Accounting I Class Schedule Accounting I Instructor: Dr. Ben Mahdavian Time: Tuesday 1:00 3:30 PM Thurs. 1:00 3:30 PM Room: BJ 106 02/09/2016 through 06/02/2016 Office Hours: Thursday 12:30-1:00 P.M in the classroom Tuesday 12:30-1:00 P.M. in the classroom My name is Ben Mahdavian, I hold M.B.A. degree in finance and doctorate degree in Public Administration. In my early career, I worked as Vice President of Finance for Don Baxter Laboratories. I was then promoted to the Board of Director as Chairman of the Board of Don Baxter Laboratories. I am presently working in California State University, Los Angeles in Department of Management as an Assistant Professor, and also operating my own business as Management and Financial Consultant and also practicing in the field of Real Estate, Mortgages and Accounting. Text and Required Materials: Accounting Principles 11th edition, 2013 Weygandt, Kimmel, Kieso. Description: This course introduces the fundamental principles and concepts of accounting as a basis for financial communication in business. This includes the procedures in maintaining records of business transactions and the preparation of financial statements for the sole proprietorship in a service and merchandising firm. Problems in control, deferrals and accruals, inventory, plant assets and accounts receivable, accounts payable and payroll are included. Objectives: Understand what accounting is and the underlying fundamental principles. nsactions and prepare a simple set of financial statements. sic internal controls, cash and receivables reporting. Student Learning Outcomes: 1. Students will be able to construct a worksheet and prepare financial statements for profit or non-profit organizations. 2. Students will be able to prepare a bank reconciliation and the necessary entries for an organization. 3. Students will be able to calculate the cost of inventory under the various cost principles. Students will also be able to evaluate and compare the costs best suited for the particular business enterprise. 4. Student will be able to compute various depreciation methods used for the fixed assets of a business and judge the one best suited for the needs of the business.
Grading Policy: The grading policy is as follows: Class Participation and attendance 5 points 25 points Homework Assignments 20 points Mid-Term 20 points Final 30 points Total points possible 100 points An I, meaning incomplete, grade is given only when a small portion of the course work must be completed. Students must have attended the first six weeks of the class. Method of Instruction: Lecture, seminars, and group discussion Notes and expectations: Ask your group members for help Help anyone in your group who needs it You re expected to have studied the assigned chapters You re expected to have done the homework and spent some time with group members about mutual homework answers You are expected to bring your textbook, working papers, calculator and pencil to every class meeting. Class Schedule: Week Chapters 1 Orientation & Introduction to Accounting 1 Different forms of Business Establishment 2 Analyzing Transaction- Journal Entry Double- Entry Accounting System 2 3 Adjusting entries- Adjusted Trial Balance 3 4 Completion of the Accounting Cycle 4 Preparing Financial Statement 5 Review of Chapters 1 through 4 6 Accounting for Merchandising Business 5 7 Review of Chapters 1-5 Mid Term Exam
8 Inventory and its importance 6 9 Accounting Information System & Accounting Internal Control 7, 8 Sarbanes- Oxley Act 2002 10 Accounting for Receivables 9 11 Plant and Intangible Assets 10 12 Chapters 6-10 Review 13 Current Liabilities-Account Payable 11 Payroll Accounting System 14 Presentation of 15 Continue of Presentation 16 All Chapters Review Final Exam Assignment Policy: There will be a few pop up QUIZZEZ during the course of the semester and they will be announced by the instructor. Students will actively be involved with their s after the mid-term, every Tuesday. All assignments are due every Tuesday. All assignments must be typed on spread sheet and delivered on each Tuesday. There will not be any grade issued for late or unfinished assignments. No grade will be assigned to un-typed assignments. All assignments must be delivered in two copies, one copy for the instructor for grading the homework and one copy for the student to review the answers in the class.
