BUS103: Introduction to Financial Accounting

This reading will give you insight into the behind the scenes on the issues regarding reporting of financial information for public companies. GAAP is a very integral part in how to report transactions and so it is discussed thoroughly.

This is a great introduction to resouce that you can use to research any public company. All public companies must report their financials; quarterly reports, end of your tax forms, changes in top management, etc. If you ever need to look up a company, this will give you the tools you need to navigate the public records system.

Read and take notes on Chapter 1 on pages 14-29.

This will be the primary textbook used within this course. The beginning of every chapter provides chapter-specific learning objectives. Do not confuse these learning objectives with the learning outcomes you see in the course syllabus and at the outset of each unit. You should use the chapter-specific learning objectives as a guide as you read and understand the information presented in the textbook. The learning outcomes indicate what you should know and be able to do at the end of a particular unit of this course.

• Section 1.2 discusses how to define accounting and what the end result of accounting (accounting information) may be used for.
• Section 1.3 looks at potential employment opportunities associated with accounting for business. Note Exhibit 1 on page 18, which reviews the functions performed by accountants.
• Section 1.4, discusses the difference between financial and managerial accounting. If you think you might be interested pursuing financial accounting further, you may want to take BUS105: Managerial Accounting.
• Section 1.5 introduces the Generally Accepted Accounting Principles, or GAAP, and the various organizations that have a major impact on how GAAP is administered, including the Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), and the American Accounting Association (AAA).
• Section 1.6 explains how important it is to be ethical in your application of accounting principles and discusses the importance of managing your reputation. Be mindful of this, especially if you are considering a career in accounting.
• The final section is optional but might help you get more from the textbook.

Read the introduction and section 1.1. This chapter will introduce you to the principles of managerial accounting and points out the differences between managerial accounting and financial accounting. Managerial accounting is not used by outside parties; it is primarily used internally by management to make decisions that affect the efficiency of the organization.

In this article, you will learn about the rules that govern accounting. GAAP sets the rules that accounts follow when making journal entries and standardizes accounting so that comparisons can be made among companies by outside parties. Investors, creditors, even employees count on the consistency of financial reporting in order to evaluate operations. Be sure you have accomplished the learning outcome in each section before you move on to the next section.

This video introduces basic accounting principles. Pay attention to the various accounting entries and how transactions affect businesses. This short video is only an introduction; further reading will be necessary to get a good understanding of GAAP.

This video demonstrates how transactions lead to the creation of financial statements. Vendors, creditors, and investors are only a few of the people who look at and analyze the company's financials. Financials should be internally scrutinized to catch and correct any errors before they are released. If the organization has an outstanding load, generally there are restrictions regarding the ratios that are calculated from the financials. The accountants of the organization should know these ratios as well.

Read and take notes on Sections 2.1 through 2.12 of Chapter 2 on pages 30-53.

In this chapter, you will learn why accounting is important to the business community. You will learn the different types of businesses and how daily transactions are posted and how they affect the financial statements. This chapter also demonstrates how to prepare the income statement, balance sheet, and statement of stockholders' equity. Pay close attention to the steps involved in the accounting cycle from beginning to end.

