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Accounting Principles I

Purpose of Course  showclose

Course Information  showclose

Learning Outcomes  showclose

Course Requirements  showclose

• Unit 1
• Unit 2
• Unit 3
• Unit 4
• Unit 5
• Unit 6
• Unit 7
• Unit 8
• Unit 9
• Unit 10
• Final Exam
• All Units

Unit Outline show close

Unit 1: Introduction to Financial Accounting  

Suppose you are the Chief Financial Officer (CFO) of a small business in the restaurant industry and have been asked by key investors whether the company is financially stable enough to expand to four new states.  How would you go about determining this?  The answer is accounting!  Accounting refers to the process of identifying, measuring, and communicating financial information for sound economic decision-making.

This unit will introduce you to fundamental accounting terms.  You will learn how accounting informs company-wide decisions and how information is communicated within a company and beyond.  This unit will also introduce financial statements, and more in-depth discussions about financial statements will follow in later units.

This unit will also inform you of various government oversights that are in place to monitor accounting practices.  Throughout this unit, be sure to focus on the uses of accounting information, including the terms for generating financial reports.  Also, pay close attention to accounting reporting rules.  As you can expect, the accuracy of a company’s financial information is important in making appropriate economic decisions.

Unit 1 Time Advisory   show close


Unit 1 Learning Outcomes   show close


1.1 What Is Accounting?  

• Reading: Principles of Accounting: Dr. Larry Walther’s “Welcome to the World of Accounting”

  Link: Principles of Accounting: Dr. Larry Walther’s “Welcome to the World of Accounting” (HTML)
  
  Instructions: Please click on the link above and read the section titled “Definitions.”  Upon completion of this reading, you should be able to clearly distinguish between financial and managerial accounting, and you should understand how businesses use each type of accounting.
  
  Studying this reading and taking notes should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

1.2 Who Uses Accounting Information?  

• Reading: Principles of Accounting: Dr. Larry Walther’s “Welcome to the World of Accounting”

  Link: Principles of Accounting: Dr. Larry Walther’s “Welcome to the World of Accounting” (HTML)
  
  Instructions: Please click on the link above and read the sections titled “Financial Accounting” and “Managerial Accounting.”  Be sure to take note of the different ways financial information is used and interpreted in the various departments of a business.
  
  Studying this reading and taking notes should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

1.3 Types of Business Activities  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 1: Accounting and Its Business Uses”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 1: Accounting and Its Use in Business Decisions Business Uses” (PDF)
  
  Instructions: Click on the link above to download the PDF.  Read pages 31–34.  Begin your reading with the section titled “A Career as an Entrepreneur,” which can be found on page 31.  Read the text through the section titled “Types of Activities Performed by Businesses,” which ends on page 34.  As you read, be sure to note the different ways that accounting is used in business and how accounting affects business practices.  Note that this textbook will be used throughout the course, so it may be useful to save the PDF to your computer for easier access.
  
  Reading this chapter and taking notes should take approximately 45 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson,  and the original version can be found here.

  See a broken link? Please let us know!

1.4 Financial Statements  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 1: Accounting and Its Use in Business Decisions”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 1: Accounting and Its Use in Business Decisions” (PDF)
  
  Instructions: Please click on the link above to download the PDF.  Read the section titled “Financial Statements of Business Organizations” on pages 34–38.  As you complete this reading, be sure to note the differences between the financial statements presented here.  The four financial statements you will review are: the balance sheet, the income statement, the statement of cash flows, and the statement of shareholder’s equity.
  
  This reading also covers the information outlined in sub-subunits 1.4.1 through 1.4.4. 
  
  Reading this chapter and taking notes should take approximately 30 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson,  and the original version can be found here.

  See a broken link? Please let us know!

1.4.1 What Is a Balance Sheet?  

• Lecture: Khan Academy’s “Introduction to Balance Sheets: Using a Home Purchase to Illustrate Assets, Liabilities and Owner's Equity”

  Link: Khan Academy’s “Introduction to Balance Sheets: Using a Home Purchase to Illustrate Assets, Liabilities and Owner's Equity” (YouTube)
  
  Instructions: Please click on the link above and watch the video lecture, which details the use of balance sheets.  Pay close attention to how financial transactions are recorded on the balance sheet.
  
