---
title:
output:
  revealjs::revealjs_presentation:
    theme: white
    css: white-edits.css
    highlight: tango
    transition: slide
    self_contained: false
    pandoc_args: ["--wrap=preserve"]
    reveal_plugins: ["chalkboard","search"]
    transitionSpead: fast
    mathjax: "https://cdnjs.cloudflare.com/ajax/libs/mathjax/2.7.1/MathJax.js?config=TeX-AMS_SVG"
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## ACCT 101: Welcome and intro to FA {data-background-video="../Backgrounds/title.mp4" data-background-video-loop=true class="header no-toc-progress present-only" data-state="no-toc-progress"}

<!-- "reveal_plugins:..." and "chalkboard:" are handled by prep.py -->
```{r helpers, echo=FALSE, warning=FALSE, message=F}
library(knitr)
library(kableExtra)
html_df <- function(text, cols=NULL, col1=FALSE, full=F) {
  if(!length(cols)) {
    cols=colnames(text)
  }
  if(!col1) {
    kable(text,"html", col.names = cols, align = c("l",rep('c',length(cols)-1))) %>%
      kable_styling(bootstrap_options = c("striped","hover"), full_width=full)
  } else {
    kable(text,"html", col.names = cols, align = c("l",rep('c',length(cols)-1))) %>%
      kable_styling(bootstrap_options = c("striped","hover"), full_width=full) %>%
      column_spec(1,bold=T)
  }
}
```

<h3 class="date"><br>Session 1</h3>
<h2 class="author"><br>Dr. Richard M. Crowley<br>rcrowley@smu.edu.sg<br><a href="http://rmc.link/">http://rmc.link/</a></h2>

## ACCT 101: Welcome and intro to FA {data-background="../Backgrounds/title.jpg" class="header no-toc-progress present-not" data-state="no-toc-progress"}

<h3 class="date"><br>Session 1</h3>
<h2 class="author"><br>Dr. Richard M. Crowley<br>rcrowley@smu.edu.sg<br><a href="http://rmc.link/">http://rmc.link/</a></h2>

# About Me {data-background="../Backgrounds/section.jpg" class="header"}

## {data-background="../Photos/snow.jpg" data-background-size="contain" class="present-only"}

## {data-background="../Photos/coffee_munich.jpg" data-background-size="contain" class="present-only"}

## {data-background="../Photos/FOODS.png" data-background-size="contain" class="present-only"}

## {data-background="../Photos/COFFEES.png" data-background-size="contain" class="present-only"}

## {class="present-only"}

<div class="clearfix">
<div class="left">
<iframe src="https://giphy.com/embed/JRgLEZCsivjHoRWpb2" width="480" height="270" frameBorder="0" class="giphy-embed" allowFullScreen></iframe><p><a href="https://giphy.com/gifs/JRgLEZCsivjHoRWpb2">via GIPHY</a></p>
</div>
<div class="right">
<img src="../Photos/vr_spaces.png">
</div>
</div>

## {data-background="../Photos/The_Coffee_Line.jpg" data-background-size="contain" class="present-only"}

## {data-background="../Photos/hiking_alps.jpg" data-background-size="contain" class="present-only"}

## {data-background="../Photos/Potato.jpg" data-background-size="contain" class="present-only"}

## {data-background="../Photos/Garden.jpg" data-background-size="contain" class="present-only"}

## {data-background="../Photos/google_welcome.jpg" data-background-size="contain" class="present-only"}


## Teaching {data-background="../Backgrounds/blackboard.jpg" class="default"}

- At SMU since 2016
- What I teach:
    - ACCT 101, Financial Accounting
    - ACCT 420, Forecasting and Forensic Analytics
    - ACCT 703, Analytical Methods in Accounting (Theory)
    - IDIS 700, Machine Learning for Social Science

- Before SMU: Taught at the <a href="http://colleges.usnews.rankingsandreviews.com/best-colleges/rankings/business-accounting">University of Illinois Urbana-Champaign</a> while completing my PhD

<img height=200px src="../Figures/logo2.png"/> <img height=200px src="../Figures/UIUC.png"/>

## Research {data-background="../Backgrounds/math_idea.jpg" class="default"}

- Accounting disclosure: What companies say, and why it matters
    - Focus on social media and regulatory filings (e.g., annual reports)
    - Approach this using AI/ML techniques
- Methodology for Natural Language Processing in social science


<img style="max-width:33%" src="../Figures/Enron.png"/><img style="max-width:33%" src="../Figures/twitter.png"/><img style="max-width:33%" src="../Figures/Datacubes.png"/>

## {data-background-iframe="https://quotes.wsj.com/index/SG/STI/advanced-chart" class="present-only"}

## Research highlights {data-background="../Backgrounds/neural-net.jpg" class="default"}

1. The most effective published method for financial misreporting detection (uses text of annual reports).
2. Multiple projects on Twitter showcasing:
    1. How companies are more likely to disclose both good and bad information than what is normal or expected
    2. That CSR disclosure on Twitter is not credible
    3. That executives' disclosures are as important on Twitter as their firms' disclosures
3. Newer work on
    - COVID-19 reactions worldwide
    - Sentiment and understandability of accounting and finance text
    - Misinformation laws (e.g., POFMA)

> The above all use some sort of machine learning or text analytics approach.

