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Getting Started To the uneducated, the details of the accounting processes that support organizations may seem trivial. In the real world, however, the consequences can be serious. Financial data is used to support decision making and to guide the organization. Employees may be laid off, operations may be shut down, or new product development efforts canceled, all based on financial statements and analysis. With the stakes so high, the members of an organization’s accounting and finance teams are likely to spend as much or more time explaining financial statements to decision makers as they do actually developing them. This is the situation you will face in this assignment. Upon successful completion of this assignment, you will be able to: Explain the impact of adjusting transactions on a company’s financial statements. Evaluate the impact of various managerial decisions on a company’s financial position. Resources Textbook: Principles of Accounting: Volume 1, Financial Accounting File: Financial Accounting Chapter 3 File: Financial Accounting Chapter 4   Video-recording Software  Background Information Parsi Onious is upset. As a manager in the purchasing department, he has just received an ugly surprise, which has brought him to your doorstep.  Parsi manages the team of professional buyers responsible for procuring all of the company’s raw materials. This includes hundreds of millions of dollars of metals, chemicals, and plastics each year from around the globe. These materials are used in the manufacture of the company’s products, including a new line of refrigerators that was launched just last year. As buyers, Parsi’s team is primarily measured on the cost of the materials they purchase. They are expected to work hard to continuously bring down these costs and to help the company stay competitive.  However, Parsi is also personally responsible for producing financial forecasts. Using his inside knowledge of material costs, he is expected to create estimates of how much the company will spend on these materials each month and quarter. These forecasts are used by executives when they communicate with investors. The company sets public earnings targets, so it is critical the forecasts be reliable. Unfortunately, Parsi’s forecast for the last quarter was off by a large margin, and now the Vice President of Operations is demanding answers. When the company purchases raw materials, a debit is recorded against inventory, while a credit is made to accounts payable. Later, after the company manufactures and ships its products to the customer, a credit is made against inventory, recording the consumption of the raw materials. Meanwhile, in accordance with the expense recognition (matching) principle, cost of goods sold is debited. Parsi’s team is measured based upon the cost of materials, so this transaction is very important to them. Parsi is forecasting how much cost of goods sold will be expensed each month and quarter. Finished products contain a certain amount of raw material. Herein lies the problem. The engineering team estimated that each refrigerator contains 11.22 pounds of polyurethane foam, an expensive chemical used for insulation. When the refrigerators are shipped, inventory is credited for 11.22 pounds of polyurethane, while 11.22 pounds is simultaneously debited against cost of goods sold as an expense. However, a physical inventory count conducted at the end of the quarter determined that $350,000 of polyurethane was missing. Apparently much more than 11.22 pounds was being consumed in the manufacture of each refrigerator. The inventory report triggered the company’s accounting department to create an adjusting journal entry. Since this was unexpected, the adjustment resulted in Parsi’s forecast for cost of goods sold to be off by $350,000. As a member of the finance team supporting Parsi, it has now fallen to you to explain the transaction. He doesn’t understand why he is being “penalized” for an apparent inventory control problem at the manufacturing plant, and fears being blamed. Parsi wants to be able to defend himself to the Vice President of Operations, which means he needs to know what happened and how it can be prevented in the future. Instructions Review the rubric to make sure you understand the criteria for earning your grade. In your textbook, Principles of Accounting, read Chapters 3 and 4, “Analyzing and Recording Transactions” and “The Adjustment Process.” Download and review the Financial Accounting Chapter 3 and Financial Accounting Chapter 4 PowerPoints to help you further understand the chapter concepts. Using PowerPoint, create a presentation that explains the adjusting entry and what actions could be taken to improve financial forecasting in the future. Your presentation should include at least four slides and last three to five minutes. Content must include: Background and introduction (one slide) An explanation of how inventory transactions are related to cost of goods sold and how the process for recording material costs normally works. Show a typical journal entry and T-accounts in your presentation (one slide). An explanation of the adjusting entry that was necessary due to the inventory count and how it would affect cost of goods sold and Parsi’s forecast. Show the adjusting journal entry that occurred and the T-accounts (one slide). A couple of suggestions for what changes could be made to avoid this forecasting error in the future (one