  Watching this lecture and pausing to take notes should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

1.4.2 What Is an Income Statement?  

Note: This topic is covered by the reading assigned below subunit 1.4.  Pay close attention to the information that detail the parts of the income statement.  This information can be found on page 35 of the assigned reading.

1.4.3 What Is a Statement of Cash Flows?  

Note: This topic is covered by the reading assigned below subunit 1.4.  Pay close attention to the text and figures that detail the parts of the statement of cash flows.  This information can be found on pages 37 and 38 of the assigned reading.

1.4.4 What Is a Statement of Retained Earnings?  

Note: This topic is covered by the reading assigned below subunit 1.4.  Pay close attention to the text and figures that detail the parts of the statement of retained earnings.  This information can be found on pages 35–37 of the assigned reading.

1.5 Financial Reporting  

• Lecture: Dr. Larry Walther’s Principles of Accounting: “The Accounting Profession”

  Link: Dr. Larry Walther’s Principles of Accounting: “The Accounting Profession” (YouTube)
  
  Instructions: Please click on the link above and watch this lecture, which is about accounting ethics and the accounting profession.  As we have noted, accounting is important to understand the finances of a company, so accounting must be attended to with great detail.  As you watch the lecture, think of ways that accountants can be thorough in their work and how this may influence the financial statements they prepare.
  
  Watching this lecture should take approximately 5 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

1.5.1 Generally Accepted Accounting Principles (GAAP)  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 5: Accounting Theory”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 5: Accounting Theory” (PDF)
  
  Instructions: Click on the link above to download the PDF.  Read pages 225–232.  Begin your reading with the section titled “The Financial Accounting Standards Board’s Conceptual Framework Project” (p. 225).  Read through the section titled “Recognition and Measurement…,” which ends on p. 232.  Pay close attention to the fundamental principles related to Generally Accepted Accounting Principles (GAAP) and the qualitative characteristics of accounting information.
  
  Reading this chapter and taking notes should take approximately 40 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

1.5.2 Government Regulations  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 1: Development of Accounting Standards”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 1: Development of Accounting Standards” (PDF)
  
  Instructions: Please click on the link above and read the “Development of Financial Accounting Standards” section on pages 26 and 27.  Be sure to take notes on the regulatory agencies presented in this reading and on the reasons why oversight of accounting practices is so important.
  
  Reading this chapter and taking notes should take approximately 5 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

• Reading: Governance Across Borders: Dr. Sigrid Quack’s “Accounting at the G20 London Summit”

  Link: Governance Across Borders: Dr. Sigrid Quack’s “Accounting at the G20 London Summit” (PDF)
  
  Instructions: Please click on the link above to access the article.  As you read, pay close attention to the political discussions that surround accounting, what the current accounting issues are, and how the summit proposed to resolve these issues.  Accounting is not only for accountants and is often in the news in some capacity.  As you read daily newspapers, blogs, online articles, etc., try to find real-life accounting practices that may help you better understand some of the topics in this course.
  
  Reading this article and taking notes should take approximately 10 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to Governance Across Borders and the original version can be found here.

  See a broken link? Please let us know!

Unit 2: The Accounting Cycle  

Suppose you purchase $500 of material for inventory, accept $150 in payment for merchandise sold, and pay $4,000 in employee wages.  How do you record these transactions with absolute certainty of what is available in your company’s account?  In this unit, you will learn about credits and debits, and how the aforementioned transactions are appropriately recorded using the accounting rules that you learned in Unit 1.

Being able to record the everyday financial transactions of a company is a central part of accounting.  Understanding the accounting cycle, and how transactions should be recorded, is fundamental in producing financial statements and making sound judgments about a company’s financial health.

How are assets recorded?  What about liabilities?  What is equity?  All of these questions will be answered in this unit, as you learn the specifics of the “fundamental accounting equation” and work through real-world examples.

As you navigate this unit, focus on the specifics of recording financial transactions and what each financial transaction determines, based on the way it has been recorded.