# About this course {data-background="../Backgrounds/section.jpg" class="header"}

## What will this course cover? {data-background="../Backgrounds/default.jpg" class="default"}

<div class="left">
![Diagram](../Course_Diagrams/ACCT_101_course_map_progression.png){width=450px}
</div>
<div class="right">
1. <span style="color:#5555dd">Basic elements of FA</span>
2. FA statements
    - <span style="color:#5555dd">Income & Balances</span>
    - <span style="color:#dd5555">Cash flows</span>
3. <span style="color:#5555dd">Financial accounting rules</span>
4. <span style="color:#cc8855">Complex transactions</span>
5. <span style="color:#dd5555">Financial statement analysis</span>
</div>


## Teaching philosphy {data-background="../Backgrounds/books-old.jpg" class="default"}

1. Accounting is best learned in a seminar style
    - Less lecture, more thinking
2. Working with others greatly extends learning
    - If you are ahead:
        - The best sign that you've mastered a topic is if you can explain it to others
    - If you are lost:
        - Gives you a chance to get help and catch up

## Grading {data-background="../Backgrounds/road.jpg" class="default"}

- Standard SMU grading policy
- Participation @ 10%
- Homework @ 10% (equally weighted)
- 2 quizzes @ 7.5% each
- Group project @ 15%
- Final exam @ 50%

## Participation {data-background="../Backgrounds/people.jpg" class="default"}

<div class="clearfix">
- Come to class
    - If you have a conflict, email me
        - Excused classes do not impact your particpation grade
        - Excused quizzes add to the final's weighting
- Ask questions to **extend** or **clarify**
- Answer questions and explain answers
    - Give it your best shot!
- Help those in your group to understand concepts
- Present your work to the class
</div>

> Actively learn & learn from others

## Outside of class {data-background="../Backgrounds/library.jpg" class="default"}

<div class="clearfix">
<div class="left">
Homeworks

- Only 10% because they are for learning
    - Submit on eLearn
- Reinforce lesson
- Apply to the real world
    - Useful after graduation
- Answers are expected to be your own work
    - No sharing answers
    - Automatically checked by eLearn
</div>
<div class="right">
Practices

- For you to practice material
- Not required, no direct impact on grades
- Can do in study groups, individually, etc.
- All practices are on eLearn
    - Automatically graded for quick feedback
- These questions are easier than exam questions
</div>
</div>

## Quizzes {data-background="../Backgrounds/helloquence.jpg" class="default"}

- Why?
    - Reinforce what you have learned
    - Early progress indicator
- What to expect?
    - 1 hour each
    - Context based
    - Long format
        - Extracting information from a situation
        - Problem solving

## Group project {data-background="../Backgrounds/presentation.jpg" class="default"}

- What to expect
    - 1 case per group covering a recent or ongoing accounting issue
    - Groups of 4-5, fairly assigned
- Why?
    - Brings course material to a real context
    - Helps develop soft skills
    - Learn about many real world situations

## Final exam {data-background="../Backgrounds/studying.jpg" class="default"}

- Why?
    - Ex post indicator of attainment
- How?
    - 3 hours
    - Long format (like quizzes)
        - Potentially some MCQ
    - Same exam across all sections

## Expectations {data-background="../Backgrounds/default.jpg" class="default"}

<div class="left">
In class:

- Participate
    - Ask questions
        - Clarify
        - Add to the discussion
    - Answer questions
    - Work with classmates
</div>
<div class="right">
Out of class

- Check eLearn for course announcements
- Read in advance of class
    - This will help a lot
- Do homeworks on your own
    - Submit on eLearn
- Do practices on your own or in groups
- Office hours and TA hours are there to help!
    - Short questions can be emailed instead
</div>

## Textbook {data-background="../Backgrounds/default.jpg" class="default"}

<div class="clearfix">
<div class="left">
Spiceland, Thomas and Herrmann

Financial Accounting, 5th edition, McGraw Hill.
</div>
<div class="right">
<img height=300px src="../Figures/Book.jpg"/>
</div>
</div>

> A decent textbook, but consider my slides to be more reliable.

