Accounting Chapters 1-12

Learning Objectives Chapter 1: Financial Statements and Business Decisions 1. Recognize the information conveyed in each of the four basic financial statements and the way it is used by different decision makers (investors, creditors, and managers). 2. Identify the role of generally accepted principles (GAAP) in determining the content of financial statements and how GAAP is created. 3. Identify the role of International Financial Reporting Standards (IFRS) and how IFRS is created. 4. Identify how the four basic financial statements are related. 5. Define the fundamental accounting equation and the income statement equation. 6. Distinguish between the roles of managers and auditors in the accounting communication process. 7. Appreciate the importance of ethics, reputation and legal liability in accounting. Chapter 2: Investing and Financing Decisions and the Accounting System 1. Define the objectives of financial reporting, the elements of the balance sheet, and the related key accounting assumptions and principles. 2. Identify what constitutes a business transaction and recognize common balance sheet account titles used in business. 3. Apply transaction analysis to simple business transactions in terms of the fundamental accounting model: Assets = Liabilities + Stockholders’ Equity. 4. Determine the impact of business transactions on the balance sheet using two basic tools, journal entries and T-accounts. 5. Prepare a simple classified balance sheet. 6. Compute and interpret the current ratio. 1 Chapter 3: Operating Decisions and the Accounting System 1. Describe a typical business operating cycle. 2. Explain how business activities affect the elements of the income statement. 3. Understand the difference between accrual accounting and cash flows. 4. Apply the revenue recognition and matching principles to measure income. 5. Apply transaction analysis to examine and record the effects of operating activities. 6. Prepare the trial balance. 7. Compute and interpret the net profit margin ratio. Chapter 4: Adjustments, Financial Statements and the Quality of Earnings 1. Prepare and analyze the adjusting entries necessary at the end of the period to update balance sheet and income statement accounts. 2. Present an income statement with earnings per share, a statement of stockholders’ equity, and a balance sheet. 3. Compute and interpret the total asset turnover ratio. 4. Explain the closing process. 2 Chapter 5: Communicating and Interpreting Accounting Information 1. Recognize the people involved in the accounting communication process (regulators, managers, directors, auditors, information intermediaries, and users), their roles in the process, and the guidance they receive from the level and professional standards. 2. Identify the steps in accounting communication process, including the issuance of press releases, annual reports, quarterly reports, and SEC filings, as well as the role of electronic information services in the process. 3. Recognize and apply the different financial statement and disclosure formats used by companies in practice. 4. Compute and interpret the gross profit percentage. 5. Analyze a company’s performance based on return on assets and its components and the effects of transactions on financial ratios. Chapter 6: Reporting and Interpreting Sales Revenue, Receivables, and Cash 1. Apply the revenue recognition principle to determine the accepted times to record sales revenue for typical retailers, wholesalers, manufacturers, and service companies. 2. Analyze the impact of sales discounts and sale returns on the amounts reported as net sales. 3. Estimate, report (using the aging method and percentage of credit sales method), and evaluate the effects of uncollectible accounts receivable (bad debts) on financial statements. 4. Evaluate the effect of writing off an accounts receivable. 5. Estimate cash collected from customers. 6. Compute and interpret the receivable turnover ratio. 7. Analyze the effects of accounts receivable on cash flows. 8. Discuss internal controls generally (not just for cash). 3 Case 1: MGM Resorts International 1. Apply knowledge of bad debt expense estimation techniques. 2. Understand how to calculate write offs and the impact of write offs on the balance sheet and income statement. 3. Evaluate the impact of estimates related to bad debts on the balance sheet and income statement. 4. Consider the ethics of managing earnings. Chapter 7: Reporting and Interpreting Cost of Goods Sold and Inventory 1. Apply the cost principle to identify the amounts that should be included in inventory and the matching principle to determine cost of goods sold for typical retailers, wholesalers, and manufacturers. 