Unit 2 Time Advisory   show close


Unit 2 Learning Outcomes   show close


2.1 The Accounting Equation  

• Lecture: Dr. Larry Walther’s Principles of Accounting: “The Accounting Equation”

  Link: Dr. Larry Walther’s Principles of Accounting: “The Accounting Equation” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture, which introduces the accounting equation.  Pay close attention to the roles of assets, liabilities, and equity in the accounting equation.  Please note that this lecture also covers the information outlined in sub-subunits 2.1.1 through 2.1.3.
  
  Watching this lecture and taking notes should take approximately 5 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

• Lecture: YouTube: EnlightenUp: Alf Eastergard’s “Accounting 101 Part 03 Assets Liabilities Equity”

  Link: YouTube: EnlightenUp: Alf Eastergard’s “Accounting 101 Part 03 Assets Liabilities Equity” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture, which outlines the relationship between assets, equity, and liabilities.  As you watch this lecture, pay close attention to the roles of assets, liabilities, and equity in the accounting equation and how the increase or decrease of one affects the values of the other components in the accounting equation.  Please note that this lecture also covers the information outlined in sub-subunits 2.1.1 through 2.1.3.
  
  Watching this lecture and taking notes should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

2.1.1 Assets  

Note: This topic is covered by the video lecture assigned below subunit 2.1.  Pay close attention to what assets are and how they are recorded on the financial statements.

• Lecture: YouTube: Susan Crosson’s “Accounting Basics 3 – Assets” (YouTube)

  Link: YouTube: Susan Crosson’s “Accounting Basics 3 – Assets” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture, which defines assets.  As you watch this lecture, pay close attention to the way assets are defined.  By the end of this lecture, you should be able to give several examples of assets that a business might have.
  
  Watching this lecture and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above. 

  See a broken link? Please let us know!

2.1.2 Liabilities  

Note:Please note that this topic is covered by the video lecture assigned below subunit 2.1.  Pay close attention to the definition of liabilities and how they are recorded on financial statements.

• Lecture: YouTube: Susan Crosson’s “Accounting Basics 4 – Liabilities”

  Link: YouTube: Susan Crosson’s “Accounting Basics 4 – Liabilities” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture, which defines liabilities.  As you watch this lecture, pay close attention to the how liabilities are defined.  By the end of this lecture, you should be able to give several examples of liabilities that a business might have.
  
  Watching this lecture and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

2.1.3 Equity  

Note: This topic is covered by the video lecture assigned below subunit 2.1.

• Lecture: YouTube: Susan Crosson’s “Accounting Basics 5 – Stockholders Equity”

  Link: YouTube: Susan Crosson’s “Accounting Basics 5 – Stockholders Equity” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture, which defines stockholder’s equity.  As you watch this lecture, pay close attention to the way equity is defined.  By the end of this lecture, you should be able to give several examples of ways businesses accumulate equity.
  
  Watching this lecture and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

2.2 Cash Accounting  

• Lecture: Khan Academy’s “Cash Accounting”

  Link: Khan Academy’s “Cash Accounting” (YouTube)
  
  Instructions: Please click on the link above and watch the short video lecture on the applications of cash accounting.  Pay close attention to the real-world example that is used, and think of ways this could apply to other financial transactions.
  
  Watching this lecture and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

2.3 Accrual Accounting  

• Lecture: Khan Academy’s “Comparing Cash and Accrual Accounting”

  Link: Khan Academy’s “Comparing Cash and Accrual Accounting” (YouTube)
  
  Instructions: Please click on the link above, and watch the video lecture, which details the key differences between cash and accrual accounting.  It is important to know the difference between the two accounting methods as each will dictate how accounting principles are applied.
  
  Watching this lecture and taking notes should take approximately 7 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

2.4 Double Entry System  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 2: Recording Business Transactions”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 2: Recording Business Transactions” (PDF)
  
  Instructions: If you have not already saved the PDF to your desktop, please click on the link above to download the PDF.  Read the section titled “The Account and Rules of Debit and Credit” on pages 70–76.  As you read, be sure to pay close attention to how transactions are recorded according to the accounting equation.  By the end of this reading, you should know the difference between credits and debits.  Please note that this reading also covers the topic outlined in sub-subunit 2.4.1.
  
