Author: Robert Holt, PhD, CPA

Abstract: The purpose of this course is to give the student a complete understanding of the development of the balance sheet and income statement as well as the cash flow statement. This is done from the user’s perspective.

Audience: Undergraduate business students

Chapter 1 begins with a discussion of the who, what, why, where, and how of accounting. The standard-setting process and the roles of the various parties in the development of generally accepted accounting principles are described in this chapter.

Chapter 2 introduces the fundamental accounting equation, assets equal liabilities plus owners’ equity and uses it to construct the balance sheet first, and then the income statement. The interactive problems in Chapter 2 reinforce the use of T accounts and developing the financial statements.

Chapter 3 immerses students in the accounting cycle. They learn the significance of journal entries, ledger posting and ultimately statement creation. A variety of exercises are presented, requiring comprehension of topics such as the operating cycle, accruals, depreciation, and reconciliation of retained earnings.

Chapter 4 discusses a brief history of internal control with the focus on Sarbanes-Oxley. Control of cash as well as bank reconciliation is covered. Also, the mechanics in the accounting for petty cash is discussed.

Chapter 5’s primary focus is accounts receivable with an emphasis on bad debt expense. Secondly, notes receivable and the calculation of interest is covered. Balance sheet presentation of the allowance for doubtful accounts is reviewed.

Chapter 6 covers the various methods of valuing inventory LIFO, FIFO and average. Perpetual systems are explored as well as specific identification. The financial statement impact of each of these methods is discussed.

Chapter 7 discusses fixed assets and the various methods of depreciation. Also, asset disposition and intangible assets are covered.

Chapter 8 covers liabilities. The primary focus is on accounts payable and notes payable. Estimated liabilities and payroll are also discussed. Interest calculation is shown as well as note terminology.

Chapter 9 covers bonds beginning with bond terminology and the reviewing of the accounting for issuing bonds at face value, discount and premium. Also, pricing bonds is reviewed and effective interest amortization is discussed.

Chapter 10 covers corporations, capital stock issuance, accounting for treasury stock transactions, preferred stock, dividends on common stock and dividends on preferred stock. Also, stock dividends and stock splits are discussed.

Chapter 11 discusses cash flow and demonstrates the direct and indirect method for generating the statement of cash flows. Each segment of the cash flow statement is explained in great detail. Particular emphasis is placed on the impact on cash caused by changes in current accounts.

Chapter 12 discusses financial statement analysis. The focus is on key ratios for operating performance, liquidity, and financial strength. Also, horizontal and vertical analysis of financial statements is reviewed.