> For this semester: You can alternatively use the 5th edition -- I will release practice problem information for both editions

## Tech use {data-background="../Backgrounds/technology.png" class="default"}

- Laptops and other tech are OK!
    - Use them for learning, not messaging
- Examples of good tech use:
    - Taking notes
    - Viewing slides
    - Working out problems
    - Group work
- Avoid:
    - Watching livestreams of pandas or Overwatch
    - Messaging your friends on Telegram
    - Working on homework for the class in a few hours

## Office hours {data-background="../Backgrounds/reference.jpg" class="default"}

- TA Office hours:
    - Amanda: By appointment on Telegram (see syllabus for contact info)
    - Megan: By appointment on Telegram (see syllabus for contact info)
- Prof office hours:
    - Bookable at <a href="https://rmc.link/101OH">rmc.link/101OH</a>
- **Short** questions can be messaged to TAs or emailed to me
    - I try to respond within 24 hours

> $\quad$Office hours begin the week of Session 2<br><br>  Any office hours with me should be booked using the link above.

## COVID policies {data-background="../Backgrounds/COVID.jpg" class="default"}

> Official SMU Policy

- If you are in mandated self isolation, do that
- No live streams / Zoom classes

> Relaxed policy for this course:

- If you are symptomatic but not positive, you can be excused from class
- If you have completed a 7 day isolation but still feel unwell, you can be excused from class
- Live streams available for those with excused absences (see details on eLearn)

> To be excused for a COVID-related absence, fill out this form: https://forms.gle/gPpDZt6cp37sY6iD8

- All requests are automatically approved (unless you hear back from me by email)

## Live streams {data-background="../Backgrounds/COVID.jpg" class="default"}

- Due to room limitations (no camera equipment), the live stream will not capture all of the class
    - All of my audio should be captured though
    - Your classmates questions probably won't be captured
    - The whiteboard will probably be hard to see
- A recording may or may not be released

> Livestream attendance is not required and does not count towards participation

# About this course: Online classes / EPTL addendum (if needed) {data-background="../Backgrounds/section.jpg" class="header"}

## General Zoom etiquette {data-background="../Backgrounds/COVID.jpg" class="default"}

- Keep your mic muted when you are not speaking
    - 20+ mics all on at once creates **a lot** of background noise
- You are welcome to leave your video on -- seeing your reactions helps me to gauge your learning of the course content
    - If you are uncomfortable doing so, please have a profile photo of yourself
        - To do this, click yourself in the participants window, click "more" or "..." and then "Edit Profile Picture"
- Feel free to use Zoom's built in functionality for backgrounds
    - Just be mindful that this is considered a professional environment and that online class sessions are recorded
    
> Online 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.
        
## Asking questions {data-background="../Backgrounds/COVID.jpg" class="default"}

- If you have a question, use the *Raise Hand* function
    - Where to find it:
        - Desktop: Click *Reactions* and then *Raise hand*
        - Mobile: Under *More* in the toolbar
    - When called on:
        1. Unmute yourself.
        2. Turn on your video if you are comfortable with it
        3. Ask your question.
        4. You are always welcome to ask follow up questions or clarifications in succession
        5. After your question is answered, **mute your mic**.

## Group work on Zoom {data-background="../Backgrounds/COVID.jpg" class="default"}

- I will make use of the Breakout room functionality on a weekly basis
- Your group can use the "Share screen function" to emulate crowding around one laptop
- If your group is stuck or needs clarification, you can use the *Ask for help* function to get my attention
- I will drop by each group from time to time to check in and see how you are doing with the problem
- I may also ask your group to present something to the class after a breakout session is finished.

> 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.

## Lastly... {data-background="../Backgrounds/COVID.jpg" class="default"}

- I don't expect everything to run 100% smoothly on either side, and there will be more leniency than a normal class session to account for this
    - If you miss a Zoom session, please let me know the reason in advance, and then work through the recording on your own
- I always provide a survey at the end of each class session that allows you to anonymously voice anything you liked or didn't like about a session.  Do use this channel if you encounter any difficulties.  Common agreed-upon problems will be addressed within 1-2 class sessions.
    - The survey link is on eLearn (under the session's folder) and will be on the last slide I present each week.