slide) Create a video of yourself making the presentation to Parsi Ominous using a screen recording software application of your choice. You can sit in front of your computer and use the built-in camera. Screencast-o-Matic offers a free version that will be more than adequate for this assignment. If there is another video software option you are more familiar with, you may use that as well. Your video should be both professionally formatted and professionally presented, in a manner that would be understandable to novices in accounting and finance. When you finish, publish your video on a website such as Vimeo, YouTube, or another public video publishing site, and submit both the link to your video and your presentation by the end of the workshop.Chapter 3 ANALYZING AND RECORDING TRANSACTIONS Principles of Accounting, Volume 1: Financial Accounting PowerPoint Image Slideshow Chapter Outline 3.1 Describe Principles, Assumptions, and Concepts of Accounting and Their Relationship to Financial Statements 3.2 Define and Describe the Expanded Accounting Equation and Its Relationship to Analyzing Transactions 3.3 Define and Describe the Initial Steps in the Accounting Cycle 3.4 Analyze Business Transactions Using the Accounting Equation and Show the Impact of Business Transactions on Financial Statements 3.5 Use Journal Entries to Record Transactions and Post to T-Accounts 3.6 Prepare a Trial Balance Module 3.1 Describe Principles, Assumptions, and Concepts of Accounting and Their Relationship to Financial Statements The Financial Accounting Standards Board (FASB) is an independent, nonprofit organization that sets the standards for financial accounting and reporting, including generally accepted accounting principles (GAAP), for both public- and private-sector businesses in the United States. GAAP are the concepts, standards, and rules that guide the preparation and presentation of financial statements. US accounting rules are called US GAAP. International accounting rules are called International Financial Reporting Standards (IFRS). Some companies that operate on a global scale may be able to report their financial statements using IFRS. Publicly traded companies (those that offer their shares for sale on exchanges in the United States) have the reporting of their financial operations regulated by the Securities and Exchange Commission (SEC). Teacher Notes: By having proper accounting standards such as US GAAP or IFRS, information presented publicly is considered comparable and reliable. As a result, financial statement users are more informed when making decisions. 3 The conceptual framework is a set of concepts that guide financial reporting. These concepts help ensure information is comparable and reliable to stakeholders. Revenue recognition principle: directs a company to recognize revenue in the period in which it is earned; is earned when a product or service has been provided Expense recognition (matching) principle: states that we must match expenses with associated revenues in the period in which the revenues were earned Cost principle: states that virtually everything the company owns or controls (assets) must be recorded at its value at the date of acquisition Full disclosure principle: states that a business must report any business activities that could affect what is reported on the financial statements The Conceptual Framework Teacher Notes: Revenue recognition is not dependent on when cash is received. Expense recognition is not dependent on when cash is paid. Matching is important so as not to overstate or understate income. 4 Separate entity concept: prescribes that a business may only report activities on financial statements that are specifically rChapter 4 THE ADJUSTMENT PROCESS Principles of Accounting, Volume 1: Financial Accounting PowerPoint Image Slideshow Chapter Outline 4.1 Explain the Concepts and Guidelines Affecting Adjusting Entries 4.2 Discuss the Adjustment Process and Illustrate Common Types of Adjusting Entries 4.3 Record and Post the Common Types of Adjusting Entries 4.4 Use the Ledger Balances to Prepare an Adjusted Trial Balance 4.5 Prepare Financial Statements Using the Adjusted Trial Balance Module 4.1 Explain the Concepts and Guidelines Affecting Adjusting Entries Public companies use either US generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS), as allowed by the Securities and Exchange Commission (SEC) regulations. Companies, public or private, using US GAAP or IFRS prepare their financial statements using the rules of accrual accounting. With accrual basis accounting, revenues and expenses are recorded in the accounting period in which they were earned or incurred, no matter when cash receipts or payments occur. Individually, these are the revenue recognition principle and the expense recognition principle. Collectively they are known as the matching principle. The accrual method standardizes reporting information for comparability purposes. Comparable information is important to external users of information trying to make investment or lending decisions, and to internal users trying to make decisions about company performance, budgeting, and growth strategies. Some nonpublic companies may choose to use cash basis accounting rather than accrual basis accounting to report financial information. Teacher Notes: In this chapter, we look at Steps 5, 6, and 7 of the accounting cycle, but to understand why these stages occur, it is first necessary to understand the following concepts: accrual