles. The annual evaluation for impairment of goodwill and indefinite-lived intangibles is based on valuation models that incorporate assumptions and internal projections of expected future cash flows and operating plans. We believe such assumptions are also comparable to those that would be used by other marketplace participants.We have acquired brands that have been determined to have indefinite lives due to the nature of our business. We evaluate a number of factors to determine whether an indefinite life is appropriate, including the competitive environment, market share, brand history, product life cycles, operating plans and the macroeconomic environment of the countries in which the brands are sold. When certain events or changes in operating conditions occur, an impairment assessment is performed and indefinite-lived brands may be adjusted to a determinable life.The cost of intangible assets with determinable useful lives is amortized to reflect the pattern of economic benefits consumed, either on a straight-line or accelerated basis over the estimated periods benefited. Patents, technology and other intangibles with contractual terms are generally amortized over their respective legal or contractual lives. Customer relationships, brands and other non-contractual intangible assets with determinable lives are amortized over periods generally ranging from 5 to 30 years. When certain events or changes in operating conditions occur, an impairment assessment is performed and lives of intangible assets with determinable lives may be adjusted.

Fair Values of Financial InstrumentsCertain financial instruments are required to be recorded at fair value. Changes in assumptions or estimation methods could affect the fair value estimates; however, we do not believe any such changes would have a material impact on our financial condition, results of operations or cash flows. Other financial instruments, including cash equivalents, other investments and short-term debt, are recorded at cost, which approximates fair value. The fair values of long-term debt and financial instruments are disclosed in Note 4 and Note 5, respectively.New Accounting Pronouncements and PoliciesOther than as described below, no new accounting pronouncement issued or effective during the fiscal year has had or is expected to have a material impact on the Consolidated Financial Statements.

DISCLOSURES ABOUT DERIVATIVE INSTRUMENTSAND HEDGING ACTIVITIESOn January 1, 2009, we adopted new accounting guidance on disclosures about derivative instruments and hedging activities. The new guidance impacted disclosures only and requires additional qualitative and quantitative information on the use of derivatives and their impact on an entitys financial position, results of operations and cash flows. Refer to Note 5 for additional information regarding our risk management activities, including derivative instruments and hedging activities.

BUSINESS COMBINATIONSOn July 1, 2009, we adopted new accounting guidance on business combinations. The new guidance revised the method of accounting for a number of aspects of business combinations including acquisition costs, contingencies (including contingent assets, contingent liabilities and contingent purchase price) and post-acquisition exit activities of acquired businesses. The adoption of the new guidance did not have a material effect on our financial position, results of operations or cash flows.NONCONTROLLING INTERESTS IN CONSOLIDATEDFINANCIAL STATEMENTSOn July 1, 2009, we adopted new accounting guidance on noncontrolling interests in consolidated financial statements. The new accounting guidance requires that a noncontrolling interest in the equity of a subsidiary be accounted for and reported as equity, provides revised guidance on the treatment of net income and losses attributable to the noncontrolling interest and changes in ownership interests in a subsidiary and requires additional disclosures that identify and distinguish between the interests of the controlling and noncontrolling owners. The Companys retrospective adoption of the new guidance on July 1, 2009, did not have a material effect on our financial position, results of operations or cash flows. Net expense for income attributable to the noncontrolling interests totaling $130 in 2011, $110 in 2010 and $86 in 2009 is not presented separately in the Consolidated Statements of Earnings due to immateriality, but is reflected within other non-operating income/(expense), net. After deduction of the net expense for income attributable to noncontrolling interests, net earnings represents net income attributable to the Companys common shareholders.

RISK MANAGEMENT ACTIVITIES AND FAIR VALUE MEASUREMENTSAs a multinational company with diverse product offerings, we are exposed to market risks, such as changes in interest rates, currency exchange rates and commodity prices. We evaluate exposures on a centralized basis to take advantage of natural exposure correlation and netting. To the extent we choose to manage volatility associated with the net exposures, we enter into various financial transactions, which we account for using the applicable accounting guidance for derivative instruments and hedging activities. These financial transactions are governed by our policies covering acceptable counterparty exposure, instrument types and other hedging practices.At inception, we formally designate and document qualifying instruments as hedges of underlying exposures. We formally assess, at inception and at least quarterly, whether the financial instruments used in hedging transactions are effective at offsetting changes in either the fair value or cash flows of the related underlying exposure. Fluctuations in the value of these instruments generally are offset by changes in the value or cash flows of the underlying exposures being hedged. This offset is driven by the high degree of effectiveness between the exposure being hedged and the hedging instrument. The ineffective portion of a change in the fair value of a qualifying instrument is immediately recognized in earnings. The amount of ineffectiveness recognized is immaterial for all years presented.

