1. FINANCIAL ACCOUNTING WORKSHOP
July 28, 2019
Linda Bowen

2. Objectives of Today’s Session “Let’s Roll Up Our Sleeves and Have a Workshop!”
Review financial management assignments to put everyone on a common level.
Understand some of the basic assumptions underlying financial reporting.
Understand the accounting cycle from entries to statement presentation.

3. Important Financial Accounting Principles
Double Entry - duality from accounting equation, A=L+E
Historical Cost - fair & objective values from arm’s-length transactions
Accrual Accounting - recognize revenues when earned, expenses when incurred
Full Disclosure - measure and/or disclose material events and transactions
Materiality - threshold when information impacts decision making
Conservatism - reporting or disclosing
the least optimistic information
about uncertain events and transactions
FASB

4. Accruals--The Cornerstone
Revenue Recognition – recognize revenues when
(1) Earned
(2) Realized or Realizable
Expense – recognize expenses when
(1) Incurred
(2) Matched with corresponding revenues:
-Product costs
-Period costs

5. Revenue Recognition Criteria
Earning activities are substantially complete and no significant added effort is necessary
Risk of ownership is effectively passed to the buyer
Revenue, and related expense, are measured or estimated with accuracy
Revenue recognized normally
yields an increase in cash,
receivables or securities
Revenue transactions are at arm’s
length with independent parties
Transaction is not subject to revocation 2 2

6. Statement of Cash Flows
The Accounting System
Journal
(book of
Original
Entry)
Objective
Evidence
(document)
General
Ledger
Trial
Balance
Financial
Statements
Subsidiary Ledgers
Accounts Payable
Accounts Receivable
Income Statement
Balance Sheet
Statement of Cash Flows

7. Expanded Accounting Equation

8. Compu-Shack Original Entries to Get Started!
Cash
(1) 150,000
Loan Payable
100,000 (1)
Capital
50,000 (1)

10. Office Supplies Expense 1,000 Utilities Expense 455
Dr Cr.
Sales ,000
Income Summary ,000
Income Summary ,037
Rent Expense ,350
Advertising Expense ,200
Cost of Sales ,672
Wages Expense ,875
Depreciation Expense
Office Supplies Expense ,000
Utilities Expense
Interest Expense ,250
Insurance Expense
Income Summary ,963
Retained Earnings ,963
Income Summary
42, ,000
7,963 Bal.

11. General Ledger Accounts – Balance Sheet

12. General Ledger Accounts Income Statement

13. COMPU-SHACK Income Statement for September
(before tax)

14. COMPU-SHACK Balance Sheet at 9/30

15. COMPU-SHACK Income Statement for September** *
(before tax) *
“Accrual Net Income on Cash Flow Statement (Operating Section) **
“Adjustment Not Requiring Cash on Cash Flow Statement (Operating Section)

16. COMPU-SHACK Balance Sheet at 9/30
CASH $87,410
OPER ASSET
INVESTING
OPER LIAB
FINANCING

17. COMPU-SHACK STATEMENT OF CASH FLOWS FOR SEPTEMBER
CONVERT NET INCOME
FROM INCOME
STATEMENT FROM
ACCRUAL TO CASH