Assignments Chapter Assignment Week 2 EX. 2-5, 2-9, 2-11, 2-12 2 3 EX. 3-5, 3-6, 3-7, 3-8 3 4 EX. 4-3, 4-4, 4-7, 4-8 4 Review and 5 5 EX. 5-3, 5-4, 5-5 6 Review and Mid-Term 7 6 EX. 6-4, 6-5, 6-6, 6-7 8 7 In class activities 9 EX. 9-1, 9-2, 9-3, 9-4 10 8 EX. 10-1, 10-2, 10-3, 10-6 11 9 In class activities 12 10 EX. 11-1, 11-2, 11-10 13 11 Project Presentation 14 Project Presentation & Review 15 Final Exam 16 There will be many extra assignments done in the classroom by the instructor s choice Absences and Tardiness: Excessive tardiness and/or absences may result in the lowering of students grades or involuntary withdrawals Be On Time: Class will always start promptly when scheduled. When class begins be in your seat, ready to go. Coming in late is not acceptable, will affect your learning and may affect your grade. Homework: The student is expected to turn all homework in on time. Late homework will receive ZERO credit. The student is cautioned that completed and timely homework represents 20% of the students overall grade. Therefore, the importance of receiving full-credit on each homework assignment cannot be overemphasized.
Examinations: There will be a midterm and a final examination. The student is expected to be prepared to be tested on all current and prior material covered in the text and/or lectures. All examinations are cumulative. There are no makeup examinations. Students with Disabilities: All in-class and Web-based material will be presented using the accessibility guidelines provided by thew3c when possible in compliance with the college's and District's policies. The course will endeavor to have visual enhancements that have alternative text (alt) tags and alternate text descriptions to provide access for students with visual impairments or sound enhancements such as closed captioning. When necessary, text versions of Web pages may also be made available. Course syllabi Web pages may clude statements requesting students with disabilities to apprise the instructor of a limitation so that special needs can be met in a timely manner. When access is not compatible with a student s disability, the instructor will make available alternative methods of instruction. The instructor may use alternative assignment substitutes, special turoring and testing or other alternatives agreed upon by Pierce's Special Services Program, the instructor and student. It is expressly understood, that the student must be the catalyst for these discussions to begin. SSD is located in the Student Services Annex, Room 175 and their phone number is (818) 947-2681. The SSD office needs to send the instructor a memo that confirms the exact accommodations required by the student. Academic Integrity and Honesty Policy: Violations of academic dishonesty and integrity occur when a student participates in any act in which he/she uses deception or fraud while performing an academic activity. Violations include, but are not limited to, the following: Using study aids such as, calculators, tape recorders or notes, when not authorized by the instructor. Cheating on examinations, assignments or experiments, (allowing another student to copy one s answers or copying the answers of other students; exchanging information by any means, including verbal exchanges, sign language, hand signals, secret codes, passed notes, creation of a distraction for the purpose of cheating; changing answers on a previously graded test, assignment or experiment; inventing information and/or data. Allowing another student to assume one s identity in order to fulfill an assignment or take a test. Submitting for a grade the words, ideas, and/or written work (including laboratory notes and drawings) of another person without given due credit to that person. This includes purchased papers written by other students. Falsifying or attempting to falsifying attendance records and/or grade rosters. Conspiring with other students to commit any of the above acts. For the consequences for any offense against academic honesty and integrity, please consult the Pierce General Catalog- 2008-2009. The College strongly encourages you to continue your education. Consider pursuing a Certificate in Accounting and, ultimately, an AA degree.
Accounting 1 Study Guide Chapters 1 through 4 Chapter 1. Introduction to Accounting and Business Important Chapter Concepts- 1) Business Entity Concept = A business is viewed as a separate entity from its owners, creditors or other stakeholders. 2) Cost Principle = All costs are recorded at acquisition costs, not appraised value, value or any other concept except what amount the entity gives up (cash or property). What did you pay for the asset? 3) The Accounting Equation = Assets Liabilities = Net Worth or Assets = Liabilities + Net Worth a) Assets are things the company o w n s. b) Liabilities are debts the company o w e s c) Net Worth (a.k.a. Owners Equity or Stockholders Equity or Capital) is the difference between Assets and Liabilities. 4) Typical Business Transactions = a) The Owner contributes funds to the businessi) Following the Accounting Equation- (1) There is an Increase in Company Assets (Cash) and an Increase in Net Worth (Owners Equity). b) The business buys Suppliesi) Following the Accounting Equation- (1) There is an Increase in Company Assets (Supplies) and a Decrease in Assets (Cash). c) The business pays renti) Following the Accounting Equation- (1) There is a Decrease in Company Assets (Cash) and a Decrease in Owners Equity (Rent Expense). All Expenses reduce Owners Equity and all Revenues Increase Owners Equity. d) The business earns revenuei) Following the Accounting Equation- (1) There is an Increase in Company Assets (Cash) and an Increase in Owners Equity (Revenue). All Expenses reduce Owners Equity and all Revenues Increase Owners Equity. Revenue can be from sales, performing a service, interest, dividends, etc. Revenue may be earned and received by the company in the form of cash, accounts receivable (customers owe the business) and other.