• In Section 2.1, you are provided with chapter-specific learning objectives.
• In Section 2.2, you will get another look at a potential employment opportunity for someone interested in the business discipline of accounting. 
• In Section 2.3, there is some discussion of the concept identified as "the entity concept". Be sure you understand the meaning of this concept, and the differences between a single (sole) proprietorship, a partnership, and a corporation. 
• Section 2.4 explains that a business entity can be distinguished by the type of activity it performs – that is, service company, merchandising company, or manufacturing company – as opposed to being identified by the type of business ownership. 
• Section 2.5 discusses the four financial statements and provides illustrations to support the discussion. There is also a discussion on revenues and expenses, as they impact net income or net loss.
• Section 2.6 discusses the framework of the entire accounting process, which may also be called the accounting equation. The fundamental accounting equation is the basic equation that accountants use to record business transactions. The equation states "assets = liabilities + owners' equity". This section gives the direct and alternative identifications of these elements to help you speak the language of accounting. Assets are things that expect to have future value to the company. For example, if the company buys a new car, this car has future value to the company. Liabilities are promises to pay. Some companies may not have all of the money to pay cash for the car, so they will typically finance, or obtain credit for, and borrow the difference between the down payment and the final price of the car. If approved, the company now promises to pay back the bank or business entity who gave the company money. Owners' equity is the owners' claims on assets. This basically means that, as an owner of the company, you have a claim on the asset that is now identified as the new car the company owns. 
• Section 2.7 introduces a number of concepts of business transactions and how they affect the accounting equation.
• Section 2.8 illustrates how some business transactions affect the balance sheet. Write out the examples in this section on pages 41-44. As you read, follow along with these examples and take notes. 
• Section 2.9 illustrates how some business transactions affect the income statement and/or balance sheet. Write the examples on pages 46-48, follow along with them, and take notes.
• Section 2.10 is a summary of balance sheets and income statement transactions. 
• Section 2.11 explains what happens when a stockholder receives a dividend (a return on their investment in a company). 
• Section 2.12 explains the significance of creditors and stockholders as the basic sources of a company's equity. The equity ratio is introduced and examples are provided to support your understanding of this information. 

Read this article, which walks through the foundational elements of basic accounting and reading financial statements. Some terms have not been covered fully yet, but will be further explained later.

Read each section in this chapter, which explains the purpose of the balance sheet, income statement, and the cash flow statement. It also is a guide to where you will find financials on publicly traded companies. You should get as much practice working on these statements as you can, since they are the fundamental information on any organization. Make the connections between each financial statement. The more you understand the connectivity of these statements, the better understanding you will have of how the entire accounting system works, which is important if you want to pursue a career in auditing.

This video demonstrates how transactions lead to the creation of financial statements, which are a great source of reference. The video demonstrates how transactions are directly connected to financial statements and how the individual events of the accounting cycle are connected.

This short introduction explains the complete accounting cycle in theory, from journal entries to financial statements. Some of this is a repeat, but this short refresher can help you understand a bit better now that you've had a little hands-on work.

This video will take you through the various accounting transactions and explain the posting process. Take note of how each transaction affects accounts on the balance sheet and income statement. Though the steps might seem dull and uninteresting, it is important that you be very detailed when journalizing and posting. If you slip up, you will be out of balance and you will have to go back and retrace your steps.

This video takes you through journal entries and posting to T accounts, and is a continuation of the accounting cycle. Sometimes, it's easier to "see" accounting in action rather than just read about it.

This video takes you deeper into the accounting cycle and walks through how to post transactions to the journal at T accounts.

This article will give you an introduction to the principles of accounting transactions. Accounting transactions record the amount of money spent and received by a given entity. Take notes while you read.

This video discusses adjusting entries, which you will need to do to get your worksheet ready for the preparation of the financial statements.

This page explains the importance of using an accounting system, which will be especially important if you are interested in becoming an auditor.

These discussion questions cover a variety of accounting topics, such as the chart of accounts, double book entries, budget preparation, and information given to the public. Two questions that rely on concepts that you really have not yet touched upon yet, but don't worry; we'll get there. Try to answer the questions in all of the bullet points except for the last three. Consider posting your answers on the discussion forum.

Read and take notes on Sections 6.1 through 6.16 of Chapter 6 on pages 253-283.

• Section 6.2 looks at potential employment opportunities in accounting.
  
