D074 Study Guide Most Updated_Oct2020

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D074

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Accounting

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Feb 20, 2024

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D074 – Principles of Accounting: Study Guide Course Overview This course will provide you with a foundational understanding of how accounting impacts you as a business professional. From budgets and performance reports to cost analyses and approaches to decision making, Accounting impacts them all. Principles of Accounting will introduce you to how things are done in the business environment today. As the “language of business,” this course will give you an insider’s view of both financial and managerial accounting, both of which will be essential to your success in whatever path you take in the global economy of today and the future. Pacing: Week 1  Unit 1: Introduction  Unit 2: Financial Accounting o Module 1: Accounting Information o Module 2: The Accounting Cycle Week 2  Unit 3: Financial Statements o Module 3: Financial Statements Overview o Module 4: Analyzing Financial Statements Week 3  Unit 4: Budgeting Cash Flows o Module 5: Cash Budgeting  Unit 5: Controlling Costs and Profits o Module 6: Controlling Costs and Profits Week 4  Unit 6: Managerial Accounting o Module 7: Managerial Accounting Overview o Module 8: Cost Flow Methods o Module 9: Cost Behavior and Cost-Volume-Profit Analysis Week 5  Unit 7: Costing Methodologies

o Module 10: Costing Methodologies Week 6  Pre-Assessment  Objective Assessment and Excel Application UNIT 2: (Competency Weight 15%) Accounting Information (Module 1) – Complete the following activities: ☒ Read/Listen to all the module content. Watch all the embedded videos. ☒ Complete all the Knowledge Checks. ☒ Complete the Module 1 quiz. You should be able to answer the following questions after studying this module:  What is the role and purpose of Accounting? o 3 functions of an accounting system: Analysis of events, routine bookkeeping, structuring data for evaluation. o Accounting is a system for providing “quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions.” o Accountants play two roles: Measuring and Reporting (accountants measure and communicate the results of business activities. They follow a standard set of procedures referred to the as the accounting cycle. They analyze, record, classify, summarize and report the transactions of a business. They also do Advising: accountants advise managers on how to structure these activities so as to achieve the goals of the business, such as generating a profit, minimizing costs, providing efficient services, and so on. o Lesson Summary: Accounting is designed to accumulate, measure, and communicate financial information about businesses and other organizations. Accounting provides information for making informed decisions about how to best use available resources. Accounting is often called the “language of business.”  Who uses accounting information and why? o Everyone uses accounting information: managerial accounting for within companies, and financial accounting for anyone looking at the health of their personal finances (external users). o Managerial Accounting (internal): product costs, breakeven analysis, budgeting, performance evaluation, outsource production o Financial accounting (external): credit analysis, regulatory uses (financial health of bank and insurance companies), estimate the value of a company o The Financial Statements (used in Financial Accounting):  Balance Sheet (list as of a point in time, resources *assets*, obligations *liabilities*,  Income Statement (for a period of time, such as a year), how much profit did we make?,  Statement of Cash Flows: For a period of time, such as a year, where did our cash come from? Where did it go? o Key External Users of Financial Accounting:  Lenders: will the loan be repaid? Current income? Existing obligations? Existing assets?  Investors: Is the business profitable now? What is the potential for the future?

o Who uses accounting information? Management of the company uses planning, daily monitoring and evaluation. But realistically they use both, both managerial accounting information and financial accounting information. o Lesson Summary:  Management accounting focuses on providing reports for internal use by management to assist in making operating decisions and in planning and controlling a company’s activities.  Financial accounting provides information to meet the needs of external users.  The three general-purpose financial statements are the balance sheet, the income statement, and the statement of cash flows.  The financial statements are used by interested external parties such as investors, creditors, competitors, and the government as well as internal parties such as management, suppliers and customers, and employees.  What are the important influences on Accounting? o Organizations, ethics and Technology make up the accounting environment. o The need for accounting rules: Example, should land be reported as it’s original purchase price or its current market price? Or should each company choose how they want to report their land?  Importance of Comparability, so who makes the rules? à Financial Accounting Standards Board (FASB) o FASB à Private group, people experienced in business and accounting, PUBLIC PROCESS. They have no legal authority.  They establishes GAAP (Generally Accepted Accounting Principles) in the United States. o GASB (Governmental Accounting Standards Board): sets the accounting and financial reporting standards for state and local governments following GAAP.  Still a private, nongovernmental organization that seeks to improve accounting practices and procedures. o Other organizations:  SEC (Securities and Exchange Commission)  Legal authority to regulate financial markets and accounting  Usually chooses to defer to the FASB on accounting matters.  AICPA (American Institute of Certified Public Accountants)  Professional association of Certified Public Accountants (CPA)  IRS (Internal Revenue Service)  US government agency that collects and regulates income taxes  Two sets of books  IASB (International Accounting Standards Board)  The FASB of the whole world….except for the US… for now o Lesson Summary:  The rules governing financial accounting are called generally accepted accounting principles (GAAP)  In the United States, GAAP is set by a private, nongovernmental group called the Financial Accounting Standards Board (FASB)  Worldwide GAAP is set by the International Accounting Standards Board (IASB) based in London  Other U.S. organizations that are important to the practice of accounting are the SEC, the AICPA, and the IRS.  What is the role of ethics in Accounting? o Ethics are the basic moral principles that govern an individual’s behavior, including how an individual conducts him or herself in a business-related activity.  SEC and legal punishments  AICPA and professional sanctions  Business community and loss of credibility

