BMGT 220 Principles of Accounting I Dr. Progyan Basu R.H. Smith School of Business Van Munching Hall 4333R pbasu@rhsmith.umd.edu - PowerPoint PPT Presentation

Title: BMGT 220 Principles of Accounting I Dr. Progyan Basu R.H. Smith School of Business Van Munching Hall 4333R pbasu@rhsmith.umd.edu


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BMGT 220 Principles of Accounting IDr.
Progyan BasuR.H. Smith School of BusinessVan
Munching Hall 4333Rpbasu_at_rhsmith.umd.edu
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Highlights from Course Syllabus

• Online Homework on WileyPLUS due every Friday at
  8 am, starting February 1 no deadline
  extensions will be provided
• Inclass Quizzes will be given every Friday
  (starting January 25) - based on the Schedule of
  Assignments
• There are no makeups for inclass quizzes to be
  given during your Friday discussion sections (see
  course syllabus for slack to accommodate classes
  that you may need to miss for reasons beyond your
  control)
• Exam Schedule
• Exam 1 - Thursday, February 21 (7 pm to 815 pm)
• Exam 2 - Thursday, April 4 (7 pm to 815 pm)
• Final Exam - Tuesday, May 14(1030 am to 1230
  pm)
• (refer to Syllabus for dates and times for
  alternate exams)
• Classroom etiquette policy
• You will be NOT be allowed to use your
  laptops/tablets/smartphones during class.

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FALL 2012 Semester Grade Distribution in BMGT 220
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FALL 2012 Semester Grade Distribution in BMGT 220
Total Points (out of 1000) Grade of Class of class
970 and above A 3.08   Total As 21.88
Between 900 and 969 A 10.26   Total As 21.88
Between 870 and 899 A- 8.55   Total As 21.88
       
Between 850 and 869 B 7.35   Total Bs 34.7
Between 800 and 849 B 18.46   Total Bs 34.7
Between 770 and 799 B- 8.89   Total Bs 34.7
       
Between 750 and 769 C 6.67   Total Cs 27.01
Between 700 and 749 C 14.53   Total Cs 27.01
Between 670 and 699 C- 5.81   Total Cs 27.01
       
Between 650 and 669 D 4.27   Total Ds 15.21
Between 600 and 649 D 6.67   Total Ds 15.21
Between 400 and 599 D- 4.27   Total Ds 15.21
       
Below 400 F 1.2 F 1.2
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Financial Accounting, Seventh Edition
Chapter 1

• Accounting in Action

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Why do we study Accounting?
An investment in GROUPON of 1,000 on November 4,
2011 (Price per share 26.11)
Is worth 197.63 on January 24, 2013 (Price per
share 5.16)
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Why did this happen??
In his introductory note to the companys
public-offering filing, founder Andrew Mason
wrote, Life is too short to be a boring company.
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A few Wall Street Journal headlines about GROUPON
Groupon Bows to Pressure Yielding to SEC, Web
Coupon Firm Removes Unusual Measure From IPO
Report The Wall Street Journal, August 11,
2011) The unusual measure, which the e-commerce
had invented, paints a more robust picture of its
performance. Removal of the measure was in
response to pressure from the Securities and
Exchange Commission, a person familiar with the
matter said.
More Trouble for Groupon IPO  The Wall Street
Journal, September 24, 2011 On Friday, Groupon
said it would change what it books as revenue
after discussions with the Securities and
Exchange Commission. It will now only count as
revenue its commission on sales, rather than the
total value of an online coupon. Previously, when
it sold a restaurant gift certificate for 10,
for instance, it would book the full amount, even
though a portion went to the business owner
GROUPON Accounting Obscures Value of Goods
Business  The Wall Street Journal, August 15,
2012 Groupon aggregated the Goods revenue under
direct revenues, a category which included
revenue from other items such as movie tickets
and travel vouchers. The company also didnt
disclose the cost of its Goods inventory and
rolled the cost of goods sold into its broad cost
of revenue metric, moves that some said that will
make it difficult to gauge how sustainable
profits are from that business.
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What do these numbers mean ? Where do they come
from?
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Financial Accounting, Seventh Edition
Chapter 1

• Accounting in Action

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What is Accounting?

• The purpose of accounting is to
• identify, record, and communicate the economic
  events of an
• organization to
• interested users.

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What is Accounting?
Three Activities
The accounting process involves all three
activities.
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Importance of Accounting
Accounting
Identifies / Analyzes
Records (Bookkeeping)
Communicates (Financial Statements)
Relevant
Reliable
to help users make better decisions.
Comparable
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Users of Accounting Information
Internal Users
Investors
IRS
Management
Human Resources
Creditors
Customers
Finance
Marketing
SEC
Labor Unions
Managerial Accounting provides information needs
for internal decision makers.
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The Building Blocks of Accounting

• Financial Statements
• Balance Sheet
• Income Statement
• Statement of Owners Equity
• Statement of Cash Flows
• Note Disclosure

Various users need financial information
The accounting profession has attempted to
develop a set of standards that are generally
accepted and universally practiced.
Generally Accepted Accounting Principles (GAAP)
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Who determines Generally Accepted Accounting
Principles?
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Measurement Principles of Accounting
Fair Value Principle Indicates that Assets and
Liabilities should be reported at fair market
value
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Assumptions of Accounting
Economic Entity Assumption Requires that a
business be accounted for separately from other
businesses, including its owner/s.
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Forms of Business Entities based on Ownership
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Forms of Business Ownership
Proprietorship
Partnership
Corporation

• Generally owned by one person.
• Often small service-type businesses
• Owner receives any profits, suffers any losses,
  and is personally liable for all debts.