• Sections 6.3 and 6.4 introduce the foundational assumptions and concepts associated with accounting, providing a detailed definition of each.
• Section 6.5 introduces other key elements of accounting: double entry, substance over form, and general-purpose financial statements.
• Section 6.6 discusses assigning the effects of business activity (the transactions) within a specified time frame (accounting period). 
• Section 6.7 discusses the major principles supporting the field of accounting, such as the matching principle or the revenue recognition principle, and their impact on the overall application of GAAP (Generally Accepted Accounting Principles).
• Section 6.8 explains why a business entity would not be applying the principles of accounting within the business. These instances are identified as cost-benefit, materiality, and conservatism. Pay attention to Exhibit 29.
• Section 6.9 gives an overview of the dispute and some key points to consider.
• Section 6.10 introduces financial reporting and the details of each of its objectives. 
• Section 6.11 addresses the characteristics that make the information relevant. Pay attention to the hierarchy of accounting quality in Exhibit 31 on page 273. The underlying intent behind creating financial reports is for the information in the reports to be reliable enough to support sound business decision-making.
• Section 6.12 develops a conceptual framework for understanding accounting. 
• Sections 6.13 and 6.14 teach that most companies will include a copy of their accounting policies when they submit their annual report.
• Section 6.15 covers significant policies associated with accounting.
• Section 6.16 reviews the chapter, and lists key terms, offers self-test questions. The answers to the self-test are on pages 300 and 301.

This chapter explains the rules regarding debits and credits. Debits and credit increase and decrease certain accounts. Spend some time learning the rules of debits and credits, since they are the foundation of accounting principles. Posting a debit where a credit should be, or vice versa, will cause you to be out of balance. You will then have to re-trace all of your postings to uncover your error, which would be very frustrating and time-consuming.

Read each section on this page. You have been exposed to the concepts of recording and journalizing transactions previously, but this explains the rest of the accounting process.

Watch these short videos on the accounting cycle. If you need to, rewatch the videos for Steps 1 through 4 before you begin. These videos go through the entire accounting cycle: journals, postings, worksheets, adjusting entries, post-closing entries, and financial statements. You will see the process as one continuous activity. The method is slightly different between sole proprietorship companies and corporations. Learn both, since over the course of your career you may find yourself in both types of organization.

Read page 76 on the rules of debits and credits, and copy and keep handy as a quick reference. Then, jump ahead and read pages 80 and 81. Examine the section on the ledger and the chart of accounts again. Learning about financial accounting for the first time is all about building upon and refining your knowledge of accounting processes and methods step-by-step. Be sure to note which accounts are permanent and which accounts are temporary.

Read and take notes on sections 4.1-4.10 on pages 144-173.

This chapter dives deeper into the importance of making proper adjustments so that the financial statements reflect the current condition of the organization. One of the main principles of accounting is accurate and honest presentation of the financial condition of an organization. Without the proper posting of adjustments and correcting entries, the financial statements will be incorrect.

• Section 4.2 reviews employment opportunities for someone interested in accounting. 
  
• Section 4.3 teaches the difference between cash- and accrual-based accounting, which rests on the identification of revenues and expenses. Be sure to make a note of Exhibit14.
• Section 4.4 described snapshots. Because the ultimate goal is to obtain useful information, we need to take snapshots. Accounting is typically done within a specified period so that end users can assess the performance of a business entity. This section also discusses accounting periods, fiscal years, calendar years, adjusting entries, the matching principle, and the two classes and four types of adjusting entries. Be sure to make a note of Exhibit 16. 
• Section 4.5 reviews the classes of adjusting entries and gives an example to assist with analysis.
• Section 4.6 focuses on how prepaid expenses and depreciation affect the accounting equation and the overall processing of these transactions. 
• Section 4.7 discusses adjustments. In a business, there will be transactions that will not have been recorded by the end of a specified accounting cycle. These items can be identified as accrued assets or interest revenue, to name a couple. This section discusses how to process these transactions.
• In Section 4.8, note Exhibit 18.
• Section 4.9 introduces the concept of trend percentages and gives the formula to use when calculating trend percentages.
• Section 4.10 summarizes and gives a self-text. The solutions to the self-test are on pages 188 and 189.

This video goes into more detail about cash versus accrual based accounting. Compare it to what you read in the chapter previously. This will help to clarify the difference between these two methods of accounting.

You watched this video in Unit 2, but it may be good to review it now that you know more about adjustments. In accounting, you can't introduce new material without referencing the previous steps.

This article breaks down completing the accounting cycle. Pay attention to the section on adjustments, the section on closing out the accounting cycle process, and the steps involved in closing the books, which we will cover in greater detail in the next unit.