o Lesson Summary:  Because the practice of accounting requires professional judgement, accountants are frequently faced with ethical dilemmas.  Maintaining high ethical standards is important in accounting because accounting decisions often impact real-world economic decisions.  Module 1 Summary: o Accounting is the systematic collection of financial information that is compiled and presented in summary form. Those interested in a company’s performance can that information to make informed decisions about a company’s past performance and get a glimpse as to how the company will perform in the future. o The primary users of financial accounting information are individuals and groups outside of a company. These parties use summary financial information to make investment and credit decisions and decisions relating to selling to a company or working for a company. o Individuals inside of an organization use financial information to accumulate proprietary information available only to those inside a company. This information is called management accounting information and is used by management for such things as costing a product and performing break-even analysis. o Other groups and individuals outside of a company can use financial information to make decisions about a company. Employees can assess the viability of a future employer, supplies can assess a company’s ability to repay, and so on. o The rules associated with financial accounting information and the information provided to those outside of a company are produced through a public process that involves both government and private parties. The rules evolve slowly over time so as to ensure consistency in financial reporting. o Finally, accountants are expected to behave ethically so that those using financial information can have confidence in its reliability. The Accounting Cycle (Module 2) – Complete the following activities: ☐ Read/Listen to all the module content. Watch all the embedded videos. ☐ Complete all the Knowledge Checks. ☐ Complete the Module 2 quiz. You should be able to answer the following questions after studying this module:  What is the Accounting Cycle and how does it work? o Can you explain the Accounting Cycle? o The purpose of the financial accounting cycle is to help you see how the accounting process (including the recording) turns transactions into financial statements. Begin with business transactions, which are then analyzed and input into the financial accounting system.  1) Analyze Transactions “think about the economic essence”  Confirm the transaction  Determine the amount  Structure the data  2) Record the effects of transactions “debits and credits”  Design a code, or a system, that efficiently captures the essence of transactions.

 3) Summarize the effects of transactions i.e. 1.) Posting Journal Entries 2) Preparing a trial balance “posting journal entries and preparing a trial balance”  Distill the cumulative effect of the hundreds, thousands, millions, billions, or even trillions of transactions  4) Prepare Reports i.e. 1) Adjusting entries 2) Preparing financial statements 3) Closing the books.  Determine what the decision-makers need to know. o Adjusting entries, preparing financial statements, closing the books.  Lesson Summary:  The purpose of the accounting cycle is to help you see how the accounting process eventually turns transactions into financial statements, thereby making financial data into useful information for decision-making by managers.  The four steps in the accounting cycle are as follows: o Analyze transactions o Record the effects of transactions o Summarize the effects of transactions o Prepare reports.  What is the Accounting Equation? o Can you explain the ‘basic’ accounting equation and the impact of debits and credits to assets, liabilities, and equity?  The accounting equation is assets (resources) = liabilities (a method of financing resources that requires repayment) + equity (a method of financing that does not require repayment and represents ownership interests in the business)  Start a business by investing $50,000 cash Assets = Liabilities + Owner’s Equity 0 = 0 + 0 50,000 = 0 + 50,000 Borrowed $25,000 from bank Assets = Liabilities + Owner’s Equity 50,000 = 0 + 50,000 25,000 = 25,000 + 75,000 = 25,000 + 50,000 Purchased inventory on credit for $14,000 Assets = Liabilities + Owner’s Equity 75,000 = 25,000 + 50,000 14,000 = 14,000 + 89,000 = 39,000 + 50,000 Purchased equipment costing $15,000 for cash Assets = Liabilities + Owner’s Equity 89,000 = 39,000 + 50,000 15,000 = + -15,000 = + 89,000 = 39,000 + 50,000 

o Can you explain the ‘expanded’ accounting equation and the impact of debits and credits to revenues and expenses?  Revenues minus expenses equals net income; and net income is a major source of change in owners’ equity from one accounting period to the next. Revenues and expenses, then, may be thought of as temporary subdivisions of owners’ equity. Revenues increase owners’ equity. Expenses reduce owners’ equity. Upon completion of Unit 2 (Modules 1 and 2) – Complete the following activities:  Review the Unit 2 Summary.  Complete the Unit 2 Test. UNIT 3: (Competency Weight 20%) Financial Statements Overview (Module 3) – Complete the following activities: ☐ Read/Listen to all the module content. Watch all the embedded videos. ☐ Complete all the Knowledge Checks. ☐ Complete the Module 3 quiz. You should be able to answer the following questions after studying this module:  What are the four financial statements covered in this module course? o Balance Sheet o Income Statement (revenues) how I do at what I’m supposed to do? o Bottom Line (net income) revenues minus expenses. Bottom of the income. o Statement of Cash Flows (statement of cash flows) cash in cash out  Can you define and explain the purpose of the Balance Sheet and the components that it contains? o Resources and claims on those resources at a specific point in time o What we own or control – ASSETS also known as resources o What we owe – LIABILITIES o The Owner’s Share – OWNER'S EQUITY o The balance sheet always balances o Assets=liabilities + owner’s equity o The balance sheet (or statement of financial position) reports the resources of a company (assets), the company’s obligations (liabilities), and the difference between what is owned (assets) and what is owed (liabilities) called owner’s equity.  Can you define and explain the purpose of the Income Statement and the components that it contains? o One measure of a company’s performance is the Income Statement  Measures a company’s economic performance for a specific period of time (typically quarterly or annually)  Revenues – increases in a company’s net assets as a result of what the company does  Expenses – decreases in a company’s net assets as a result of what the company does  Net income – Revenues less expenses  Example – say you own Walmart, and you sell something that’s worth $0.75, but you’re given $1.00 for it. So Increase in net assets is $0.25. Revenue of $1.00, expenses by $0.75, net asset is $0.25 o Another Piece within the Income Statement is the “Statement of Cash Flows”

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