FINANCIAL ACCOUNTING WORKSHOP July 28, 2019 Linda Bowen

Objectives of Today’s Session “Let’s Roll Up Our Sleeves and Have a Workshop!” Review financial management assignments to put everyone on a common level. Understand some of the basic assumptions underlying financial reporting. Understand the accounting cycle from entries to statement presentation.

Important Financial Accounting Principles Double Entry - duality from accounting equation, A=L+E Historical Cost - fair & objective values from arm’s-length transactions Accrual Accounting - recognize revenues when earned, expenses when incurred Full Disclosure - measure and/or disclose material events and transactions Materiality - threshold when information impacts decision making Conservatism - reporting or disclosing the least optimistic information about uncertain events and transactions FASB

Accruals--The Cornerstone Revenue Recognition – recognize revenues when (1) Earned (2) Realized or Realizable Expense – recognize expenses when (1) Incurred (2) Matched with corresponding revenues: -Product costs -Period costs

Revenue Recognition Criteria Earning activities are substantially complete and no significant added effort is necessary Risk of ownership is effectively passed to the buyer Revenue, and related expense, are measured or estimated with accuracy Revenue recognized normally yields an increase in cash, receivables or securities Revenue transactions are at arm’s length with independent parties Transaction is not subject to revocation   2 2

Statement of Cash Flows The Accounting System Journal (book of Original Entry) Objective Evidence (document) General Ledger Trial Balance Financial Statements Subsidiary Ledgers Accounts Payable Accounts Receivable Income Statement Balance Sheet Statement of Cash Flows

Expanded Accounting Equation

Compu-Shack Original Entries to Get Started! Cash (1) 150,000 Loan Payable 100,000 (1) Capital 50,000 (1)

Office Supplies Expense 1,000 Utilities Expense 455 Dr. Cr. Sales 50,000 Income Summary 50,000 Income Summary 42,037 Rent Expense 1,350 Advertising Expense 1,200 Cost of Sales 34,672 Wages Expense 1,875 Depreciation Expense 60 Office Supplies Expense 1,000 Utilities Expense 455 Interest Expense 1,250 Insurance Expense 175 Income Summary 7,963 Retained Earnings 7,963 Income Summary 42,037 50,000 7,963 Bal.

General Ledger Accounts – Balance Sheet

General Ledger Accounts Income Statement

COMPU-SHACK Income Statement for September (before tax)

COMPU-SHACK Balance Sheet at 9/30

COMPU-SHACK Income Statement for September ** * (before tax) * “Accrual Net Income on Cash Flow Statement (Operating Section) ** “Adjustment Not Requiring Cash on Cash Flow Statement (Operating Section)

COMPU-SHACK Balance Sheet at 9/30 CASH $87,410 OPER ASSET INVESTING OPER LIAB FINANCING

COMPU-SHACK STATEMENT OF CASH FLOWS FOR SEPTEMBER CONVERT NET INCOME FROM INCOME STATEMENT FROM ACCRUAL TO CASH