Chapter 1 - Introduction to Financial Statements
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Topic
Forms of Business-Discussed last week by Dr. G
Users of Financial Statements (Internal and External)
Ethics- Enron, etc. Fraudulent Financial Reporting
Solving an Ethical Dilemma
Business Activities- Financing, Investing, Operating
Communication with users – 4 Financial Statements
Income Statement- Better one in Basic Training
Retained Earnings Statement
Basic Accounting Equation A = L + SE
Balance Sheet- Better one in Basic Training
Statement of Cash Flows- Not emphasizing yet
Interrelationships of Statements- Study this
Do it! YES
Comprehensive Do It! Study problem and solution
A Look at IFRS (Need for one set of financial
statements)
Appendix Tootsie Roll Annual Report and Financial Statements
1
Chapter 2 - A Further Look at Financial Statements
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66-67
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Topic
A classified balance sheet - commit this to memory- even
better than the one in Basic Training due to additional
classifications.
Ratio Analysis- Profitability ratios, Liquidity ratios, and
Solvency ratios
Earnings per Share (a profitability ratio)
Working Capital and Current Ratio (liquidity ratios)
Debt to Total Asset Ratio (a solvency ratio)
When Debt is Good
Free Cash Flow (a liquidity ratio)
Financial Reporting Concepts- The standard- setting
environment- GAAP. The SEC, FASB, IASB
The Korean Discount!
Characteristics of Useful Info- Relevant, Reliable,
Comparable, Consistent
Assumptions and Principles- Similar to those found in Basic
Training- Monetary Unit Assumption, Entity assumption,
Time Period assumption, Going Concern, Cost principle, Full
disclosure
Constraints in Accounting- Materiality, Conservatism
Comprehensive Do it! Circuit City Income Statement and
Balance Sheet
A Look at IFRS (The Classified Balance Sheet)
Chapter 3 -The Accounting Information System
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Topic
The Accounting Equation (again)
The Accounting Equation with details on Stockholders’ Equity
Transaction Analysis for Sierra Corporation- like done with
New Co. problem
Study summary of transactions on page 110
T account
Transactions in cash in tabular form and account form
Rules of Debit and Credit- Very, very important
Rules of Dr. & Cr. Summarized in T accounts
Steps in the Recording Process- Analyze transaction, record
transaction in journal, post from journal to ledger
Three journal entries recorded
Individual transactions presented in both transaction
spreadsheet and T accounts
Summary of entire chapter- entries recorded in the general
journal, posted to T accounts, account balances determined,
and trial balance prepared for Sierra Corporation
Comprehensive Do It!
A Look at IFRS (Recording transactions)
Chapter 4- Accrual Accounting Concepts
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Topic
Time period assumption (periodicity), revenue recognition,
expense recognition, matching principle, accrual accounting
Accrual accounting vs. cash basis of accounting
Basics of adjusting entries- start with trial balance, adjust
accounts to match revenues and expenses, usually affect a
balance sheet account and income statement account
Prepaid expenses- rent, insurance, supplies
Depreciation- Allocate an asset’s cost, not valuing an asset
Debit Depreciation Expense and credit Accumulated
Depreciation
Straight-line depreciation = (cost – salvage) / years
Unearned revenue- Balance in Unearned Revenue account (a
liability). Adjust by debiting Unearned Revenue and crediting
revenue by amount earned this period
Accrue revenue or expense means to record it this period.
Accruals are UNRECORDED revenues or expenses that must
be recorded.
Defer revenue or expense means to put it off to a later period.
Deferrals have been recorded but must be adjusted
Turning Gift Cards into Revenue
Accrued revenue- Debit AR and credit Revenue
Accrued expense- Debit appropriate Expense and credit
appropriate Liability
Examples of accrued expenses include accrued interest,
accrued salaries, accrued taxes, etc.
Calculate interest – Principal x Rate x Time in terms of 1 year
Trial Balance for Siera Corp.
Adjusting entries for Siera Corp.
Ledger for Siera after adjustments are posted
Adjusted Trial Balance for Siera
Financial statements for Siera
Closing entries:
1) Close Revenues to Income Summary
2) Close all Expenses to Income Summary
3) Close Income Summary to Retained Earnings
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4) Close Dividends to Retained Earnings
Temporary accounts and permanent accounts
Closing entries for Siera Corp.
Post Closing Trial Balance For Siera Corp.
Quality of Earnings
Worksheet for Siera Corp. (Very Important!)
A Look at IFRS (Recognition of Revenues and Expenses)