Goals Handout Characteristics of Winning Teams Characteristics of Leaders Business Processes Handouts: Marketing Production Finance HR Capsim: Automation,

Age, Buying Criteria, Perceptual Map Top Ten Ratios Handout with items such as ROS, ROE, ROA, Asset TO, PE Ratio, Working Capital etc Accounting Text: 1. Role of Accounting The role of accounting in business is to provide information for managers to use in operating the business. In addition, accounting provides information to other users in assessing the economic performance and condition of the business. Thus, accounting can be defined as an information system that provides reports to users about the economic activities and condition of a business. You may think of accounting as the language of business. This is because accounting is the means by which businesses' financial information is communicated to users. 1. 2. 3. 4. 5. Identify users. Assess users' information needs. Design the accounting information system to meet users' needs. Record economic data about business activities and events. Prepare accounting reports for users. 2. The Accounting Equation and how transactions effect it The resources owned by a business are its assets. Examples of assets include cash, land, buildings, and equipment. The rights or claims to the assets are divided into two types: (1) the rights of creditors and (2) the rights of owners. The rights of creditors are the debts of the business and are called liabilities. The rights of the owners are called owner's equity. The following equation shows the relationship among assets, liabilities, and owner's equity: Assets = Liabilities + Owner's Equity

3. Normal Balances, Rules of Debits and Credits Normal balance of an account is either a debit or credit depending on whether increases in the account are recorded as debits or credits ALICE Approach: The rules of debit and credit can also be explained using the Acronym ALICE. List the types of classifications of accounts: A = Assets L = Liabilities C = Capital Stock I = Income (Revenue) E = Expense Arrange the letters to read ALICE. Then list normal balances by the side of each. A L I C E = = = = = Dr. Cr. Cr. Cr Dr.

4. JE's, AJE's and CE's 5. Depreciation, Book Value, Accumulated Depreciation Depreciation Over time, fixed assets, with the exception of land, lose their ability to provide services. Thus, the costs of fixed assets such as equipment and buildings should be recorded as an expense over their useful lives. This periodic recording of the cost of fixed assets as an expense is called depreciation. Because land has an unlimited life, it is not depreciated. Note: The adjusting entry to record depreciation debits Depreciation Expense and credits Accumulated Depreciation.

The 3 depreciation methods used most often are as follows:2 Straight-line depreciation

Units-of-production depreciation

Double-declining-balance depreciation

Step 1. Determine the straight-line percentage using the expected useful life. Step 2. Determine the double-declining-balance rate by multiplying the straight-line rate from Step 1 by 2. Step 3. Compute the depreciation expense by multiplying the double-declining-balance rate from Step 2 times the book value of the asset. To illustrate, the equipment purchased in the preceding example is used to compute double-declining-balance depreciation. For the first year, the depreciation is $9,600, as shown below. Step 1. Straight-line percentage = 20% (100%/5) Step 2. Double-declining-balance rate = 40% (20% ! 2) Step 3. Depreciation expense = $9,600 ($24,000 ! 40%) Book Value The book value of a fixed asset (cost less accumulated depreciation) usually does not agree with the asset's market value. Accumulated Depreciation The adjusting entry to record depreciation debits Depreciation Expense and credits a contra asset account entitled Accumulated Depreciation or Allowance for Depreciation. The use of a contra asset account allows the original cost to remain unchanged in the fixed asset account. Note: The adjusting entry to record depreciation debits Depreciation Expense and credits Accumulated Depreciation. 6. Financial Statements

After transactions have been recorded and summarized, reports are prepared for users. The accounting reports providing this information are called financial statements Income Statement The income statement reports the revenues and expenses for a period of time, based on the matching concept. This concept is applied by matching the expenses incurred during a period with the revenue that those expenses generated Note When revenues exceed expenses, it is referred to as net income, net profits, or earnings. When expenses exceed revenues, it is referred to as net loss. Retained Earnings Statement Balance Sheet

7. Accounting Cycle The accounting process that begins with analyzing and journalizing transactions and ends with the post-closing trial balance is called the accounting cycle 1. Transactions are analyzed and recorded in the journal. 2. Transactions are posted to the ledger. 3. An unadjusted trial balance is prepared. 4. Adjustment data are assembled and analyzed. 5. An optional end-of-period spreadsheet is prepared. 6. Adjusting entries are journalized and posted to the ledger. 7. An adjusted trial balance is prepared. 8. Financial statements are prepared. 9. Closing entries are journalized and posted to the ledger. 10. A post-closing trial balance is prepared.2