  Reading this chapter and taking notes should take approximately 45 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

2.4.1 Debits & Credits  

Note: That this topic is covered by the reading assigned below subunit 2.4.  Please focus on “The Account and Rules of Debit and Credit” on pages 69–76.  In this reading, pay close attention to when debits and credits are used when posting financial transactions.  Be sure to work through the text examples as you read along.

2.4.2 Journal Entries  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 2: Recording Business Transactions”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 2: Recording Business Transactions” (PDF)
  
  Instructions: If you have not already saved this document to your desktop, please click on the link above to download the PDF.  Read the section titled “The Journal” on pages 78–80.  Pay attention to the significance of each column as well as the importance of journal entries to the overall accounting system of a company.
  
  Reading this chapter and taking notes should take approximately 10 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

2.4.3 General Ledger/T-Accounts  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 2: Recording Business Transactions”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 2: Recording Business Transactions” (PDF)
  
  Instructions: If you have not already saved this document to your desktop, please click on the link above to download the PDF.   Read the section titled “The Ledger” on pages 80–95.  As you complete this reading, take notes on the general ledger and how journal entries can affect the general ledger balances.  Be sure to work through the examples in the text as you read along.
  
  Reading this chapter and taking notes should take approximately 45 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

2.4.4 The Adjusting Process  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 3: Adjustments for Financial Reporting”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 3: Adjustments for Financial Reporting” (PDF)
  
  Instructions: If you have not already saved this document to your desktop, please click on the link to download the PDF.  Read pages 126–130.  Begin your reading with the section titled “The Need for Adjusting Entries,” which begins on page 126.  Read the text through the section titled “Classes and Types of Adjusting Entries,” which ends on page 130.  As you read, pay close attention to adjustment entries and the circumstances that may surround adjustment entries in business settings.
  
  Reading this chapter and taking notes should take approximately 15 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

2.4.4.1 Deferred Revenue  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 3: Adjustments for Financial Reporting”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 3: Adjustments for Financial Reporting” (PDF)
  
  Instructions: If you have not already saved this document to your desktop, please click on the link above to download the PDF.  Read the section titled “Adjustments for Deferred Items” on pages 130–132.  Upon completion of this reading, you will understand deferred items, how to properly record them on financial statements, and the impact that they have on the accounting system. 
  
  Reading this chapter and taking notes should take approximately 10 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

2.4.4.2 Accruals  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 3: Adjustments for Financial Reporting”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 3: Adjustments for Financial Reporting” (PDF)
  
  Instructions: If you have not already saved this document to your desktop, please click on the link above to download the PDF.  Read the section titled “Adjustments for Accrued Items” on page 138–140.  Take notes on the differences between accrued items and deferred items.  Also, work through the text examples as you read along.
  
  Reading this chapter and taking notes should take approximately 10 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

2.4.4.3 Estimated Items  

2.4.4.3.1 Depreciation & Amortization  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 3: Adjustments for Financial Reporting”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 3: Adjustments for Financial Reporting” (PDF)
  
  Instructions: If you have not already saved this document to your desktop, please click on the link above to download the PDF.  Read the section titled, “Depreciation” on pages 133–136.  By the end of this reading, you will be able to properly calculate and record depreciation items on various financial statements.
  
  Reading this chapter and taking notes should take approximately 15 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

2.4.4.3.2 Bad Debt Expenses  

• Reading: Professional Education, Testing and Certification Organization International: Accounting 1 “Chapter 9: Receivables”

  Link: Professional Education, Testing and Certification Organization International: Accounting 1 “Chapter 9: Receivables” (PDF)
  
  Instructions: Click on the link above and read Chapter 9 to learn about accounting receivables controls. This article describes methods used to estimate uncollectibles, and typical methods used to record bad debts.
  
  Reading this article should take you approximately 30 minutes to complete.
  