# About you {data-background="../Backgrounds/section.jpg" class="header"}

## About you {data-background="../Backgrounds/default.jpg" class="default"}

- Survey at <a href="https://docs.google.com/forms/d/e/1FAIpQLSd_6y9qksqfePypgr5SeT97hRRCa5RnXRZH-AN78EeepcjgqA/viewform">rmc.link/101survey</a>
- Results are anonymous

# Introduction to accounting {data-background="../Backgrounds/section.jpg" class="header"}

## Learning objectives {data-background="../Backgrounds/default.jpg" class="default"}

<div class="left">
<img src="../Course_Diagrams/ACCT_101_course_map_1.svg">
</div>
<div class="right">
1. Develop a base understanding of accounting institutions
2. Understand the building blocks of the accounting system
3. Apply the "accounting equation"
</div>

## What is accounting? {data-background="../Backgrounds/question1.jpg" class="default present-only"}

<span class="fragment fade-up"><img class="fill" src="../Figures/Perception.jpeg"/></span>

## This is accounting! {data-background="../Backgrounds/default.jpg" class="default present-only"}
<img class="fill" src="../Figures/Reality.jpeg"/>

## What is accounting? {data-background="../Backgrounds/default.jpg" class="default"}
> The language of business

1. Measure business activities
    - Ex.: Sales, wages, inventory changes, ...
2. Process reports into data
    - For managers, investors, etc.
3. Communicate results to financial statement (F/S) users
    - Ex.: Statements, disclosures, press releases, ...

## Types of accounting {data-background="../Backgrounds/default.jpg" class="default"}

1. Financial
    - Provides information to external users.
    - Needs to be decision relevant
    - Audit fits in here
2. Managerial
    - Provides information to internal users
    - Used for budgeting, forecasting, strategy
3. Tax
    - Technically a subset of financial accounting
    - Used for determining tax liability

## Financial accounting {data-background="../Backgrounds/default.jpg" class="default"}

<img src="../Figures/Central_node.png" style="max-height:400px">

> How companies communicate information publicly

## Audit {data-background="../Backgrounds/needle.jpg" class="default"}

> Looking for a needle -- it may or may not be there

## Managerial accounting {data-background="../Backgrounds/managerial.png" class="default"}

> How companies generate and communicate information internally

## Tax accounting {data-background="../Backgrounds/default.jpg" class="default"}

<div class="clearfix">
<div class="left">
<video width="480" height="480" data-autoplay >
  <source src="../Figures/Tax_evasion_car2.mp4" type="video/mp4">
  Your browser does not support the video tag
</video>
</div>
<div class="right">
<video width="480" height="480" data-autoplay >
  <source src="../Figures/Tax_evasion_car_2.mp4" type="video/mp4">
  Your browser does not support the video tag
</video>
</div>
</div>

> Pay money to save even more money

## Why should we care? {data-background="../Backgrounds/default.jpg" class="default"}

<div class="clearfix">
<div class="left">
> <p style="font-size:0.8em">"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."</p>

- <a href="http://www.nytimes.com/2011/08/04/business/smallbusiness/a-few-accounting-essentials-are-crucial-for-survival.html">Basics of Accounting Are Vital to Survival for Entrepreneurs, NYTimes</a>
</div>
<div class="right">
```{r , echo=FALSE, warning=FALSE, results='hide',message=FALSE}
library(readr)
m <- list(
  l = 50,
  r = 50,
  b = 50,
  t = 50,
  pad = 4
)
suppressPackageStartupMessages(library(plotly))
suppressPackageStartupMessages(library(zoo))
act <- read_csv("accounting.csv")
tot <- read_csv("totals.csv")
df <- merge(act, tot, by="year")
df$percent_words = df$words/df$words_t
df$percent_books = df$books/df$books_t
year3 = df$year[3:length(df$year)-1]
percent_words_3 <- rollapply(zoo(df$percent_words), width=3, FUN=mean, align="center")
percent_books_3 <- rollapply(zoo(df$percent_books), width=3, FUN=mean, align="center")
df2 <- data.frame(year=year3, percent_words=percent_words_3, percent_books=percent_books_3)
```
```{r, echo=FALSE, warning=FALSE, message=FALSE, fig.height = 5, fig.width = 4.3}
plot_ly(df2[df$year>1800,], x = ~year, y = ~percent_books, type = 'scatter', mode = 'lines') %>%
   layout(xaxis = list(title="Year"), yaxis = list(title="Proportion of books"), title = "Books mentioning accounting (Google Ngrams)", margin = m)

```
</div>
</div>

## Forms of business {data-background="../Backgrounds/default.jpg" class="default"}

<div class="clearfix">
<div class="left">
1. Sole proprietorship
    - *1 owner*, usually small service firms
    - Not a legal entity
    - Owner receives all profit and loss
2. Partnership
    -  *Multiple owners*, at least one is a General Partner while others are Limited Partners
    - Not a legal entity
    - Owners receive all profit and loss
</div>
<div class="right">
<img src="../Figures/Startup.png" style="max-height:200px"/>