Credit Risk ManagementWe have counterparty credit guidelines and generally enter into transactions with investment grade financial institutions. Counterparty exposures are monitored daily and downgrades in counterparty credit ratings are reviewed on a timely basis. Credit risk arising from the inability of a counterparty to meet the terms of our financial instrument contracts generally is limited to the amounts, if any, by which the counterpartys obligations to us exceed our obligations to the counterparty. We have not incurred, and do not expect to incur, material credit losses on our risk management or other financial instruments.Certain of the Companys financial instruments used in hedging transactions are governed by industry standard netting agreements with counterparties. If the Companys credit rating were to fall below the levels stipulated in the agreements, the counterparties could demand either collateralization or termination of the arrangement. The aggregate fair value of the instruments covered by these contractual features that are in a net liability position as of June 30, 2011, was $143. The Company has never been required to post collateral as a result of these contractual features.Interest Rate Risk ManagementOur policy is to manage interest cost using a mixture of fixed-rate and variable-rate debt. To manage this risk in a cost-efficient manner, we enter into interest rate swaps whereby we agree to exchange with the counterparty, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to a notional amount.Interest rate swaps that meet specific accounting criteria are accounted for as fair value or cash flow hedges. For fair value hedges, the changes in the fair value of both the hedging instruments and the underlying debt obligations are immediately recognized in interest expense. For cash flow hedges, the effective portion of the changes in fair value of the hedging instrument is reported in OCI and reclassified into interest expense over the life of the underlying debt. The ineffective portion for both cash flow and fair value hedges, which is not material for any year presented, is immediately recognized in earnings.Foreign Currency Risk ManagementWe manufacture and sell our products and finance operations in a number of countries throughout the world and, as a result, are exposed to movements in foreign currency exchange rates. The purpose of our foreign currency-hedging program is to manage the volatility associated with short-term changes in exchange rates.To manage this exchange rate risk, we have historically utilized a combination of forward contracts, options and currency swaps. As of June 30, 2011, we had currency swaps with maturities up to five years, which are intended to offset the effect of exchange rate fluctuations on intercompany loans denominated in foreign currencies. These swaps are accounted for as cash flow hedges. The effective portion of the changes in fair value of these instruments is reported in OCI and reclassified into earnings in the same financial statement line item and in the same period or periods during which the related hedged transactions affect earnings. The ineffective portion, which is not material for any year presented, is immediately recognized in earnings.The change in value of certain non-qualifying instruments used to manage foreign exchange exposure of intercompany financing transactions and certain balance sheet items subject to revaluation is immediately recognized in earnings, substantially offsetting the foreign currency mark-to-market impact of the related exposure.

Net Investment HedgingWe hedge certain net investment positions in foreign subsidiaries. To accomplish this, we either borrows directly in foreign currencies and designate all or a portion of foreign currency debt as a hedge of the applicable net investment position or enter into foreign currency swaps that are designated as hedges of our related foreign net investments. Changes in the fair value of these instruments are immediately recognized in OCI to offset the change in the value of the net investment being hedged. Currency effects of these hedges reflected in OCI were an after-tax loss of $1,176 and an after-tax gain of $789 in 2011 and 2010, respectively. Accumulated net balances were after- tax losses of $4,446 and $3,270 as of June 30, 2011 and 2010, respectively.Commodity Risk ManagementCertain raw materials used in our products or production processes are subject to price volatility caused by weather, supply conditions, political and economic variables and other unpredictable factors. To manage the volatility related to anticipated purchases of certain of these materials, we may, on a limited basis, use futures and options with maturities generally less than one year and swap contracts with maturities up to five years. These market instruments generally are designated as cash flow hedges. The effective portion of the changes in fair value of these instruments is reported in OCI and reclassified into earnings in the same financial statement line item and in the same period or periods during which the hedged transactions affect earnings. The ineffective and non-qualifying portions, which are not material for any year presented, are immediately recognized in earnings.