• Owned by two or more persons.
• Often retail and service-type businesses
• Generally unlimited personal liability
• Partnership agreement

• Ownership divided into shares of stock
• Separate legal entity organized under state
  corporation law
• Limited liability

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Knowledge Check 1The Maximum Experience
Company acquired a building for 500,000.
Maximum Experience had an appraisal done, and
found that the building was worth 575,000. The
seller had paid 300,000 for the building 6 years
ago. Which accounting principle/assumption would
prescribe that Maximum Experience record the
building on its records at 500,000?

1. Cost principle.
2. Fair Value principle.
3. Monetary Unit Assumption.
4. Economic Entity Assumption

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The Basic Accounting Equation
Liabilities Equity
Assets
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Knowledge Check 2A company has twice as much
owners equity as it does liabilities. If total
liabilities are 50,000, what amount of assets
are owned by the company?

1. 50,000.
2. 100,000.
3. 150,000.
4. 200,000.

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ASSETS
Cash
Notes Receivable
Accounts Receivable
Resources owned or controlled by a company
Vehicles
Land
Buildings
Store Supplies
Equipment
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LIABILITIES
Notes Payable
Accounts Payable
Creditors claims on assets
Wages Payable
Taxes Payable
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STOCKHOLDERS EQUITY
Owners claim on assets
Contributed Capital
Retained Earnings
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Knowledge Check 3A company's balance sheet
shows Cash 22,000, Accounts Receivable 16,000,
Office equipment 50,000, and Accounts Payable
17,000. What is the amount of stockholders
equity?

1. 29,000.
2. 71,000.
3. 88,000.
4. 105,000.

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Changes to Stockholders Equity
Revenues are resources generated by a business
through selling of products or providing
services. Expenses are the costs of generating
revenues. They could be resources (such as, cash)
that have been used up, or they could increase
the liabilities for the business. Dividends are
the distribution of cash or other assets to
stockholders. Dividends reduce retained earnings.
However, dividends are not an expense.
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Expanded Accounting Equation

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How does Stockholders Equity change during a
year?
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Knowledge Check 4Fran Company has beginning
equity of 257,000, net income of 51,000,
dividends of 40,000 and investments by owners in
exchange for stock of 6,000. Its ending equity
is

1. 223,000
2. 240,000.
3. 268,000.
4. 274,000.

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Using The Accounting Equation to record
transactions

• Transactions are a businesss economic events
  recorded by accountants.
• Generally, are exchanges that can be measured in
  monetary terms.
• Not all economic events represent transactions
  (such as natural disasters).
• Each transaction has a dual effect on the
  accounting equation.

The accounting equation must remain in balance
after each transaction.
10,000 - 5,000 ???
10,000 - 5,000 15,000
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Transaction Analysis Example 1
1. On December 1, 2011, Scott invests 10,000
cash to start a management consulting business
(Scott Company).
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Transaction Analysis Example 2
2. Scott Company purchased office supplies paying
1,000 cash.
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Transaction Analysis Example 3
3. Scott Company purchased Supplies of 600 and
Computer Equipment of 3,000 on account.
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Transaction Analysis Example 4
4. Scott Company borrowed 4,000 from Bank of
Maryland.
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Transaction Analysis Example 5
5. During the month of December 2011 , Scott
Company provided consulting services for 3,500.
The company receives cash of 1,000, and bills
the balance 2,500 to the customers.
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Transaction Analysis Example 6
6. During the month of December 2011 , Scott
Company paid cash of 800 for Rent, and 1,200
for Salaries to its only employee.
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Transaction Analysis Example 7
7. During the month of December 2011 , Scott
Company received a bill for 300 from the
electric company, but decides to pay the bill at
a later date.
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Transaction Analysis Example 8
8. Scott Company received a check for 1,500 form
a customer who was billed earlier.
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Transaction Analysis Example 9
9. Scott Company paid 2,500 for the computer
equipment that it had purchased in transaction
(3).
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Transaction Analysis Example 10
10. Scott Company paid a dividend of 500 to its
owner/stockholder.
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Financial Statements

• Lets prepare the Financial Statements reflecting
  the transactions we have recorded.

1. Income Statement
2. Statement of Retained Earnings
3. Balance Sheet
4. Statement of Cash Flows

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Income Statement
Net income is the difference between Revenues and
Expenses.
The income statement describes a companys
revenues and expenses along with the resulting
net income or loss over a period of time due to
earnings activities.
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Statement of Retained Earnings

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Balance Sheet
The Balance Sheet describes a companys financial
position at a point in time.
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Statement of Cash Flows
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Knowledge Check 5A corporation purchased a
40,000 delivery truck by paying 4,000 cash and
signing a 36,000 note payable. Immediately
prior to this transaction the corporation had
liabilities of 52,000, and owners equity
23,000. What is the total amount of the
corporations assets after this transaction has
been recorded?

1. 115,000
2. 111,000
3. 79,000
4. 71,000

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Knowledge Check 6On January 1, 2012, Kroger
companys Stockholders Equity account had a
balance of 23,500. During the year 2012, the
company issued additional stock for 6,000,
generated revenues of 92,200, and recorded
expenses of 64,100. They also paid dividends to
their shareholders. If the Stockholders Equity
had a balance of 55,600 on December 31, 2012,
determine the amount of dividends paid by Kroger
Company during 2012.

1. 4,000
2. 3,000
3. 2,000
4. 1,000

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End of Chapter 1
Far and Away the Best Prize that Life Offers is
the Chance to Work Hard at Work
Worth Doing Theodore Roosevelt