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I. Introduction to Financial Accounting

II. Accounting for Assets

III. The Present and Future Value of Money   

IV. Liabilities and Equity

V. Income Measurement and Reporting Cycle

VI. Related Booklets

I. Introduction to Financial Accounting  Links provide added explanation.
    A. Balance Sheet states the value of business  from an accounting prospective.
         1. Value = Equity = Net Worth = Assets (Items of Value) - Liabilities (Amounts Owed).
         2. A business begins with an investments of assets. A = E.  Business Equity may consist of  
             one owner (sole proprietorship), two or more (partnership), and many (corporations)
         3. More assets are acquired with existing assets or liabilities.
Financing a Business With Debt
is leverage financing.
         4. Business activities takes place, assets and liabilities go up and down, and equity changes.
A(+/-) - L(+/-) = E(+/-).
         5. An increase in equity during an accounting period is called income, a decrease is a loss.
     B.  Income Statement measures the change in equity from business activities during an accounting 
          period (usually a year?)
         1. Activities that generates assets (cash and/or receivables) are called revenue activities.
         2. Activities that use assets ( cash) and/or create liabilities payables) are called expenses.
         3. Companies that sell a physical product are called merchandisers and have cost of goods sold.
     C. Cash Flow follows the movement of cash, a company's most important asset.
          Movement of cash is analyzed according to operating activity, Investing activity, and financing activity.
     D. Cash versus Accrual Accounting
         1. With cash accounting, the Income Statement and Balance Sheet whenever cash movers into and
             out of the business.
         2. With accrual accounting, income is recorded when earned and expenses are match with the revenue
             being generated.
     E. Those who want a debits and credits explanation should see:
Overview of Accounting Cycle,       

           Accounting Principles,      The Accounting Equation,      Recording  Transactions         Adjustments

           Worksheet, and Statements,    Completing The Accounting Cycle,       MerchandisingAccounting Systems

            e-mail the author, Walter for free quizzes with solutions

II. Accounting for Assets
Links provide added explanation. Read, if necessary, upon completing this Part I.
      A. Cash and Short-Term Investments
          1.  When a number of people are responsible for purchasing, vouchers and other financial controls are
              used to protect from wastes, fraud, and insure accurate financials.
          2. Cash equivalents are highly liquid assets that mature within 90 days meaning little interest rate risk
              and include T. Bills, short-term commercial paper, and money markets funds.
      B. Accounts Receivable 
          1. Selling on credit increases sales and customer defaults normally result in few bad debt expenses.
          2. If sales are small and collected quickly, bad debts may be written off directly when collection fails.
              Otherwise, an allowance is estimated, charged to expense, and lowered when appropriate.
          3. Bad debts may be estimated as a percentage of credit sales, a percentage of current receivables,
              or receivables may be aged with older receivables estimated to have a higher failure rate. 
      C. Inventory
          1. Items purchased, marked up, and stored for later sale may be inventoried to Goods Available for Sale.
              An end of period inventory is subtracted leaving Cost of Good Sold.
          2. Periodic Inventory has costing at the end of a period, while a perpetual inventory has costing continually.
          3. Income Statement and Balance Sheet amounts are affected differently so wanting low taxes would mean
              a different method than wanting high asset valuations. IRS frowns on changing methods.
      D. Plant and Equipment
1. Long lasting assets not intended for resale have a value equal to cost, transportation, instillation, 
               and cost to get running properly.
           2. Cost is recovered through the process of depreciation in that cost per unit or time period is 
               calculated by dividing cost minus salvage by units or years.
           3. Accelerated depreciation delays taxes and is allowed to encourage capital investment which
               leads to economic growth. 
           4. Sale of plant assets above or below book value (Cost - Accumulated Depreciated) results in
               a gain or loss which is not part of operating income.
        E.  Natural Resources and Intangibles
1. Wasting assets from the earth are long term assets valued at cost plus development cost and
                cost is recovered through depletion.
            2. Intangibles are nonphysical, concurrent, and their purchase and development cost is recovered
                through amortization. 
       F.  Those who want a debits and credits explanation should see: Accounting for Assets

             Accounting for Cash     Bank Reconciliation    Accounts Receivable

             Inventory Methods     Errors and Lower Cost or Market    Plant and Equipment

             Extraordinary Repairs and Betterments     Natural Resources and Intangibles

III. The Present and Future Value of Money Notes
from Quick Notes 
   A. Vide
o Lectures cover basic interest theory

   B.  Practice Problems and Solutions

   C. TI-84 Time Value of Money Video Lectures

IV. Liabilities and Equity is a concise booklet.


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Accounting for Managers 
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