Fluent Essays

Getting Started In the last workshop, we strengthened our knowledge of financial statements and how they could be used to support managerial decision making. In this workshop, we are taking a peek behind the curtain at the inner workings of the processes used to develop financial statements. This assignment will give you an opportunity to practice creating journal entries, T-accounts, and adjustments. The proper recording of transactions is the foundation upon which financial statements are built. By deepening our understanding of the processes which support financial statements, we can become wiser consumers of financial data and better decision makers. Upon successful completion of this assignment, you will be able to: Understand the process used to record financial transactions. 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 File: Assignment 2.4 Workbook File: Workshop Two Practice Problems Workbook Background Information Managers and other decision makers depend on financial statements. They are essential inputs to strategic decision making. However, for a leader to base important decisions on data they don’t understand would be foolhardy. To be a more effective user of financial data, decision makers need to understand how financial statements are constructed, what their limitations are, and what insights they can give.  With a firm understanding of accounting processes, leaders will be able to better judge how their decisions will impact the company’s financial position. For this assignment you will complete a series of short exercises designed to help you practice creating journal entries, T-accounts, and adjustments, and to demonstrate your understanding of basic accounting procedures. Instructions Review the rubric to make sure you understand the criteria for earning your grade. In your textbook, Principles of Accounting, read Chapter 3, “Analyzing and Recording Transactions,” and Chapter 4, “The Adjustment Process.” Download and review the PowerPoint files for Chapters 3 and Chapter 4 to help you further understand the chapters.  Study the provided practice problems and solutions in the Workshop Two Practice Problems Workbook to help you better understand the processes used to build financial statements.  Using the Assignment 2.4 Workbook (course exclusive), complete all seven of the following problems:  Journal Entries: Problems 1, 2, and 3 T-Accounts: Problems 4 and 5 Adjusting Journal Entries: Problems 6 and 7 Be sure your Excel spreadsheet is prepared in a professional manner, with answers clearly indicated and all your calculations shown. Full credit will not be given if your process for arriving at the answer is not fully displayed, including any intermediate steps. When you have completed your assignment, save a copy for yourself and submit a copy to your instructor by the end of the workshop.Example 1 Workshop Two Practice Exercises Example 1: Identifying Credits and Debits One of the first steps towards creating financial statements is recording financial transactions. Identify whether the following transactions would be recorded as either debit or credit entries. Use the space below to create your solution. If you get stuck, or when you are ready to check your answer, go to the next worksheet tab for the solution. Input / Output area: Cost of Goods Sold increase Rental income decrease Dividends increase Common Stock increase Taxes payable decrease Inventory decrease Machinery increase Salaries payable increase Salaries expense decrease Long-Term Debt increase This is the practice problem file, provided in the assignment instructions October 2019 Ex # 1 Solution Workshop Two Practice Exercises Example 1: Identifying Credits and Debits One of the first steps towards creating financial statements is recording financial transactions. Identify whether the following transactions would be recorded as either debit or credit entries. Check below for a detailed solution to this problem. The table below is extremely helpful and can be found on page 123 of the Franklin textbook. Just take it one by one! It would be worthwhile to print this and have it next to you while you complete your assignments! Input / Output area: Cost of Goods Sold increase Debit Cost of Goods sold is an expense (shown on the Income Statement). It increases on the debit side. Rental income decrease Debit Rental income is a form of revenue (shown on the Income Statement). It decreases on the debit side. Dividends increase Debit Dividends (shown on the Cash Flow Statement) increases on the debit side. Common Stock increase Credit Common Stock (shown on the Balance Sheet) increases on the credit side. Taxes payable decrease Debit Taxes payable (shown on the Balance Sheet) is a liability. Liabilities decrease on the debit side. Inventory decrease Credit Inventory is an asset (shown on the Balance Sheet). Assets decrease on the credit side. Machinery increase Debit Machinery is an asset (shown on the Balance Sheet). Assets increase on the debit side. Salaries payable increase Credit Salaries payable is a liability (shown on the Balance Sheet). Liabilities increase on the credit side. Salaries expense decrease Credit Salaries paid is an expense (shown on the Income Statement). It decreases on the credit side. Long-Term Debt increase Credit Long-term debt is a liability (shown on the Balance Sheet). Liabilities increase on the credit side. This is the practice prob#1 Assignment 2.4 Exercises Problem 1: Identifying Credits and Debits 5 Points One of the first steps towards creating financial statements is recording financial transactions. Identify whether the following transactions would be recorded as either debit or credit entries. Use the Template Provided Below to Indicate Your Answers (Mark each as either Debit or Credit) Input / Output area: Cash decrease Supplies decrease Accounts payable increase Common stock decrease Interest payable increase Notes payable decrease Equipment decrease Common Stock Sold increase Gas and Oil Expense increase Service revenue decrease This is the student template, provided in the assignment instructions October 2019 #2 Assignment 2.4 Exercises Problem 2: Preparing Journal Entries 5 Points Prepare Journal Entries to record the 5 transactions shown below. Fill in the template showing the appropriate credits and debits, accounts, and descriptions. March 1, issued Common Stock for cash $ 15,000 March 11, purchased inventory on account (on credit) 18,500 March 15, sold merchandise to customer for cash 555 March 20, paid supplier for part of March 11 purchase 3,700 March 28, purchased land for cash 20,000 The first journal entry is completed for you as an example. Complete the remaining four transactions. Use the Template Provided Below to Indicate Your Answers (Fill in the blanks appropriately) Output area: Journal Date Account Debit Credit March 1 Cash $ 15,000 Common Stock $ 15,000 Received cash in exchange for Common Stock issued This is the student template, provided in the assignment instructions October 2019 #3 Assignment 2.4 Exercises Problem 3: Preparing Journal Entries 10 Points Prepare Journal Entries to record the 5 transactions shown below. Build a table showing the appropriate credits and debits, accounts, and descriptions. Date Transaction Amount January 1 A trucking company is started when the owner contributes his cargo van in exchange for Stock $ 20,000 January 5 The company purchases office furniture, with immediate delivery, and payment due 45 days after delivery 7,850 January 7 An advertisement is placed in the newspaper and paid for with cash 250 January 11 Services are performed for a client. They are billed. 535 February 19 The office furniture is paid for with cash 7,850 Create your Original Solution Below - Create a table showing all the appropriate credits, debits, accounts, and descriptions. This is the student template, provided in the assignment instructions October 2019 #4 Assignment 2.4 ExerChapter 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