Use this one to find which chapter to look at it for information

Page 1: Introduction

• Course Title: Accounting Concepts and Financial Reporting GSBA 510

• Focus: Comprehensive Review for Final Examination

• Institution: USC Leventhal School of Accounting, University of Southern California

Page 2: Class Recording

• GSBA 510 sessions will be recorded via Zoom and may use Panopto.

• Important: Be aware that participation and comments will also be recorded.

Page 3: Class Topics

• Today's focus: Comprehensive Review for Final Examination.

Page 4: Comprehensive Review Overview

• Continuation of topics related to the Comprehensive Review for Final Examination.

Page 5: Course Structure

• Identified as Class 1 of the series.

Page 6: Course Goal

• Goal of GSBA 510: Cover topics such as public reporting, management decision-making, asset and income measurement theories, and case analysis.

Page 7: Course Objectives

• Understand external financial reporting goals and principles.

• Gain knowledge about accrual-based accounting reports.

• Evaluate performance with financial accounting.

• Develop ability to critically analyze financial accounting information.

Page 8: Forms of Business Organization

• Sole Proprietorship: Owned by one person; most common form.

• Partnership: Voluntary association of two or more for business.

• Corporation: Separate legal entity with stockholders; dominant organizational type.

Page 9: Business Activities

• Types of business activities:

  1. Financing

  2. Investing

  3. Operating

Page 10: Use of Accounting Information

• Distinction between external users and internal users of accounting information.

Page 11: Ethics in Accounting

• Importance of ethics, rules, and justifications governing behavior in business.

• Companies often maintain a written code of ethics.

• Unethical behavior can lead to misleading financial statements.

• Sarbanes-Oxley Act of 2002 was enacted to deter unethical practices.

Page 12: The Accounting Process

• Step-by-step approach:

  1. Identify relevant economic activities.

  2. Quantify these activities.

  3. Record the results.

Page 13: Generally Accepted Accounting Principles (GAAP)

• GAAP: Authoritative accounting principles.

• GAAP can differ among countries; efforts are made for international harmony (i.e., IASB, IFRS).

Page 14: Financial Accounting Oversight

• SEC: Federal agency regulating interstate stock/bond sales.

• FASB: Maintains U.S. GAAP; provides codified communication of GAAP.

• PCAOB: Establishes auditing standards and oversees the auditing profession.

Page 15: Financial Statements Overview

• Key components:

  • Income Statement

  • Statement of Stockholders’ Equity

  • Balance Sheet

  • Statement of Cash Flows

Page 16: Additional Information in Financial Reporting

• Management Discussion and Analysis: Insights on recent performance and financial conditions.

• Notes to Financial Statements: Details assumptions, estimates, and measurement procedures.

• Auditor’s Report: Independent auditor’s opinion on the financial statements.

Page 17: Classes 2 and 3

• Transition and topics for upcoming classes.

Page 18: Accounting Cycle

• Steps in the accounting cycle:

  • Analyze transactions from source documents.

  • Journalize transactions.

  • Prepare unadjusted trial balance.

  • Journalize adjusting entries.

  • Prepare financial statements.

  • Journalize closing entries.

  • Prepare post-closing trial balance.

Page 19: Accounting Equation

• Expanded equation details the relationship:

  • Assets = Liabilities + Stockholders’ Equity (common stock + retained earnings - expenses)

Page 20: Transaction Analysis Template

• Vivid representation of how transactions affect financial statement components, ensuring the accounting equation balances.

Page 21: Chart of Accounts

• General structure listing all account titles categorized into:

  • Assets

  • Liabilities

  • Stockholders’ Equity

  • Revenues

  • Expenses

Page 22: General Ledger

• Listing of each account with the amounts from all transactions contributing to the balance.

Page 23: Classes 4 and 5

• Roadmap for future discussions and learning.

Page 24: Accrual Basis of Accounting

• Required by GAAP: Transactions recorded when they occur, not necessarily when cash is exchanged.

• Core principles:

  • Revenue recognition.

  • Expense recognition (matching).

Page 25: Revenue Recognition Principle

• Revenue recognized when contractual obligations are met, regardless of cash receipt timing.

Page 26: Expense Recognition (Matching Principle)

• Expenses recognized in the same period as the income they generate; immediate expensing if unmatchable.

