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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:
Financing
Investing
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:
Identify relevant economic activities.
Quantify these activities.
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:
Income Statement
Statement of Stockholders’ Equity
Balance Sheet
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.