8. Multi-Step Income Statement, COMS, Periodic Inventory system Multi-Step Income Statement

Under the periodic inventory system , the inventory records do not show the amount available for sale or the amount sold during the period. Instead, the cost of merchandise sold and the merchandise on hand are determined at the end of the period by physically counting the inventory. Cost of Merchandise Sold Using the Periodic Inventory System In the periodic inventory system , sales are recorded in the same manner as in the perpetual inventory system. However, cost of merchandise sold is not recorded on the date of sale. Instead, cost of merchandise sold is determined at the end of the period Recording Merchandise Transactions Under the Periodic Inventory System Using the periodic inventory system , purchases of inventory are not recorded in the merchandise inventory account. Instead, purchases, purchases discounts, and purchases returns and allowances accounts are used. In addition, the sales of merchandise are not recorded in the inventory account. Thus, there is no detailed record of the amount of inventory on hand at any given time. At the end of the period, a physical count of merchandise inventory on hand is taken. Recording Merchandise Transactions Under the Periodic Inventory System Using the periodic inventory system , purchases of inventory are not recorded in the merchandise inventory account. Instead, purchases, purchases discounts, and purchases returns and allowances accounts are used. In addition, the sales of merchandise are not recorded in the inventory account. Thus, there is no detailed record of the amount of inventory on hand at any given time. At the end of the period, a physical count of merchandise inventory on hand is taken. Freight In When merchandise is purchased FOB shipping point, the buyer pays for the freight. Under the periodic inventory system , freight paid when purchasing merchandise FOB shipping point is debited to Freight In, Transportation In, or a similar account.

Chart of Accounts Under the Periodic Inventory System

Adjusting Process Under the Periodic Inventory System The adjusting process is the same under the periodic and perpetual inventory systems except for the inventory shrinkage adjustment. The ending merchandise inventory is determined by a physical count under both systems. Under the perpetual inventory system, the ending inventory physical count is compared to the balance of Merchandise Inventory. The difference is the amount of inventory shrinkage. The inventory shrinkage is then recorded as a debit to Cost of Merchandise Sold and a credit to Merchandise Inventory . Under the periodic inventory system , the merchandise inventory account is not kept up to date for purchases and sales. As a result, the inventory shrinkage cannot be directly determined. Instead, any inventory shrinkage is included indirectly in the computation of cost of merchandise sold. This is a major disadvantage of the periodic inventory system . That is, under the periodic inventory system , inventory shrinkage is not separately determined.

Financial Statements Under the Periodic Inventory System The financial statements are similar under the perpetual and periodic inventory systems . When the multiple-step format of income statement is used, cost of merchandise sold may be reported as shown in Exhibit 12.

Closing Entries Under the Periodic Inventory System The closing entries differ in the periodic inventory system in that there is no cost of merchandise sold account to close to Income Summary. Instead, the purchases, purchases discounts, purchases returns and allowances, and freight in accounts are closed to Income Summary. In addition, the merchandise inventory account is adjusted to the end-of-period physical inventory count during the closing process. The four closing entries under the periodic inventory system are as follows: 1. Debit each temporary account with a credit balance, such as Sales, for its balance and credit Income Summary. Since Purchases Discounts and Purchases Returns and Allowances are temporary accounts with credit balances, they are debited for their balances. In addition, Merchandise Inventory is debited for its end-of-period balance based on the end-of-period physical inventory. 2. Credit each temporary account with a debit balance, such as the various expenses, and debit Income Summary. Since Sales Returns and Allowances, Sales Discounts, Purchases, and Freight In are temporary accounts with debit balances, they are credited for their balances. In addition, Merchandise Inventory is credited for its balance as of the beginning of the period. 3. Debit Income Summary for the amount of its balance (net income) and credit the retained earnings account. The accounts debited and credited are reversed if there is a net loss. 4. Debit the retained earnings account for the balance of the dividends account and credit the dividends account.

9. Cash Flow sections and calculations for expenses paid Cash Flow!The Indirect Method Step 1. List the title of each balance sheet account in the Accounts column. Step 2. For each balance sheet account, enter its balance as of December 31, 2011, in the first column and its balance as of December 31, 2012, in the last column. Place the credit balances in parentheses. Step 3. Add the December 31, 2011 and 2012 column totals, which should total to zero. Step 4. Analyze the change during the year in each noncash account to determine its net increase (decrease) and classify the change as affecting cash flows from operating activities, investing activities, financing activities, or noncash investing and financing activities. Step 5. Indicate the effect of the change on cash flows by making entries in the Transactions columns. Step 6. After all noncash accounts have been analyzed, enter the net increase (decrease) in cash during the period. Step 7. Add the Debit and Credit Transactions columns. The totals should be equal.

10. Horizontal and Vertical Analysis