Page 27: Types of Adjustments

• Key adjustment types include:

  • Prepaid Expenses

  • Unearned Revenue

  • Accrued Expenses

  • Accrued Revenues

Page 28: Preparing Financial Statements

• Adjusted balances for leading states:

  1. Income Statement

  2. Statement of Stockholders’ Equity

  3. Balance Sheet

  4. Statement of Cash Flows

Page 29: Permanent vs. Temporary Accounts

• Permanent Accounts: Balances persist across accounting periods (Balance Sheet).

• Temporary Accounts: Reset to zero after a period (Income Statement).

Page 30: Closing Process

• Temporary accounts reset by transferring balances to Retained Earnings at period-end.

Page 31: Quality of Accounting Numbers

• Financial statements should reflect the true economic condition and performance of the company.

Page 32: Class 6

• Overview and transition to upcoming topics.

Page 33: Financial Reporting Quality

• Financial accounting facilitates the efficient allocation of resources and provides pertinent information.

Page 34: Qualities of Useful Accounting Information

• Must be relevant, faithfully representative, complete, neutral; characterized by comparability, verifiability, timeliness, and understandability.

Page 35: Classified Balance Sheet

• Presents assets and liabilities in subgroups such as current and long-term.

Page 36: Balance Sheet Presentation Formats

• Two formats:

  • Account form

  • Report form

Page 37: Multi-Step Income Statement

• Organized to present revenue and expense categories distinctly.

Page 38: Ratio Analysis

• Balances in one account compared to another for performance evaluations, including benchmarking and trend analysis.

Page 39: Balance Sheet Insights

• Essential for assessing financial health and identifying financing methods (debt vs. equity).

Page 40: Income Statement Analysis

• Profitability ratios such as profit margin aid in evaluating a firm's health.

Page 41: Statement of Stockholders’ Equity

• Shows changes in stockholders' equity, consisting of contributed and earned capital.

Page 42: Statement of Cash Flows Overview

• Identifies changes in cash sources and uses within operating, investing, and financing activities.

Page 43: Class 7

• Introduction to new topics.

Page 44: Internal Control and Cash Fraud

• Importance of internal control to reduce fraud opportunities.

Page 45: Types of Fraud

• Examples include embezzlement, theft, false claims, and financial statement fraud.

Page 46: The Fraud Triangle

• Key components: Pressure, Rationalization, Opportunity.

Page 47: Internal Control Framework

• COSO Framework: Structuring and evaluating internal controls.

Page 48: Five Components of COSO

• Elaborate structure focusing on control environment, risk assessment, control activities, information, and monitoring.

Page 49: Control Activities

• Prevention vs. detection controls; prevention is favored.

Page 50: Sarbanes-Oxley Act (SOX)

• Established reforms in response to accounting fraud; mandates internal control maintenance by public companies.

Page 51: Internal Controls for Cash

• Effective policies are essential to safeguard cash, including written procedures and duty segregation.

Page 52: Effective Cash Management

• Cash management involves monitoring and effectively allocating cash resources.

Page 53: Auditing and Internal Control

• Distinguishes between financial and operational audits for efficiency and effectiveness evaluations.

Page 54: Financial Statement Audits

• Required audits for public companies to ensure fair presentation of financial statements.

Page 55: Bank Reconciliation Structure

• Important for reconciling cash accounts between bank statements and general ledger.

Page 56: Classes 8 and 9

• Previews for upcoming sessions.

Page 57: Receivables Overview

• Accounts Receivable arises from sales on credit.

Page 58: Losses from Accounts Receivable

• Costs of granting credit and implications of bad debt expense.

Page 59: Allowance Method for Bad Debt

• Estimation of bad debts during the revenue recognition period; aligns with matching principle.

Page 60: Estimating Credit Losses

• Two methods: Percentage of Net Sales and Aging Method.

Page 61: Writing Off Receivables

• Process for recognizing uncollectible accounts; potential for recovery.

Page 62: Credit Card Sales

• Overview of credit card transactions, including advantages for sellers.

Page 63: Notes Receivable Characteristics

• Key features of promissory notes, often subject to longer repayment periods.

Page 64: Interest Calculation

• Basic formula: Interest = Principal x Interest Rate x Time.

Page 65: Classes 10, 11, and 12

• Outline of forthcoming classes.

Page 66: Inventory Overview

• Types of firms involved with distinct inventory categories.

Page 67: Categories of Inventory

• Overview of the three types for manufacturers and single inventory type for merchandising firms.

