Module Readings:
Complete the following readings early in the module:
Read the online lectures for the Module
From the textbook, Accounting for Managers: Interpreting Accounting Information for Decision Making, 5th, read the following chapters:
Chapter 6: Constructing Financial Statements: IFRS and the Framework of Accounting
Chapter 6 textbook Microsoft PowerPoint slides
Chapter 7: Interpreting Financial Statements
Chapter 7 textbook Microsoft PowerPoint slides
Chapter 8: Accounting for Inventory
Chapter 8 textbook Microsoft PowerPoint slides
Module Overview:
While driving, you always follow traffic rules. Without adherence to traffic rules, there would be chaos on the roads. Similarly, if organizations do not follow rules or standard accounting practices to record data, users might incorrectly interpret financial results. In addition, it will be difficult for external users, such as shareholders and investors, to compare and evaluate financial statements of different companies. Without standardization, they will be unable to make correct decisions about their investments. Therefore, accounting information requires a logical set of practices to provide a general frame of reference by which it can be evaluated.
This module explains accounting practices. It also explains why uniformity in accounting practices is important and how it can be obtained.
Accounting and Recording Principles
One of the basic objectives of accounting is to convey information. This is achieved by different financial statements prepared for business—the most important statements being the balance sheet, the income statement, the statement of cash flow, and the statement of owner’s equity. Different companies may call these statements by different names, but they represent the same basic documents. For instance, the balance sheet may be referred to as the statement of financial position or assets in excess of liabilities. Similarly, the income statement may be referred to as the statement of operations or the statement of revenues over expenses.
The Balance Sheet
The balance sheet includes a summary of assets (both current and long-term assets), current and long-term liabilities, and owner’s equity. Current assets are defined as assets that are either cash, or can be converted into cash in a short period (usually within one year). Current assets are more liquid assets. This list also includes the debt of the company called current liabilities.
These debts are expected to be paid off within one year or less. If assets or liabilities are not current, they are considered long-term. Both assets and liabilities are presented on the financial statement in order of liquidity. One other very important matter is that the balance sheet is the only permanent financial statement of the company. The balance sheet contains the balances of all assets, liabilities, and equity AT the date of the statement. The balance sheet is therefore a balance-forward statement, and the balance presented could be from any time on or before the presentation date of the statement. This is different from every other financial statement.
Read the Success on the OAES document for full instructions about how to use this system.
Assigned questions for the Module are:
Q6-1: What are accounting standards?
Q6-2: Summarize the IASB’s Framework for the Preparation and Presentation of Financial Statements.
Q6-3: A business has the following balances in its financial records: Income tax £30,000; Selling & administration expenses £80,000; Revenue £350,000; Interest expenses £15,000; Cost of Sales £190,000. How much is the Gross profit, Operating profit, and the Net Profit after tax?
Q6-4: What are some ways you can express the accounting equation?
Q6-5: The following items appear in a Statement of Financial Position: Receivables €200,000; Payables €350,000; Inventory €100,000; Non-current assets €750,000; Long-term loan €400,000. What is the balance of Shareholders’ funds (SH Equity)?
Q6-6: ABC buys a smaller company XYZ for a negotiated price of £1 million. XYZ’s assets are valued at £750,000. Assuming goodwill is amortized over 5 years, what is the value of goodwill in ABC’s Statement of Financial Position at the end of the third year after acquisition?
Q6-7: What is Agency theory and what is it primarily concerned with?
Q7-1: What is the difference between ROI and ROCE ratios?
Q7-2: Use the following information extracted from ABC’s Income Statement and Balance sheet to determine ABC’s Days Sales Outstanding, Inventory Turn, and Payables Days Outstanding:
Sales £4,200,000; Gross profit £2,700,000; Receivables £630,000; Payables £275,000; Inventory £300,000. ABC calculates its financial ratios based on being open for business 6 days per week for 50 weeks per year.
Q7-3: A company has capital employed of €1,000,000 and generates a profit after tax of €300,000. Assume the company has a balance sheet with 60% debt. What is the ROI? Now assume the company has a balance sheet with 40% debt. What is the ROI?
Q7-4: A business has current assets of $35,000 and current liabilities of $20,000. It collects its receivables more quickly and uses $10,000 of its cash at bank to repay a long-term debt. What is the effect on the working capital ratio after the long-term debt is repaid?
Q8-1: How is inventory valued in the Balance Sheet (Statement of Financial Position)?
Q8-2: In a manufacturing business, when the company has completed production on inventory it wishes to sale, explain flow of costs for affected inventory accounts.
Q8-3: A business purchases inventory stock on four separate occasions. Purchased 3,500 units at a total cost of €8,050; Purchased 3,000 units at a total cost of €7,110; Purchased 4,000 units at a total cost of €9,600; and Sold 5,995 units at a total price of €24,760. Each purchase was completed in the order provided within the same period. Match the inventory method with the correct cost of sales and the correct value of inventory.
Success on the OAES document full instructions about how to use this system. Assigned questions for the Module are:
The OAE S: What to Expect The Online Assignment Entry System (OAES) was developed to facilitate an improved check – your -knowledge environment which substantially increases student comprehension. The OAES allows you to validate your learned knowledge by recording your answers and providing the opportunity to make any corrections. The purpose of this paper is to instruct you on how to use this method of knowledge review.
The OAE S: What to Expect The Online Assignment Entry System (OAES) was developed to facilitate an improved check – your -knowledge environment which substantially increases student comprehension. The OAES allows you to validate your learned knowledge by recording your answers and providing the opportunity to make any corrections. The purpose of this paper is to instruct you on how to use this method of knowledge review.
For success on the OAES, please review the detailed instructions that follow to prepare for each of the graded OAES Entry Quiz assessments.
OAES Process Overview • Question Identification Key • Procedure for Completing OAES checks
OAES Process Overview
The following process overview explains the basic flow of activity.
Stage /Description
1. Read the required material for the assigned module.
2. Work the examples and sample problems included with the reading. Complete work on the OA E S Assigned Questions. Make sure you have the correct answers.
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