InsuranceWe self-insure for most insurable risks. However, we purchase insurance for Directors and Officers Liability and certain other coverage in situations where it is required by law, by contract or deemed to be in the best interest of the Company.

Fair Value HierarchyAccounting guidance on fair value measurements for certain financial assets and liabilities requires that financial assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:Level 1: Quoted market prices in active markets for identical assets or liabilities.Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.Level 3: Unobservable inputs reflecting the reporting entities own assumptions or external inputs from inactive markets.When applying fair value principles in the valuation of assets and liabilities, we are required to maximize the use of quoted market prices and minimize the use of unobservable inputs. We calculate the fair value of our Level 1 and Level 2 instruments based on the exchange traded price of similar or identical instruments where available or based on other observable inputs. The fair value of our Level 3 instruments is calculated as the net present value of expected cash flows based on externally provided or obtained inputs. Certain Level 3 assets may also be based on sales prices of similar assets. Our fair value calculations take into consideration the credit risk of both the Company and our counterparties. The Company has not changed its valuation techniques used in measuring the fair value of any financial assets and liabilities during the year.DISCONTINUED OPERATIONSIn October 2009, the Company completed the divestiture of our global pharmaceuticals business to Warner Chilcott plc (Warner Chilcott) for $2.8 billion of cash, net have assumed and transferred liabilities. Under the terms of the agreement, Warner Chilcott acquired our portfolio of branded pharmaceutical products, our prescription drug product pipeline and our manufacturing facilities in Puerto Rico and Germany. In addition, the majority of the employees working on the pharmaceuticals business were transferred to Warner Chilcott. The Company recorded an after-tax gain on the transaction of $1,464, which is included in net earnings from discontinued operations in the Consolidated Statement of Earnings for the year ended June 30, 2010.The pharmaceuticals business had historically been part of the Companys Health Care reportable segment. In accordance with the applicable accounting guidance for the disposal of long-lived assets, the results of the pharmaceuticals business are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all years presented.In November 2008, the Company completed the divestiture of our coffee business through the merger of our Folgers coffee subsidiary into The J.M. Smucker Company (Smucker) in an all-stock Reverse Morris Trust transaction. In connection with the merger, 38.7 million shares of common stock of the Company were tendered by shareholders and exchanged for all shares of Folgers common stock, resulting in an increase in treasury stock of $2,466. Pursuant to the merger, a Smucker subsidiary merged with and into Folgers and Folgers became a wholly owned subsidiary of Smucker. The Company recorded an after-tax gain on the transaction of $2,011, which is included in net earnings from discontinued operations in the Consolidated Statement of Earnings for the year ended June 30, 2009.The coffee business had historically been part of the Companys Snacks, Coffee and Pet Care reportable segment, as well as the coffee portion of our away-from-home business, which was included in the Fabric Care and Home Care reportable segment. In accordance with the applicable accounting guidance for the disposal of long-lived assets, the results of Folgers are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all years presented.