<img src="../Figures/KPMG.png"style="max-height:200px"/>
</div>
</div>

## Forms of business {data-background="../Backgrounds/default.jpg" class="default"}
<div class="left">
3. Corporation
    - Has a board of directors, CEO, CFO, COO, etc.
    - One or more stock classes
        - From Initial Public Offering (IPO) or Secondary/Seasoned Equity Offering (SEO)
            - IPO: When a company first offers stock to investors
    - Separate legal entity under corporate law
    - Profit/loss goes to the company
</div>
<div class="right">
<img src="../Figures/Starbucks.png" style="max-height:200px"/>

<img src="../Figures/Microsoft.png" style="max-height:200px"/>
<div>

## Forms of business {data-background="../Backgrounds/reference.jpg" class="default"}

Summary:

```{r , echo=FALSE, warning=FALSE}
options(knitr.table.format = "html") 
text <- data.frame(
  Characteristic = c('Owner(s)', 'Liability for debt', 'Tax status'),
  Proprietorship = c('One owner (proprietor)','Proprietor is personally liable','Income tax passed through to owner'),
  Partnership = c('>1 owner, at least 1 general partner (GP), may have limited partners (LPs)','GPs are personally liable, LPs are not liable','Income tax passed through to partners'),
  Corporation = c('Shareholders, usually many, but could be as low as 1','Shareholders are not personally liable','Own legal entity, corporation taxed directly')
)
html_df(text, col1=TRUE)
```

# International Financial Reporting Standards {data-background="../Backgrounds/section.jpg" class="header"}

## IFRS (our accounting rules) {data-background="../Backgrounds/default.jpg" class="default"}

- IASB created IFRS in 2001
    - An attempt to standardize accounting rules across countries
    - Over <a href="https://www.ifrs.org/use-around-the-world/use-of-ifrs-standards-by-jurisdiction/">100 countries</a> and <a href="https://web.archive.org/web/20170511100347/https://www.ifrs.org/Use-around-the-world/Pages/listed-companies-using-ifrs-standards-globally.aspx">49,890 companies</a> use IFRS

```{r echo=FALSE, results='hide',message=FALSE,warning=FALSE}
suppressPackageStartupMessages(library(rworldmap))
library(readr)
Ifrs <- read_csv("IFRS.csv")
#join to a coarse resolution map
Ifrs$IFRS <- factor(Ifrs$IFRS, levels=c(3,2,1,0))
Ifrs$Desc <- factor(Ifrs$Desc, levels=c("None", "Minimal", "Partial", "Full"))
spdf <- joinCountryData2Map(Ifrs, joinCode="NAME", nameJoinColumn="Country", nameCountryColumn="Country", verbose=T)
```
<span class="shrinkimg">
```{r map2, echo=FALSE, warning = FALSE, message = FALSE}
mapCountryData(spdf, nameColumnToPlot="Desc", catMethod="fixedWidth", mapTitle="IFRS usage", colourPalette = "terrain")
```


## IFRS conceptual framework {data-background="../Backgrounds/default.jpg" class="default"}

<img class="fill" src="../Figures/IFRS_Framework.png"/>

## IFRS conceptual framework {data-background="../Backgrounds/train.jpg" class="default"}

- Prescribes nature, function, and boundary of an accounting system
- Purpose: To provide financial information that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity

> The conceptual framework lays a foundation for resolving big issues

## Financial Information {data-background="../Backgrounds/default.jpg" class="default"}

- Focused on general purpose financial statements prepared at least annually
    - Usually quarterly
    - Semiannually in the UK
- Economic resources: what you own
    - Inventory, buildings, patents, etc.
- Claims: claims on the company's assets
    - Claims by lenders and creditors (debt)
    - Claims by owners (shareholders)


## Relevance {data-background="../Backgrounds/default.jpg" class="default"}

- **Fundamental characteristic**
- Is the information material?
    - Material: Important enough to warrant sharing
    - Would not disclosing (or incorrectly disclosing) affect users' decisions?