Read and take notes on sections 5.1-5.11 on pages 190-231.

• Section 5.3 summarizes what we've learned so far and introduces the accounting worksheet. 
• Section 5.4 discusses the accounting worksheet step-by-step using the example of the MicroTrain company.
• Section 5.5 shows a worksheet that you can use to create your financial statements. 
• Section 5.6 explains how the accounting worksheet can be your source for making the adjusting entries. The worksheet is an informal document that supports the analysis of the accounting information; it is not a part of the formal accounting process. Some people prefer to use the worksheet, and you should learn the basics of it. As you become more comfortable, you can decide whether or not to use it. 
• Section 5.7 discusses the nominal account, which describes a temporary account. When you take your snapshot of a specific accounting period, you need to address the nominal accounts.
• Section 5.8 analyzes how technology has affected financial accounting.
• Section 5.9 compares balance sheets and classified balance sheets.
• Section 5.10 discusses and the current ratio, which is a firm's ability to pay off its current liabilities with its current assets. A basic standard suggests that a business should maintain a 2-to-1 ratio to meet its financial obligations. However, there are many variables that determine what is best in a given situation.
• Section 5.11 summarizes the chapter and offers a self-test. The solutions to the self-test are on pages 250 and 251.

This article gives links to specific accounting information that is used to complete the accounting worksheet.

You have already watched the first three videos here, but review them now and then watch the final two videos, which discuss using the perpetual method, the closing cycle, and the preparation of financial statements.

This article goes behind the scenes to discuss issues of reporting financial information for public companies. GAAP is integral in reporting transactions.

This is a great introduction to resources that you can use to research any public company. All public companies must report their financials; quarterly reports, end of your tax forms, changes in top management, and so on. If you ever need to look up a company, this will give you the tools you need to navigate the public records system.

Although learning how to read a report sounds pedantic, you might be surprised at how much valuable information they offer.

Read the short chapter 17, which discusses how to analyze financial statements and demonstrates the use of ratios and the horizontal and vertical analysis tools that everyone from creditors to investors, vendors, and top management use when they want to identify the strengths and weaknesses in an organization.

Read Chapter 6 and pay attention to the comparison of the two income statements. This chapter reviews the difference in reporting and financial presentation of information for service and merchandising operations and compares recording inventories for two separate types of businesses.

Read this section, which focuses on the nature of inventory, categories of goods included in inventory, components of inventory cost, and the flow of inventory costs.

Read this section, which focuses on internal controls, perpetual verses periodic counting, conducting a physical inventory, and the impact of measurement error. 

Read chapter 8. For many organizations, inventory represents a large portion of their assets, so it is important to be familiar with measurement and reporting techniques.

This video addresses shipping costs and when inventory should be recorded as an asset or not during shipping.

Read this section, which focuses on the four inventory costing methods and the impact each has on the financial statements.

Read this section, which focuses on the lower of cost or market and methods in retail inventory.

Read this section, which focuses on efficiency metrics and the impact of inventory method on financial statement analysis.

Read this section, which focuses on reporting inventories and inventory turnover ratio.

Read and take notes on sections 9.1-9.9 on pages 11-54.

This chapter discusses accounts receivable, uncollectible accounts, bad debts, and accounts payable.

• Section 9.3 covers what should happen when a receivable is uncollectible. Pay attention to aging schedules, how to write off receivables, and how credit card transactions should be identified and recorded from the business entity's perspective. 
• Section 9.4 discusses liabilities and explains the difference between clearly-determined liabilities, estimated liabilities, and contingent liabilities. 
• Section 9.5 discusses promissory notes and how to account for them. Pay attention to interest receivable, interest revenue, interest expense, and interest payable.
• Section 9.6 describes how businesses handle short-term cash flow problems when they need short-term financial assistance to support strategic business activity.
• Section 9.9 offers a self-test. The solution to the self-test is on pages 66 and 67.

These videos cover accounts receivable. Pay attention to accounts and how to show them on the balance sheet. Uncollectible accounts can be a real problem for an organization.