5) At the end of the company s accounting cycle, the difference between revenues and expenses equals Net Income. 6) There are four (4) Financial Statementsa) Income Statement = A summary of revenue and expenses that have taken place during a specific period. b) Statement of Owners Equity = Changes in Owners Equity that have taken place during a specific period. c) Balance Sheet = A simple list of Assets, Liabilities and Owners Equity on a specific date. d) Statement of Cash Flow = A summary of Cash receipts and Cash payments that have taken place during a specific period. 7) Types of Business Organizationsa) Corporation Corporate Characteristics i) Unlimited Owners ii) Limited Liability iii) Unlimited Life iv) Taxed as an Independent Entity- 1120 b) Sole Proprietorship Sole Proprietorship Characteristics i) One Owner ii) Unlimited Liability iii) Limited Life iv) Taxed Through to Owner- 1040, Schedule C c) Partnership Partnership Characteristics i) More Than One Owner ii) Unlimited Liability- Jointly and Severed iii) Limited Life iv) Mutual Agency- All can Commit v) Taxed Through to Owners- 1065
Chapter 2. Analyzing Transactions Important Chapter Concepts- 1) Account- Accounting systems are designed to show the increases and decreases in each financial statement item as a separate record, this record is called an account. Each account has a title (cash, accounts receivable, inventory, etc.), a place to show increases and a place to show decreases. All accounts for the business are grouped in a ledger. A list of accounts in the ledger is called a chart of accounts. a) The list of accounts is in the order in which they appear in the financial statements, balance sheet first then income statement and owners equity. i) Assets are things owned by the company. ii) Liabilities are debts of the company. iii) Owners Equity is the difference between assets and liabilities. iv) Revenues are increases in Owners Equity as a result of selling services or products to customers. v) Expenses are decreases in Owners Equity as a result of using up assets in the process of generating revenue. 2) Bookkeeping- Recording all transactions by account and then summarizing. Utilizing Debits and Credits Debits mean Left, Credits mean Right Debits must equal Credits ASSETS LIABILITIES OWNERS' EQUITY Asset Account = Liability Account + Owners' Equity Account Debits for Credits for Debits for Credits for Debits for Credits for increases( + ) decreases( - ) decreases( - ) increases( + ) decreases( - ) increases( + ) -THEREFORE- To increase an asset, use a Debit. To decrease an asset, use a Credit. To increase a liability, use a Credit. To decrease a liability, use a Debit. To increase Owners Equity, use a Credit. To decrease Owners Equity, use a Debit. Expenses always reduce Owners Equity. Therefore, to increase expenses, use Debits. Revenues always increase Owners Equity. Therefore, to increase revenues, use Credits.
Typical Journal Entries- Nov 1 Cash 25,000 A. Gillis, Capital 25,000 Invested in business. 5 Land Cash 20,000 Purchased land for building site. 20,000 10 Supplies 1,350 Accounts Payable 1,350 Purchased supplies on account. 18 Cash 7,500 Fees Earned 7,500 Received fees from customer 30 Accounts Payable Cash 950 Paid creditors on account. 950 Dec 1 Prepaid Insurance 2,4004 Cash 2,400 Paid premium on one-year policy. 1 Rent Expense 800 Cash 800 Paid rent for November. 1 Cash 360 Unearned Rent 360 Received advance payment for three months rent on land. 4 Office Equipment 1,800 Accounts Payable 1,800 Purchased office equipment on account. 6 Miscellaneous Expense 180 Cash 180 Paid for newspaper ad.
