Module IV

1
Module IV

• Accounting Measurement

2
Todays Objectives

• To distinguish between complete and incomplete
  transactions (transformations/exchanges)
• To explore in detail the accrual basis of
  accounting
• To introduce a brief summary of accounting
  history in the United States

3
Recallthe definition of accounting

• Recording (measuring)
• Summarizing
• Reporting

EXCHANGES or TRANSFORMATIONS or TRANSACTIONS
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Continuous, On-going Activities

• Going concern assumption
• Periodic measurement assumption

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Analysis of Incomplete Transactions

• See Exhibit 3
• Analyze in terms of
• Parties
• Value given
• Value received
• Completion status

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Accrual Basis

• Allows recognition of incomplete transactions
• Revenue resource or wealth creation
• Expense resource or wealth use

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Accrual Examples

• Sales
• Cost of goods sold (COGS)
• Wages
• Interest
• Depreciation
• Other expenses
• Exchange completion or cost expiration

Summary Concept
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Product versus Period Costs

• Product cost --gt recorded in period of sale
• Period cost --gt recorded in period of occurence

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Reconciliation of the Accrual and Cash Bases

• See Exhibit 9

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Financial Statement Relationships
Stmt of S/H Equity
Balance Sheet
Income Statement
Statement of Cash Flows
Current Assets Non- current Assets
Current Liabilities Long- term Debt Equity
Revenue Cost of Goods Sold (COGS) Gross
Margin Operating Exps. Net Income
Operating Cash Investing Cash Financing
Cash Change in Cash Beginning Cash Ending Cash
Beginning S/E Net Income Less
Dividends Ending S/E
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Financial Management Evolution
DATA
Todays Corporate Focus is on Results!
INFORMATION
ANALYSIS
IMPLEMENTATION
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Transaction Summary-Worksheet-
13
U.S. Accounting History

• 33 and 34 Acts
• 1933 Securities Act
• 1934 Securities Exchange Act
• Am. Institute of Accountants, later AICPA
• Committee on Accounting Procedures
• ARB 43--1954
• Accounting Principles Board (1959 -1973)
• Financial Accounting Standards Board (1973 -
  present)

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Accounting Process-Detail

• Analyze Transaction (Exchange)
• Measure and Record
• Summarize Accounts
• Unadjusted Trial Balance
• Adjusting Journal Entries (AJEs)
• Adjusted Trial Balance
• Prepare Income Statement
• Closing Entries
• Final Trial Balance
• Prepare Balance Sheet, SCF and SSE

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Key Terms

• Prepayment
• Return of investment
• Closing entries
• Going concern
• Periodic measurement
• Depreciation and accumulated depreciation
• Unearned revenue
• 10K
• 10Q