Financial Accounting

1

Introduction to Financial Accounting in the Business Environment

• Accounting Today
• Ethics in Accounting
• The Basic Accounting Equation

• Explain the purpose and importance of accounting.
• Identify users and uses of, and opportunities in accounting.
• Explain why ethics are crucial to accounting.
• Explain generally accepted accounting principles and define and apply several accounting principles.
• Define and interpret the accounting equation and each of its components.
• Analyze business transactions using the accounting equation.
• Identify basic financial statements and explain how they interrelate.

2

The Accounting Cycle: Analyzing and Recording Transactions

• Recording Debits and Credits
• General Ledger and Chart of Accounts

• The Trial Balance
• Preparing Financial Statements

• Explain the steps in processing transactions and the role of source documents.
• Describe an account and its use in recording transactions.
• Describe a ledger and a chart of accounts.
• Define debits and credits and explain double-entry accounting.
• Analyze the impact of transactions on accounts and financial statements.
• Compute the debt ratio and describe its use in analyzing financial condition.
• Record transactions in a journal and post entries to a ledger.
• Prepare and explain the use of a trial balance.
• Prepare financial statements from business transactions.

3

Accounting Methods, Adjustments and Financial Statements

• Accounting Adjustments
• The Accounting Cycle
• Types of Financial Statements
• The Balance Sheet
• The Income Statement
• The Statement of Cash Flows and the Statement of Changes in Owners’ Equity

• Identify the steps in the accounting cycle and discuss the role of accounting records in an organization.
• Describe a ledger account and a ledger.
• Understand how balance sheet accounts are increased or decreased.
• Explain the double-entry system of accounting.
• Explain the purpose of a journal and its relationship to the ledger.
• Explain the nature of net income, revenue, and expenses.
• Apply the realization and matching principles in recording revenue and expenses.
• Understand how revenue and expense transactions are recorded in an accounting system.
• Prepare a trial balance and explain its uses and limitations.
• Distinguish between accounting cycle procedures and the knowledge of accounting.

Reporting Financial Results

• Using Financial Statements

• Explain the purpose of adjusting entries.
• Describe and prepare the four basic types of adjusting entries.
• Prepare adjusting entries to convert assets to expenses.
• Prepare adjusting entries to convert liabilities to revenue.
• Prepare adjusting entries to accrue unpaid expenses.
• Prepare adjusting entries to accrue uncollected revenue.
• Explain how the principles of realization and matching relate to adjusting entries.
• Explain the concept of materiality.
• Prepare and adjusted trial balance and describe its purpose.

5

Accounting for Merchandising Operations

• Merchandising Costs
• Inventory
• Reporting Sales
• Profitability

• Describe merchandising activities and identify income components for a merchandising company.
• Identify and explain the inventory asset and cost flows of a merchandising company.
• Compute the acid-test ratio and explain its use to assess liquidity.
• Compute the gross margin ratio and explain its use to assess profitability.
• Analyze and record transactions for merchandise purchases using a perpetual system.
• Analyze and record transactions for merchandise sales using a perpetual system.
• Prepare adjustments and close accounts for a merchandising company.
• Define and prepare multiple-step and single-step income statements.

6

Cash, Accounts and Notes Receivable

• Internal Controls

• Cash and Cash Equivalents
• Bank Reconciliation
• Accounting for Receivables
• Notes Receivable

• Define internal control and identify its purpose and principles.
• Define cash and cash equivalents and explain how to report them.
• Compute the days’ sales uncollected ratio and use it to assess liquidity.
• Apply internal control to cash receipts and disbursements.
• Explain and record petty cash fund transactions.
• Prepare a bank reconciliation.
• Describe accounts receivable and how they occur and are recorded.
• Describe a note receivable, the computation of its maturity date, and recording of its existence.
• Explain how receivables can be converted cash.
• Compute accounts receivable turnover to help assess financial condition.
• Apply the direct write-off method of accounts receivable.
• Apply the allowance method and estimate uncollectibles based on sales and accounts receivable.
• Record the honoring and dishonoring of a note and adjustments for interest.

7

Inventories and Cost of Sales

• Costing Methods and Company Benefits
• Reporting Inventory and Cost of Goods Sold
• Periodic and Perpetual Inventory Systems

• Identify the items making up merchandise inventory.
  
• Identify the cost of merchandise inventory.
• Analyze the effects of inventory methods for both financial and tax reporting.
• Analyze the effects of inventory errors on current and future financial statements.
• Assess inventory management using both inventory turnover and days' sales in inventory.
• Compute inventory in a perpetual system using the methods of specific identification FI FO, LIFO, and weighted average.
• Compute the lower of cost or market amount of inventory.

8

Long-Term Assets

• Tangible Assets
• Intangible Assets
• Natural Resources

• Understand the term plant asset.
• Compute depreciation expense under the various methods and understand its impact on the financial statements.
• Compare and contrast revenue and capital expenditures.
• Determine the cost of an intangible asset and test for impairment when necessary.
• Calculate and record the cost of natural resources.

9

Current & Long-Term Liabilities

• Current Liabilities
• Accounting for Long-Term Liabilities
• Stock and Bond Financing
• Equity Reporting

• Describe current and long-term liabilities and their characteristics.
• Identify and describe known current liabilities.
• Compute the times interest earned ratio and use it to analyze liabilities.
• Prepare entries to account for short-term notes payable.
• Compute and record employee payroll deductions and liabilities.
• Compute and record employer payroll expenses and liabilities.
• Account for estimated liabilities, including warranties and bonuses.
• Explain the types and payment patterns of notes.
• Compare bond financing with stock financing.
• Assess debt features and their  implications.
• Compute the debt-to-equity ratio and explain its use.

10

Corporate Reporting and Analysis

• Corporations
• Dividends
• Retained Earnings
• Earnings Per Share Management
• Stock transactions
• Treasury Stock

• Identify characteristics of corporations and their organization.
• Explain characteristics of Dividends
• Explain the items reported in retained earnings.
• Record the issuance of corporate stock.
• Record transactions involving cash dividends, stock dividends, and stock splits.
• Record purchases and sales of treasury stock and the retirement of stock.

11

Reporting Cash Flows

• Cash Flow Statement Analysis

• Operating and Financing Activities

• Distinguish between operating, investing, and financing activities.
• Describe how noncash investing and financing activities are disclosed.
• Analyze the statement of cash flows.
• Prepare a statement of cash flows.
• Compute cash flows from operating activities using the indirect method.
• Determine cash flows from both investing and financing activities.

12

Analysis of Financial Statements

• Ratio Analysis
• Horizontal and Vertical Analysis 

• Explain the purpose and identify the building blocks of analysis.
• Describe standards for comparisons in analysis.
• Summarize and report results of analysis.
• Explain and apply methods of horizontal analysis.
• Describe and apply methods of vertical analysis.
• Define and apply ratio analysis.

13

Review Topic

• Review

• Review