Page 68: Inventory Management Strategies

• Just-in-case vs. Just-in-time inventory strategies; associated costs and risks.

Page 69: Cost Flows

• Financial implication of inventory accounting on statements.

Page 70: Cost Flows in Schedule Form

• Illustrative example of inventory cost flow and calculations.

Page 71: Physical Inventory Count

• Explanation of physical count to ensure records match actual inventory.

Page 72: Inventory Costing Systems

• Differences between perpetual and periodic systems for tracking inventory.

Page 73: Inventory Costing Methods

• Various costing methods and their implications on financial results.

Page 74: Impacts of Cost Flow Methods

• Evaluations of methods in terms of cost allocation for inventory and profitability.

Page 75: Classes 13, 14, and 15

• Overview of future class topics.

Page 76: Investments Overview

• Introduction to different types of securities that represent ownership or creditor relationships.

Page 77: Debt Securities

• Definition and types of debt securities such as treasury bills, bonds, etc.

Page 78: Equity Securities

• Financial instruments representing ownership interest.

Page 79: Investments in Debt Securities

• Classifications and accounting events relevant to debt securities.

Page 80: Investments in Equity Securities

• Classifications based on influence levels.

Page 81: ASU 2016-01 Effect on Equity Securities

• Changes in measurement attributes for different types of equity securities.

Page 82: Consolidated Financial Statements

• Accounting for parent-subsidiary relationships and consolidated reporting requirements.

Page 83: Classes 16, 17, and 18

• Introduction to subsequent topics in the course.

Page 84: Long-Lived Assets Overview

• Identifying characteristics and accounting treatment for long-lived assets.

Page 85: Plant Assets

• Details on the category of plant assets held by a company.

Page 86: Intangible Assets

• Definition and types of intangible assets; specifics regarding amortization.

Page 87: Accounting for Long-Lived Assets

• Key issues regarding acquisition costs, expensing, and disposals.

Page 88: Expenditures Related to Land

• Capitalization of costs necessary for land preparation; depreciation policies.

Page 89: Nature of Depreciation

• Mechanism of how depreciation allocates asset costs over useful life.

Page 90: Impairment Loss

• Definition and concepts related to asset impairment and recognition of losses.

Page 91: Revenue vs. Capital Expenditures

• Differences between revenue and capital expenditures and their accounting treatment.

Page 92: Disposals of Property, Plant, and Equipment

• Key components to consider when disposing of long-term assets.

Page 93: Intangible Assets - Accounting

• Overview of amortization policies for intangible assets and the treatment of goodwill.

Page 94: Classes 19, 20, and 21

• Outline for the upcoming sessions.

Page 95: Liabilities Overview

• Definition and classifications: current vs. long-term liabilities.

Page 96: Current Liabilities Types

• Examples of different current liabilities that businesses may incur.

Page 97: Interest on Promissory Notes

• Description of how interest functions in promissory notes and its methods.

Page 98: Long-Term Liabilities

• Definition and types of long-term indebtedness such as bonds and loans.

Page 99: Bonds vs. Common Stock

• Advantages and disadvantages of long-term bonds compared to equity financing.

Page 100: Bonds Payable Types

• Various categories of bonds based on characteristics and repayment obligations.

Page 101: Bond Features

• Key features influencing bond issuance, such as call provisions and sinking funds.

Page 102: Bond Terms

• Important bond-related terms to understand, including face value and maturity date.

Page 103: Bond Issuance

• Bonds sold at market value based on present value calculations.

Page 104: Bond Pricing

• Bonds typically sold in standard units, with pricing variances as premiums or discounts.

Page 105: Bond Valuations

• Market price determination through discounting future cash flows.

Page 106: Interest Expense and Amortization

• Discussion of how interest expenses are recognized and amortized across periods.

Page 107: Long-term Notes (Term Loans)

• Structure and characteristics of long-term notes and repayment specifics.

Page 108: Leases

• Overview of how leases function within financial accounting and lessee-lessor relationships.

Page 109: Leased Asset and Liability

• Accounting treatment of leased assets and the effect on financial statements.

Page 110: Criteria for Finance Leases

• Definition criteria that classify a lease as a finance lease versus an operating lease.

Page 111: Contingent Liabilities

• Definition and accounting treatment for liabilities dependent on future events.

Page 112: Classes 22 and 23

• Introduction to next topics in the course.

Page 113: Statement of Cash Flows

• Importance of tracking cash flows and cash equivalents in financial reporting.