This article covers foreign currency, bad debts on receivables, gain or loss, net realized receivables, and how foreign currency is treated by U.S. organizations. Since business is global, it is important to the effect this has on the financials of any MNC.

Read and take notes on sections 10.1-10.10 on pages 68-103. 

This chapter introduces how organizations categorize and account for fixed assets. Assets are recorded at cost, not necessarily market value. It also covers the various methods of depreciation, why each method is used, and the "rate of return" expected by an organization when they purchase an asset.

• Section 10.2 identifies the accountant's role in managing plant assets.
• Section 10.3 explains how to classify assets using three key elements, and introduces the four steps of accounting for plant assets.
• Section 10.4 discusses the initial recording of plant assets. You should be able to explain fair market value, acquisition costs, historical costs, and which costs are capitalized. Review how to record the life history of a depreciable asset to ensure the proper account and true financial picture of an organization's assets. Pay attention to the difference in the cost and accounting for the construction of a new building versus buying land and assets for a specific lumped price. Be sure you know the difference between book value and appraised value.
• Section 10.5 discusses the reality that all assets with the exception of land have a useful life. A business should expect some wear and tear on assets as a direct result of using them to support business activity. Depreciation is an allocations process that ensures the useful life of an asset is properly identified from accounting and company valuation. There are three major causes of depreciation and four methods of depreciation.
• Section 10.6 distinguishes capital expenditures, revenue expenditures, and betterments. Each affects the assets value, its useful life, and financial statements. It can be difficult to account for additional costs incurred related to long-term assets.
• Section 10.7 discusses subsidy ledgers for plant assets and what happens to the accounting structure when a revenue expenditure is treated as a capital expenditure.
• Section 10.10 offers a self-test. The solution to the self-test is on pages 118-119.

Read and take notes on sections 11.1-11.10 on pages 120-155.

This details the events that need to be dealt with when disposing assets. There are balance sheet and income statement entries that must be recorded when getting rid of equipment by scrapping it or selling it. It also discusses intangible assets, how to record them, and how to account for their diminishing value.

• Section 11.3 discusses how, with the exception of land, all assets eventually become of little to no use. A company will have to make the decision to trade the asset for a newer version, retire the asset altogether, or sell the asset. How is this decision made?
• Section 11.4 discusses the sale of a plant asset. Many business entities will eventually have to dispose of a plant asset. When this happens, the company will either have a loss or show a gain depending on the difference between the asset's sale price and its book value. This section shows journal entries from a variety of situations, including a gain on the sale of an asset, a loss on the sale of an asset, how to realize loss, and what to do when a fire or flood that destroys an asset. 
• Section 11.5 discusses the depletion of a natural resource and how to journalize it.
• Section 11.6 identifies the sources of an intangible asset. Pay attention to trademarks, amortization, patents, copyrights, trademarks, goodwill, and franchises.
• Section 11.7 explains the total assets turnover ratio, which illustrates the relationship between monetary volume and the average of the total asset.
• Section 11.9 offers a self-test. The solutions to self-test are on pages 173­-174.

Read chapter 15, which introduces long-term bonds, their value, how they compare with stock. Some companies expand using stock, while some use debt (bonds). The example exercises refer to Appendix A, which you may find here.

This video explains the valuation of various bond types and discusses finding the market price of a bond.

Read chapter 12, which details stockholders' equity, specifically capital stock. You learn about the different classes of stock, their characteristics, how capital appears on the Statement of Stockholders' Equity, and the steps for issuing stock to the public.

Read chapter 13, which outlines the different sources of paid-in capital and how they are presented on the balance sheet. This chapter also covers treasury stock, dividends, stock splits, and price-per-share and price-per-earnings ratios.

Read sections 16.1-16.22 on pages 394-463. This chapter shows how to record cash flow from operating activities on the statement of cash flows.

This article shows the two different methods of preparing a statement of cash flows: direct and indirect.

This exercise quizzes you on your knowledge of the statement of cash flow and its components.