> The information is useful

## Faithful representation {data-background="../Backgrounds/default.jpg" class="default"}

- **Fundamental characteristic**
- Complete: Includes all necessary information to understand economic phenomenon
- Neutral: No bias
- Free from error: no errors or omissions

> Information is complete, neutral and free from error

## Comparability {data-background="../Backgrounds/calendar.png" class="default"}

- **Enhancing characterisic**
- Information by the firm can be compared across years
    - *Not across firms*
- If you change the way something is calculated, show the new and the old way

> Compare over time for the same firm

## Verifiability {data-background="../Backgrounds/receipts.jpg" class="default"}

- **Enhancing characterisic**
- All accounting figures can be verified from a paper trail
    - Receipts
    - Records of counts
    - Calculations

> Verifiability: Paper trail

## Timeliness {data-background="../Backgrounds/watch.jpg" class="default"}

- **Enhancing characterisic**
- Takes time to prepare and verify information
- More timely is a tradeoff with other characteristics

> Is the information useful when released?

## Understandability {data-background="../Backgrounds/default.jpg" class="default"}

- **Enhancing characteristic**
- Regardless of how useful the content is, it isn't useful unless users can understand it
- Baseline is a *reasonably educated* user
    - You after you finish this class

> Can a *reasonably educated* user use it?

## Accrual accounting {data-background="../Backgrounds/default.jpg" class="default"}

- **Assumption**
- The basis for our accounting system and many others
- Alternative is cash basis
    - Record when cash changes hands
- This will be the focus next week

> Record when something happens, not when cash changes hands

## Going concern {data-background="../Backgrounds/infinity.jpg" class="default"}

- **Assumption**
- Entity will last long enough to use all assets and pay all liabilities

> Assume the company isn't collapsing

## Cost constraint {data-background="../Backgrounds/default.jpg" class="default"}

<div class="clearfix">
<div class="left">
<span style="color:#bb3333">Costs

- Companies paying money to employees and auditors
- Theoretical societal loss from leaking of confidential information</span>
</div>
<div class="right">
<span style="color:#33bb33">Benefits

- Gain from distribution of information
    - Leads to more informed investments
    - Better contracts
    - Better economy</span>
</div>
</div>

> Benefit of accounting to society outweighs its cost

## Review {data-background="../Backgrounds/review.jpg" class="default"}

<img src="../Diagrams/Activity_1-1.svg" width="75%">

## Review {data-background="../Backgrounds/answer.jpg" class="default exclude"}

<img src="../Diagrams/Activity_1-1-Ans.svg" width="75%">


# Financial statements {data-background="../Backgrounds/section.jpg" class="header"}

## Note {data-background="../Backgrounds/default.jpg" class="default"}

- We'll cover each of these at length later
- Covered in Session 3:
    - Income Statement
    - Changes in Equity
    - Balance Sheet
- Covered in Sessions 10 and 11:
    - Statement of Cash Flows

<img src="../Diagrams/Accounting_statements.svg">

## Income Statement {data-background="../Backgrounds/profits.jpg" class="default"}

- Part of the *Statement of Comprehensive Income*
    - We'll get to this later
- Shows net profit or loss for a **period**
    - Comprised of:
        - Revenues and gains
        - Expenses and losses

## Statement of Changes in Equity {data-background="../Backgrounds/partnership.jpg" class="default"}

- Shows transactions with owners
- Net income flows from the Income Statement to this Statement
- Includes outflows from dividends

## Balance Sheet {data-background="../Backgrounds/ikea.jpg" class="default"}

- More formally known as the *Statement of Financial Position*
- A snapshot at a **point in time** of a company's:
    1. Assets
    2. Liabilities
    3. Equity

## Statement of Cash Flows {data-background="../Backgrounds/coins.jpg" class="default"}

- Measures cash receipts and payments
- Breaks cash activities into:
    1. Operating activities
    2. Investing activities
    3. Financing activities

## Examples {data-background="../Backgrounds/case.jpg" class="default"}

- <a href="https://links.sgx.com/FileOpen/BTG%20-%20Annual%20Report%20-%20FY%202018.ashx?App=Announcement&FileID=548170">Breadtalk 2018 (before their delisting in 2020)</a>
- <a href="https://images.samsung.com/is/content/samsung/assets/global/ir/docs/2021_4Q_Interim_Report_vF.pdf">Samsung 2021</a>
- <a href="https://www.dbs.com/iwov-resources/images/investors/annual-report/dbs-annual-report-2021.pdf">DBS 2021</a>


# Building blocks of accounting {data-background="../Backgrounds/section.jpg" class="header"}

## Building blocks {data-background="../Backgrounds/bricks.jpg" class="default"}

- Everything is classified as one of:
    1. Assets
    2. Liabilities
    3. [Shareholders'] Equity

> These cover *all* elements of a transaction 

## Assets {data-background="../Backgrounds/espresso.jpg" class="default"}

> Economic resources controlled by an entity which are expected to produce future economic benefits to the entity.