2. Apply the cost of goods sold equation. 3. Report inventory and cost of goods sold using the four inventory costing methods (specific identification, FIFO, LIFO, and weighted average). 4. Decide when the use of different inventory costing methods is beneficial to a company. 5. Report inventory at the lower of cost or market. 6. Understand methods for controlling and keeping track of inventory and analyze the effects of inventory errors on financial statements. 7. Compare companies that use different inventory costing methods. 8. Compare and contrast the perpetual and periodic inventory systems (both journal entries and cost of goods sold calculation). 9. Compute and interpret the inventory turnover ratio. 4 Chapter 8: Reporting and Interpreting Property, Plant and Equipment, Intangibles, and Natural Resources 1. Define, classify, and explain the nature of long-lived productive assets and interpret the fixed asset turnover ratio. 2. Apply the cost principle to measure the acquisition and maintenance of property, plant, and equipment. Differentiate between the effects of capitalization and expensing. 3. Apply various cost allocation methods as assets are held and used over time (straight-line, usage method, and declining balance). 4. Explain the effect of asset impairment on the financial statements. 5. Analyze the disposal of property, plant, and equipment. 6. Evaluate the difference between book and tax reporting of depreciation. 7. Apply measurement and reporting concepts for natural resources and intangible assets. 8. Record changes in depreciation estimates. 9. Compute asset sales, writeoffs, or asset purchases using T-account analysis of PPE 10. Estimate and record goodwill. Case 2: Lewis Driscoll & Delta Cargo 1. Determine when to capitalize versus expense costs. 2. Apply different depreciation methods. 3. Record disposal entries for equipment. 4. Evaluate the impact of depreciation, disposal, and capitalizing on profitability. 5. Record deferred tax entries based on depreciation differences. 5 Chapter 9: Reporting and Interpreting Liabilities 1. Define, measure, and report current liabilities. 2. Compute and interpret the quick ratio. 3. Compute and interpret the accounts payable turnover ratio. 4. Report notes payable and record interest. 5. Report contingent liabilities. 6. Report long-term liabilities. 7. Apply time value of money concepts to compute present values and future values of annuities and lump sums. Chapter 10: Reporting and Interpreting Bonds 1. Describe the characteristics of bonds. 2. Report bonds payable and interest expense for bonds sold at par. 3. Compute and interpret the times interest earned ratio. 4. Report bonds payable and interest expense for bonds sold at a discount and a premium using the effective interest rate method (ignore the straight-line method). 5. Compute and interpret the debt-to-equity ratio. 6. Report the early retirement of bonds. 7. Record zero coupon bonds. 6 Chapter 11: Reporting and Interpreting Owners’ Equity 1. Explain the role of stock in the capital structure of a corporation. 2. Compute and interpret the earning per share ratio. 3. Describe the characteristics of common stock and analyze transactions affecting common stock (including treasury stock transactions). 4. Record dividends and analyze dividends transactions. 5. Compute the dividend yield ratio. 6. Account for stock dividends and stock splits. 7. Describe the characteristics of preferred stock and analyze transactions affecting preferred stock. Appendix A: Reporting and Interpreting Investments in other Corporations 1. Analyze and report investments in debt securities held to maturity. 2. Analyze and report passive investments in securities using the fair value method. 3. Analyze and report investments involving significant influence using the equity method. 4. Analyze and report investments in controlling interests (define consolidation, but not do elimination entries). 7 Chapter 12: Statement of Cash Flows 1. Classify cash flow statement items as part of net cash flows from operating, investing and financing activities. 2. Report and interpret cash flows from operating activities using both the indirect and direct method. 3. Compute and interpret the quality of income ratio. 4. Report and interpret cash flows from investing activities. 5. Compute and interpret the capital acquisitions ratio. 6. Report and interpret cash flows from financing activities. 7. Understand the format of the cash flow statement and additional cash flow disclosures. 8