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Homeworks
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Spiceland, Thomas and Herrmann
Financial Accounting, 5th edition, McGraw Hill.
A decent textbook, but consider my slides to be more reliable.
\(\quad\)Office hours begin the week of Session 2
Any office hours should be booked using the link above.
All sessions will be recorded to provide flexibility for anyone missing class to still see the material. It also allows you to easily review the class material.
Groups will be randomized each class session to encourage you to meet each other. Once group project groups are set, breakout sessions will be with your group project group.
The language of business
How companies communicate information publicly
Looking for a needle – it may or may not be there
How companies generate and communicate information internally
Pay money to save even more money
“Small-business owners tend to hate accounting because it’s boring. […] The mistake they make is not thinking about how they can use certain numbers as tools to better manage where their business is headed tomorrow.”
Summary:
Characteristic | Proprietorship | Partnership | Corporation |
---|---|---|---|
Owner(s) | One owner (proprietor) | >1 owner, at least 1 general partner (GP), may have limited partners (LPs) | Shareholders, usually many, but could be as low as 1 |
Liability for debt | Proprietor is personally liable | GPs are personally liable, LPs are not liable | Shareholders are not personally liable |
Tax status | Income tax passed through to owner | Income tax passed through to partners | Own legal entity, corporation taxed directly |
0: not used; 1: optional; 2: mandatory
The conceptual framework lays a foundation for resolving big issues
The information is useful
Information is complete, neutral and free from error
Compare over time for the same firm
Verifiability: Paper trail
Is the information useful when released?
Can a reasonably educated user use it?
Record when something happens, not when cash changes hands
Assume the company isn’t collapsing
Costs
Benefits
Benefit of accounting to society outweighs its cost
These cover all elements of a transaction
Economic resources controlled by an entity which are expected to produce future economic benefits to the entity.
Debit = Increase \(\qquad\) Credit = Decrease
Present obligations of the entity which are expected to result in an outflow of economic benefits from the entity.
Debit = Decrease \(\qquad\) Credit = Increase
The residual interest in the entity’s assets after deducting the entity’s liabilities and represents shareholder’s residual claim to the entity’s assets.
Debit = Decrease \(\qquad\) Credit = Increase
Instructions:
Fill out:
\[Assets = Liabilites + Equity\]
Increase
Decrease
Increase
Decrease
Increase
Decrease
Effect on equity | Ordinary activity | Not ordinary |
---|---|---|
Increase equity | Revenue | Gain |
Decrease equity | Expense | Loss |
Increase
Decrease
Retained earnings: \(\sum_{\text{all years}}(Revenues - Expenses - Dividends)\)
\[ \begin{align} Assets &= Liabilities + Equity \\ \\ Equity &= Shares + Retained~Earnings - Dividends \\ &+ Revenues - Expenses \end{align} \]