- Cash, accounts receivable (A/R)
- Inventory, equipment
- Factories, machinery
<br><br>
- Coffee shop:
    + Cash
    + Inventory (coffee beans, food)
    + Fixed assets (building, espresso machine)

> Debit = <span style="color:#33bb33">Increase</span> $\qquad$ Credit = <span style="color:#bb3333">Decrease</span>

## Liabilities {data-background="../Backgrounds/espresso.jpg" class="default"}

> Present obligations of the entity which are expected to result in an outflow of economic benefits from the entity.

- Accounts payable
- Bills outstanding: Wages payable, utilities payable
- Debt
<br><br>
- Coffee shop:
    + Bank loan (maybe used to buy the building)
    + Outstanding utility bill
    + Bill from coffee supplier
    
> Debit = <span style="color:#bb3333">Decrease</span> $\qquad$ Credit = <span style="color:#33bb33">Increase</span>

## Equity {data-background="../Backgrounds/espresso.jpg" class="default"}

> 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.

- Share capital: Amount paid in by owners
- Retained earnings: net profit not released as dividends
- Revenue: Sales, income
- Expenses: costs of doing business
<br><br>
- Coffee shop:
    - The money put in by the founder
    - Revenue from selling coffee and expenses from paid wages

> Debit = <span style="color:#bb3333">Decrease</span> $\qquad$ Credit = <span style="color:#33bb33">Increase</span>

## In class activity {data-background="../Backgrounds/group.jpg" class="default"}

<div class="left">
Instructions:

1. Divide up into groups of 4
2. Pick any company
3. Determine 3 each of:
    - Assets
    - Liabilities
    - Equity

> Raise your hand to call me over if you would like something clarified

> If you would like to share your work with the class, call me over to let me know (2-3 groups)

</div>
<div class="right border small">
Fill out:

- Company:
- Assets:
    1. 
    2. 
    3. 
- Liabilities:
    1. 
    2. 
    3. 
- Shareholders' Equity:
    1. 
    2. 
    3. 
</div>

# The accounting equation {data-background="../Backgrounds/section.jpg" class="header"}

## Base equation {data-background="../Backgrounds/balance.jpg" class="default"}

$$Assets = Liabilites + Equity$$

- Intuition:
    1. All the assets must be owned by someone
    2. Liabilities and Equity represent all the claims on assets
    3. Assets must equal liabilities plus equity

<img src="../Diagrams/Accounting_equation1.svg" width="60%">

## Changing assets {data-background="../Backgrounds/default.jpg" class="default"}

<div class="left">
Increase

- Receiving assets
- Creating assets
</div>
<div class="right">
Decrease

- Selling assets
- Using assets
</div>

## Changing liabilities  {data-background="../Backgrounds/default.jpg" class="default"}

<div class="left">
Increase

- Receiving a debt
    - Payables: like bills
    - Loans
- Recognizing something you owe
</div>
<div class="right">
Decrease

- Paying off a debt
</div>

## Changing equity: Income and expenses {data-background="../Backgrounds/default.jpg" class="default"}
<!-- Intro this a bit better.  We've talked about A/L/E, but what about sales/expenses? -->

<div class="clearfix">
<div class="left">
Increase

- Income increases equity
    - Revenues: Income from ordinary operations
    - Gains: Income from other activities
</div>
<div class="right">
Decrease

- Expenses decrease equity
    - Expenses: Expenses from ordinary operations
    - Losses: Expenses from other activities
</div>
</div>

<br>

```{r, echo=FALSE, warning=FALSE}
text <- data.frame(
  Effect=c('Increase equity','Decrease equity'),
  Ordinary=c('Revenue','Expense'),
  Nonrd=c('Gain','Loss')
)
#label(text['Nonord']) <- "Not ordinary"
html_df(text, cols=c('Effect on equity', 'Ordinary activity', 'Not ordinary'), col1=T, full=F)
```

## Changing equity: other accounts {data-background="../Backgrounds/default.jpg" class="default"}

<div class="clearfix">
<div class="left">
Increase

- Share capital
    - Money paid in by owners
    - For corporation: money paid in at IPO or SEO
- Retained earnings
    - Economic contribution of the firm (lifetime)

</div>
<div class="right">
Decrease

- Dividends
    - Paid to shareholders
    - Not an expense!
</div>
</div>

> Retained earnings: $\sum_{\text{all years}}(Revenues - Expenses - Dividends)$

## Expanded equation {data-background="../Backgrounds/balance.jpg" class="default"}
$$
\begin{align}
Assets &= Liabilities + Equity \\ \\
Equity &= Shares + Retained~Earnings - Dividends \\
&+ Revenues - Expenses
\end{align}
$$