11 Accounts Payable 400 Cash 400 Paid creditors on account. 13 Wage Expense 950 Cash 950 Paid two weeks wages. 21 Accounts Receivable 1,750 Fees Earned 1,750 Record fees earned on account. 28 Cash 900 Accounts Receivable 900 Received payment from customer. 29 Accounts Payable 200 Cash 200 Paid creditors on account. -Each month, journal entries are posted to the General Ledger- ACCOUNT Cash ACCOUNT NO. 11 Date Item Post. Ref. Debit Credit Balance Debit Nov 1 JE 25,000 25,000 5 JE 20,000 5,000 18 7,500 12,500 30 950 11,550 Balance Credit -AFTER ALL JOURNAL ENTRIES HAVE BEEN POSTED TO THE GENERAL LEDGER, PREPARE A TRIAL BALANCE- The Gillis Company Unadjusted Trial Balance April 30, 2007 Debit Balances Credit Balances Cash 2361 Accounts Receivable 8720 Supplies 535 Prepaid Insurance 835 Equipment 21520 Accounts Payable 1335 A. Gillis, Capital 30583 A. Gillis, Drawing 1250
Professional Fees 6865 Salary Expense 1725 Rent Expense 800 Laboratory Expense 545 Utilities Expense 360 Miscellaneous expense 132 Total 38783 38783 If the Trial Balance does not balance, look for your error.
Chapter 3. The Adjusting Process 1) Accrual Basis of Accounting- Cash becomes irrelevant for accrual accounting. Accountants record things when revenue is earned and expenses incurred. 2) Revenues are recorded when earned. This means the revenue recognition rule applies. Revenues are recorded when earned, not when they are paid. Once the company has earned the revenue (the sale has taken place or the work has been performed to earn the fees) the journal entry to record the transaction would be a debit to Accounts Receivable and a credit to Revenue. The purpose of this concept is to record transactions in the proper period. 3) Expenses are recorded when incurred. This means the revenue recognition rule applies. Expenses are recorded when incurred, not when they are paid. Once the company has incurred the expense (incurred expenses on account) the journal entry to record the transaction would be a debit to an Expense and a credit to Accounts Payable. The purpose of this concept is to record transactions in the proper period. 4) The Adjustment process- To record transactions in the proper period and/or to record transactions in accounts that need to be updated. 5) Typical Adjusting Journal Entries- a) Prepaid Expenses- Prepaid Expenses are expenses that have been paid in advance. Typical, businesses may pay for a three year insurance policy all at once. In those circumstances, a business must allocate the amount to expense that represents the policy s expiration. Assume that a business purchases a three-year insurance policy on January 1, 2008 for $3,600. When the business purchased the policy the transaction would have been recorded by debiting Prepaid Expense (an asset) and crediting Cash. On December 31, 2008, the company has used one third of the policy (12 months have expired). To reflect the partial expiration of the policy, one would reduce the asset and record the expense, debit Insurance Expense and credit Prepaid Insurance. Insurance Expense is also known as Expired Insurance while Prepaid Insurance is also known as Unexpired Insurance. b) Unearned Revenue- Unearned revenues are revenues collected in advance by the company before it performed its work. Typically, a business that collects deposits from customers in advance of performing the necessary service before the revenue may be considered earned is Unearned Revenue. Assume a business collects money from a customer before it has performed a service for $3,000. When the business receives the cash before performing the service it would record the transaction as a debit to Cash and a credit to Unearned Revenue. Unearned Revenue is a liability to the company because it has not performed the service. The dollars are owed to the customer and may be paid back to the customer either by performing its contracted service or by the company returning the funds to its customer. In either case, the
customer has the right to receive goods or services for its deposit. Once the revenue is earned, the company would record the reduction of Unearned Revenue with a debit to Unearned Revenue and a credit to Earned Revenue. c) Supplies- Supplies are assets of the company until the supplies are used by the company. Typically, due to the minor value on individual supply items, the accountant adjusts the company s books each month to reflect the company s usage of their supplies. The accountant would physically count the ending supplies in the company at the end of the month. He or she would then calculate how many supplies were used: Beginning Supplies $150 Purchases During the Month 450 Supplies Available for Use $600 Ending Supplies on Hand at the End of the Month 110 Supplies Used During the Month $490 (Please remember this schematic, you will use this many, many times). Once the accountant determined how much of the Supplies have been used, he or she can adjust the books accordingly, debit Supplies Expense for $490, credit Supplies for $490. d) Accrued Revenue- Accrued revenue is revenue that has been earned by not recorded at the end of the month. To record this