accounting, accounting period, and calendar versus fiscal year. 3 An accounting period breaks down company financial information into specific time spans and can cover a month, a quarter, a half-year, or a full year. Public companies governed by GAAP are required to present quarterly (three-month) accounting period financial statements called 10-Qs. Most public and private companies keep monthly, quarterly, and yearly (annual) period information. This is helpful for users needing up-to-date financial data to make decisions about company investment and growth. Accounting Period A company may choose its yearly reporting period to be based on a calendar or fiscal year. A calendar year shows financial data from January 1 to December 31 of a specific year. A fiscal year is a twelve-month reporting cycle that can begin in any month and records financial data for that consecutive twelve-month period. An interim period is any reporting period shorter than a full year (fiscal or calendar). They can be monthly, quarterly, or half-year statements. The information contained on these statements is timelier than waiting CREATE A PROFESSIONAL BIO SEE THE SAMPLE FORMAT BELOW Sentence 1: [Name] is a [job title] who [job description]. E.g., Lisa Green is an English teacher who teaches beginning to advanced literature courses for 10th and 11th grade students at Bloomfield High School. Sentence 2: [Name] believes that [why you do the work you do]. E.g., Lisa believes that written and analytical skills are not only a fundamental part of academic excellence, but are also the building blocks of critical thinking in high school and beyond. Sentence 3: [Name/pronoun] has [mention your achievements]. E.g., In addition to managing the English curriculum for the school, she runs an after school program where she works one-on-one with students. Sentence 4: [Name/pronoun] is a [mention any relevant awards, training or honors]. E.g., She has also been nominated Teacher of the Year for two consecutive years. Sentence 5: [Name/pronoun] holds a [insert degree] in [field of study] from [university]. E.g., Lisa holds a BA in Creative Writing and a Master’s Degree in Teaching from the University of Michigan. Once you’ve filled in this template, put it all together into a single paragraph to create an initial framework for your professional biography. Note that you can shorten or expand upon this bio according to your unique needs. Here is more info about the person: SUMMARY ABOUT THE PERSON, DO NOT COPY ALL THIS. A Front-End Developer and Service-Now Developer Providing solution with expertise in (Front-End) JavaScript, Html, CSS, Bootstrap (ServiceNow) Testing, Design, Development, and Implementation experience. Working in the Information Technology Sector for over ten years and seven years in Service-Now. Experienced in the Process flow, implementing solutions, Business Analysis, planning and management. Helped businesses reach their goal with best practices. Areas of Expertise are Agile Methodology ( Scrum ), GRC(Policy & Compliance, Risk Management, Vendor Risk Management), Human Resources Service Delivery, ITAM-SAM PRO || ITSM (Service-catalog, Knowledge, Incident, Change, Problem) as well as Design solutions. Always aggressively identify and resolve inefficient operational processes, Including knowledge in CMDB,MID-SERVER & Discovery. Very Resourceful, analytical, and detail-driven individual with capabilities in completing multiple projects with competing deadlines. TECH INDUSTRY, OVER 10+ YEARS OF EXPERIENCE WORK IN HEALTH CARE, MANUFACTURING, FINANCIAL, OIL AND GAS SECTOR SO PLS GENERATE NICE WORDS ABOUT A PERSON WITH THE ROLE OF A TECHNOLOGY DIRECTORCREATE A PROFESSIONAL BIO SEE THE SAMPLE FORMAT BELOW Sentence 1: [Name] is a [job title] who [job description]. E.g., Lisa Green is an English teacher who teaches beginning to advanced literature courses for 10th and 11th grade students at Bloomfield High School. Sentence 2: [Name] believes that [why you do the work you do]. E.g., Lisa believes that written and analytical skills are not only a fundamental part of academic excellence, but are also the building blocks of critical thinking in high school and beyond. Sentence 3: [Name/pronoun] has [mention your achievements]. E.g., In addition to managing the English curriculum for the school, she runs an after school program where she works one-on-one with students. Sentence 4: [Name/pronoun] is a [mention any relevant awards, training or honors]. E.g., She has also been nominated Teacher of the Year for two consecutive years. Sentence 5: [Name/pronoun] holds a [insert degree] in [field of study] from [university]. E.g., Lisa holds a BA in Creative Writing and a Master’s Degree in Teaching from the University of Michigan. Once you’ve filled in this template, put it all together into a single paragraph to create an initial framework for your professional biography. Note that you can shorten or expand upon this bio according to your unique needs. Here is more info about the person: SUMMARY ABOUT THE PERSON, DO NOT COPY ALL THIS. A Front-End Developer and Service-Now Developer Providing solution with expertise in (Front-End) JavaScript, Html, CSS, Bootstrap (ServiceNow) Testing, Design, Development, and Implementation experience. Working in the Information Technology Sector for over ten years and seven years in Service-Now. Experienced in the Process flow, implementing solutions, Business Analysis, planning and management. 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