Journal Entries Related to Cost AccountingDateDescriptionDebitCredit

04/2011Raw Material Inventoryxxx

Merchandise Inventoryxxx

Accounts Payablexxx

Inventory Purchase

DateDescriptionDebitCredit

04/2011Overhead Cost Poolxxx

Accounts Payable Xxx

Record Indirect Production Cost in OH


04/2011Work in Process Inventoryxxx

Raw Material Inventory xxx

Transfer of Raw Material to Inventory


04/2011Overhead Cost Poolxxx

Work in Process Inventoryxxx

Record Inventory Scrap and Spoilage


04/2011Finish Goods Inventoryxxx

Work in Process Inventoryxxx

Record Finished Goods



Finished Goods Inventory xxx

Cost of Goods Soldxxx

Overhead CostXXX

Allocate Overhead


04/2011Cost of Goods Sold Expensexxx

Obsolescence Reserve xxx

Obsolete Inventory Entree



Raw Material Inventory xxx

Transfer of Raw Material to Inventory

Thoughts of internal reports you would expect related to cost accountingProductivity and Cost Savings PlanIn February 2012, the company announced a $10 billion productivity and cost savings plan to reduce costs and better leverage scale in the areas of supply chain, research and development, marketing and overheads. The program was designated to accelerate cost reductions by streaming management decision making, manufacturing and other work processes to fund the Companys growth and strategy. As part of this plan the Company expects to incur approximately $3.5 billion in before-tax restructuring costs over a four year period (from fiscal 2012 through fiscal 2015). More than half of the costs will be incurred by the end of fiscal 2013 and the remainder in fiscal years 2014 and 2015. Savings generated from the restructuring costs are difficult to estimate, given the nature of the activities, the corollary benefits achieved, the timing of the execution and the degree of reinvestment. Overall, all costs are expected to deliver approximately $2 billion in before-tax annual savings. The before-tax savings in the current year are not material due to the timing of the plan.Driving Productivity and Cost SavingsProductivity is the great enabler that allows us to invest in leadership levels of consumer understanding and innovation, ensure our brands are priced competitively, overcome macro headwinds and deliver bottom-line growthsimultaneously. Earlier this year, the company announced our objective of delivering$10 billion in cost savings by the end of fiscal year 2016. This program includes $6 billion of savings in cost of goods sold, $1 billion from marketing efficiencies, and $3 billion from nonmanufacturing overhead. Cost of Goods Sold Schedule is one of the internal reports related to cost accounting. Cost of goods sold (COGS) refer to the inventory costs of those goods a business has sold during a particular period and, therefore, transferred from Finished Goods Inventory on the balance sheet to Cost of Goods Sold on the income statement. Costs include all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Costs of goods made by the business include material, labor, and overhead. The costs of those goods not yet sold are deferred as costs of inventory until the inventory is sold or written down in value. Cost of goods manufactured schedule is the total cost of goods completed during the period and transferred to finished goods inventory. Manufacturing companies transform raw material into finished goods through the use of labor and factory facilities. For example, a company manufacturing furniture from wood or timber. The income statement prepared by a manufacturing company requires the calculation of cost of goods manufactured.

Budgets are the comprehensive financial plan for the organization as a whole. Sales Budgets Production Budget Purchased Budget Labor Budget Manufacturing Overhead Budget Selling and Administrative Budget Cash Budget

Thoughts as to what concepts/techniques could be used to evaluate whether they are meeting their goals/ objectives.

We will provide branded products and services of superior quality and value that improve the lives of the worlds consumers. As a result, consumers will reward us with leadership sales, profit, and value creation, allowing our people, our shareholders, and the communities in which we live and work to prosper. As the mission statement articulate, the main goal for the company is to be the quality, sales and consumer value market leader. We are planning to focus on the company resources to achieve these objectives. As well to evaluate the company performance semiannually to see if the strategies the company is applying are meeting goals and objectives. Referring to sales objectives we can examine our financial ratios, for example the inventory turn-over ratio to see how many days it takes to sell the inventory on hand; also we can compare to the last years company ratios to review if the company is improving or declining, and/or we can compare to our market competitors to see how much advantage or disadvantage the company has. P&G Company can evaluate the quality of the products by doing quality research studies to see if their products are meeting and exceeding the standard quality qualifications. Last but not least, P&G need to evaluate their customer value applying different techniques, such as training employees, calls to customer after purchase and/ or surveys to see if customer satisfaction was achieved. Customer satisfaction usually leads to customer loyalty and product repurchase.

Thoughts as to what concepts/techniques could be used when making decisions about future actions.

Procter and Gamble might believe that a certain concept or technique they are currently could help them make a better decision about future actions within the company; but in our opinion we believe that if they could focus some of their attention to relevant costing they might be able to make a wiser choice. Relevant costing focuses managerial attention on a decisions relevant information. Relevant costing techniques are applied in virtually all business decisions in both short-term and long-term contexts. Proctor and Gamble might examine the application of relevant costing techniques to recurring business decisions, such as replacing an asset, outsourcing a product or part, allocating scarce resources, manipulating sales mix, or evaluating specially priced orders.

In decision making, managers should consider all relevant costs and revenues associated with each decision alternative. In this process, there is a relationship between time and relevance. For information to be relevant, it must possess three characteristics: be associated with the decision under consideration; be important to the decision maker; and have a connection to, or bearing on, some future endeavor. As the decision time horizon is reduced, fewer costs and revenues are relevant because the majority of such amounts cannot be changed by short-term management actions. In the longer term, management action can influence virtually all costs. Regardless of whether the decision is a short- or long-term one, all decision making requires analysis of relevant information.

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