revenue, the accountant must debit Accounts Receivable and credit Revenue. Typically, these transactions need to be recorded through the passage of time or services performed. A company performs work for a customer but has yet to bill for there services. The company has loaned funds to a customer at a specific interest rate but has not collected the funds as of yet. Revenue must be recorded when earned in the proper period. e) Accrued Expenses- Accrued expenses are expenses that the company has incurred and not yet recorded. Typically, these are expenses that have been incurred but unpaid. Assume that the company has incurred telephone expenses but have not received the bill until after the month end. The accountant will need to adjust the company s books to reflect the month s telephone expense by debiting Telephone Expense and crediting Accounts Payable. f) Accrued Wages- Accrued Wages are expenses that have been incurred but not paid. If a pay period ends in a time other than the end of the month, the company owes the amount of wages that were unpaid as of the end of the month. Assume that a company pays its wages on the seventh and 22 nd of each month. From the 23 rd of each month to the end of the month, the company does owe those wages that have accrued through the end of the month. Therefore, the company would debit Wage Expense and credit Wages Payable at the end of the month in an amount equal to the unpaid wages for the last week that remained unpaid as of the end of the month. g) Depreciation Expense- Depreciation is the allocation of an asset s cost over the asset s useful life. Please notice we are not talking about cash; depreciation is a simple calculation to reflect that portion of the asset s cost that the accountant has
allocated (spread out) to the current period. Assume a fixed asset s cost is $10,000 that has a useful life of ten years, without a residual or salvage value. Each year, the accountant may allocate $1,000 as a depreciation expense for that asset. The accountant would debit Depreciation Expense and credit Accumulated Depreciation for $1,000 each year. Accumulated depreciation appears on the company s balance sheet as a contra account to the fixed asset. Assume that the fixed asset appears on the balance sheet of the company the second year after acquisition as $10,000, the Accumulated Depreciation will reflect $2,000. Therefore, the fixed asset will appear on the balance sheet as follows: Fixed Assets $10,000 Less: Accumulated depreciation 1,000 Net Book Value $9,000 Chapter 4. Completing the Accounting Cycle 1) All nominal/temporary accounts should be closed at the end of the year. All revenues and expenses are considered temporary since they are closed at the end of the year to give the owners a reliable and accurate accounting on how the company did during the year. The difference between revenue and expense is either net income or net loss. The closing of the revenue and expense accounts is to give the accounting records a fresh start for the new fiscal year. This allows each year results of operations to be confined to a 12 month period. To close the revenue and expense accounts, accountants use an additional account to act as a clearing account precisely for the year end. This account is typically called the Revenue and Expense Summary. To close the temporary accounts one debits all revenue accounts and credits all expense accounts. The difference is then debited or credited to the Revenue and Expense Summary as follows: Sales 4,000 Fees 6,000 Interest Income 1,000 Wage Expense 3,000 Rent Expense 400 Supplies Expense 1,200 Insurance Expense 200 Maintenance Expense 100 Depreciation 100 Revenue and Expense Summary 6,000 To close all revenue and expense accounts as of December 31, 2008 The accountants then close the Revenue and Expense summary to Owners Equity. Revenue and Expense Summary 6,000
Owners Equity 6,000 To close the Revenue and Expense Summary to Owners Equity for the year then ended as of December 31, 2008. By recording the above entries, the company s books will have a zero balance in all temporary accounts (revenues, expenses and revenue and expense summary) for the start of the new fiscal year and the results of operations (net income or loss) will be part of Owners Equity. 2) The Accounting Cycle. The accounting process that begins with analyzing and journalizing transactions and ends with preparing the accounting records for the next period s transactions is called the accounting cycle. The steps in the accounting cycle are as follows: a) Transactions are analyzed and recorded in journals. b) Transactions are posted to the ledger. c) An unadjusted trial balance is prepared. d) Adjustment data are assembled and analyzed. c) Adjusting journal entries are journalized and posted to the ledger. d) An adjusted trial balance is prepared. e) Financial statements are prepared. f) Closing entries are journalized and posted to the ledger. g) A post-closing trial balance is prepared. At this step in the accounting cycle, all revenue expense balances should be zero. This allows the revenue and expenses to start fresh for the new fiscal year.