Page 114: Cash Flow from Operating Activities

• Detailed breakdown of cash inflows and outflows in operating activities.

Page 115: Cash Flow from Investing Activities

• Identification of cash flows associated with investing activities and their implications.

Page 116: Cash Flow from Financing Activities

• Overview of various cash inflows and outflows associated with financing activities.

Page 117: Notable Points

• Cash classification specificities regarding accounts payable, interest, and dividends in relation to activities.

Page 118: Noncash Investing and Financing Activities

• Explanation of activities that do not impact current cash flows but affect future flows.

Page 119: Cash Flow Reporting Methods

• Differences between the direct and indirect methods of presenting cash flows.

Page 120: Steps in Cash Flow Analysis

• Summary steps in determining and preparing cash flow statements.

Page 121: Class 24

• Overview and transition for the next session.

Page 122: Stockholders’ Equity Overview

• Formation and definition of corporations, highlighting shareholder involvement.

Page 123: Primary Corporate Stakeholders

• Breakdown of stakeholder roles within a corporation, focusing on stockholders, board of directors, and officers.

Page 124: Advantages of Corporate Form

• Strengths in limited liability, capital transferability, and capital raising capabilities.

Page 125: Disadvantages of the Corporate Form

• Considerations regarding taxation, organizational costs, and regulatory supervision.

Page 126: Par Value

• Current relevance of par value in modern corporations and its historical significance.

Page 127: Capital Stock Types

• Definitions for authorized, issued, and outstanding shares nomenclature within stock accounting.

Page 128: Common Stock

• Characteristics and rights associated with common stock ownership.

Page 129: Preferred Stock

• Dividend and liquidation preferences, along with distinguishing features over common stock.

Page 130: Stock Issuance

• Accounting entries required when capital stock is issued to investors.

Page 131: Stock Splits

• Impact of forward and reverse stock splits on market price and shareholders.

Page 132: Treasury Stock

• Definition and implications of treasury stock purchase by corporations.

Page 133: Dividends Overview

• Explanation of cash and stock dividends, declaring liability, and effects on retained earnings.

Page 134: Class 25

• Outline of learning points for the next session.

Page 135: Analysis and Interpretation of Financial Statements

• Concepts of earnings persistence and its predictive value regarding future cash flows.

Page 136: Topics in Chapter 12

• Key topics such as multi-step income statements, discontinued operations, and comprehensive income.

Page 137: Analytical Techniques for Financial Analysis

• Sources and methods for effective financial analysis.

Page 138: Horizontal (Trend) Analysis

• Method for comparing multiple years of data to identify trends.

Page 139: Vertical Analysis

• Common-size financial statements for evaluating relative importance of accounts.

Page 140: Ratio Analysis

• Overview of profitability ratios for assessing performance efficiency.

Page 141: Short-term Liquidity Ratios

• Ratios for evaluating a firm’s capacity to fulfill obligations in the short-term.

Page 142: Long-term Solvency Ratios

• Ratios indicating a company’s ability to meet long-term debt obligations.

Page 143: Ratios for Stockholders

• Ratios specifically relevant to common stockholders.

Page 144: Limitations of Financial Statement Analysis

• Considerations impacting reliable analysis outcomes, including economic conditions and differing accounting methods.

Page 145: Limitations and Qualitative Factors

• Importance of qualitative analysis alongside quantitative methods in financial evaluations.

Page 146: Financial Statement Disclosures

• Categories of financial disclosures necessary for transparency in financial reporting.

Page 147: Class 26

• Overview and transition to next class topics.

Page 148: Debits and Credits Fundamentals

• Definitions of debits and credits in accounting.

Page 149: T-Accounts

• Illustrative accounts used to record financial transactions.

Page 150: Trial Balance

• Role of the trial balance in verifying account integrity, ensuring debits equal credits.

Page 151: Accounting Adjustments

• Types of adjustments for revenue and expenses accounting.

Page 152: Four Types of Accounting Adjustments

• Listing various adjustments with their effects on financial statements and balances.

Page 153: Final Accounting Steps

• Overview of processes for closing accounts and finalizing financial statements.

Page 154: Journalizing and Posting Closing Entries

• Detailed steps on how to close temporary accounts.

Page 155: Summary of Accounting Cycle

• Recap of the accounting cycle steps important for financial reporting.

Page 156: Final Examination Notice

• Announcement of the GSBA 510 Final Examination schedule and location details.