<img src="../Diagrams/Accounting_equation2.svg" width="60%">

## Tips on the accounting equation {data-background="../Backgrounds/default.jpg" class="default"}

>- Raising capital: assets ↑ (cash), equity ↑ (share capital)
>- Paying an expense early: assets ↑ (prepaid expense), assets ↓ (cash) [no net effect]
>- Paying prerecorded wages: assets ↓ (cash), liability ↓ (salaries payable)
>- Revenue: asset ↑ (cash), revenue ↑
>     - With inventory, add: asset ↓ (inventory), expense ↑ (cost of goods sold)
>- Paying debt: assets ↓ (cash), liabilities ↓
>     - No change in equity unless there's an interest payment

## Group problems {data-background="../Backgrounds/group.jpg" class="default"}

<ul><li style="margin-bottom:0.5em"> How would the following transactions affect the expanded accounting equation for a small coffee shop?</ul>

<ol>
<li style="margin-bottom:1.5em"> Sell a latte to a customer.
<li style="margin-bottom:1.5em"> Pay the utility bill.
<li style="margin-bottom:1.5em"> Buy lunch for the supplier's representative.
<li style="margin-bottom:1.5em"> Take a business trip to Guatemala to visit coffee farms.  Paid by cash.
<li style="margin-bottom:1.5em"> Take a vacation to Guatemala (not for business).
<li style="margin-bottom:1.5em"> Bought a new coffee maker on credit.
</ol>

> Try to work these out with your group. If you are stuck/confused, call me over to help.

## Answers {data-background="../Backgrounds/answer.jpg" class="default exclude"}

1. Sell a latte to a customer.
    - <span class="fragment">Assets ↑ (cash), Equity ↑ (revenue)
        - Also: Assets ↓ (inventory), Equity ↓ (expense)</span>
    </span>
2. Pay the utility bill.
    - <span class="fragment">Assets ↓ (cash), Liabilities ↓ (unpaid utilities)
        - OR Assets ↓ (cash), Expenses ↑ (Utilities expense)</span>
3. Buy lunch for the supplier's representative.
    - <span class="fragment">Assets ↓ (cash), Expenses ↑ (misc expense)</span>
4. Take a business trip to Guatemala to visit coffee farms.  Paid by cash.
    - <span class="fragment">Assets ↓ (cash), Expenses ↑ (misc expense)</span>
5. Take a vacation to Guatemala (not for business).
    - <span class="fragment">None</span>
6. Bought a new coffee maker on credit.
    - <span class="fragment">Assets ↑ (equipment), Liabilities ↑ (A/P)</span>

</span>

# In class work {data-background="../Backgrounds/section.jpg" class="header"}

## Harder group problem {data-background="../Backgrounds/group.jpg" class="default"}

<div class="clearfix">
<div class="left">
1. Pick a company
2. Come up with 3 transactions the company might have
3. How would each transaction affect the company's accounting equation, and why?
</div>
<div class="right border">

- Company:
- Transactions:
    1. A ↑/↓, L ↑/↓, E ↑/↓
        - Explanation:
    2. A ↑/↓, L ↑/↓, E ↑/↓
        - Explanation:
    3. A ↑/↓, L ↑/↓, E ↑/↓
        - Explanation:
</div>
</div>

<blockquote><ul><li>Email me your 3 transactions + explanation by the end of the day</li>
<ul><li>*Include all group members' names in the email!*</li></ul></ul></blockquote>


# End matter {data-background="../Backgrounds/ending.jpg" class="header"}

## Wrap up {data-background="../Backgrounds/ending.jpg" class="default"}

- For next week: 
    1) Recap the reading for this week
    2) Read the pages for next week
        - Bookkeeping (Chapter 2)
        - Accrual accounting and adjusting entries (Chapter 3)
    3) Practice on eLearn
        - Automatic feedback provided
        - Make sure you have the accounts and accounting equation down!
            - You'll need to know these next week
- Survey on the class session at <a href="https://docs.google.com/forms/d/e/1FAIpQLSdwawOnMpSIUH-E2LAhfP1iF6QTz2LXy5R69jd4cHYGuJFDsQ/viewform?usp=sf_link">rmc.link/101survey1</a>

## Packages used for these slides {data-background="../Backgrounds/code.jpg" class="default stack"}

- kableExtra
- knitr
- plotly
- revealjs
- rworldmap
- tidyverse
- zoo

## References {data-background="../Backgrounds/books-old.jpg" class="default stack never"}

## Custom code {data-background="../Backgrounds/code.jpg" class="default stack never"}

<small style="width:100%">
```{r, eval=F}

```
</small>

## Notes {class="never"}