  Terms of Use: This resource is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License. It is attributed to John Petroff, Nancy Paz, Tibebe Mengistu, and Karen De Avila and the original version can be found here.

  See a broken link? Please let us know!

Unit 3: Constructing Financial Statements  

In Unit 2, you learned that financial statements include the balance sheet, income statement, statement of cash flows, and statement of shareholder’s equity.  In this unit, you will learn exactly how financial statements are prepared, using a company’s everyday financial transactions.  You will also apply the accounting principles learned in Unit 2 to create a financial statement for a company.  Although all of these statements are prepared with the same underlying financial numbers, each statement conveys different information about a company’s operations and profitability.

Companies like Starbucks, Johnson & Johnson, and Coca-Cola have to prepare financial statements for their investors and are required to release these statements publicly.  Imagine the time and attention to detail that must be taken to prepare these financial statements and the consequences that may arise if an error is made.  By the end of this unit, you will have a good understanding of the components of each financial statement, and you will be able to identify key pieces of information on each financial statement.

This unit focuses on the key differences between financial statements and what pieces of data are used in preparing each type.

Unit 3 Time Advisory   show close


Unit 3 Learning Outcomes   show close


3.1 The Closing Process  

• Lecture: Dr. Larry Walther’s Principles of Accounting: “The Accounting Cycle and Closing Process”

  Link: Dr. Larry Walther’s Principles of Accounting: “The Accounting Cycle and Closing Process” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture, which discusses the closing process as it relates to T-accounts and journal entries.  During this lecture, be sure that you completely understand the closing process and how it relates to the formation of the financial statements.
  
  Watching this lecture and taking notes should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

3.2 Income Statement  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 4: Completing the Accounting Cycle”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 4: Completing the Accounting Cycle” (PDF)
  
  Instructions: If you have not already saved this document to your desktop, please click on the link above to download the PDF.  Read pages 161–174.  Begin your reading with the section titled “The Worksheet” (p. 225).  Read the text through the section titled “The Closing Process,” which ends on p. 174.  Pay close attention to the various parts of the balance sheet and the different sources of these pieces of financial information.
  
  Reading this chapter and taking notes should take approximately 45 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

3.2.1 Non-Operating Revenues & Expenses  

• Reading: Financial Accounting: “Section 17.2: Cash Flows from Operating Activities: The Direct Method” and “Section 17.3: Cash Flows from Operating Activities: The Indirect Method”

  Link: Financial Accounting: “Section 17.2: Cash Flows from Operating Activities: The Direct Method” (PDF) and “Section 17.3: Cash Flows from Operating Activities: The Indirect Method” (PDF)
  
  Instructions: Click on the links above and scroll down to sections 17.2 and 17.3, which will teach you about both the direct and indirect methods of cash flows from operating activities.  
  
  Reading these sections and note taking should take you approximately 30 minutes to complete.
  
  Terms of Use: The text was adapted by The Saylor Foundation under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work's original creator or licensee.

  See a broken link? Please let us know!

3.2.2 Recurring & Non-Recurring Items  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 13: Corporations: Paid-in Capital, Retained Earnings, Dividends, and Treasury Stock”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 13: Corporations: Paid-in Capital, Retained Earnings, Dividends, and Treasury Stock” (PDF)
  
  Instructions: If you have not already saved this document to your desktop, please click on the link above to download the PDF.  Read the section titled “Net Income Inclusions and Exclusions” on pages 574 and 575.  As you read, pay close attention to the items that should be reported on the income statement when calculating net income and the items that can be excluded.  This reading also covers the topics outlined in sub-subunits 3.2.2.1 and 3.2.2.2.
  
  Reading this chapter and taking notes should take approximately 10 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

3.2.2.1 Discontinued Operations  

Note: This topic is covered by the reading assigned below sub-subunit 3.2.2.  As you read this section, pay close attention to discontinued operations and think of how this may occur.  By the end of this reading, you should be able to distinguish between which items impact the net income and which items are generally excluded from the net income.  You should also be able to clearly identify examples of included and excluded items as they relate to the net income.

3.2.2.2 Extraordinary Items  

Note: This topic is also covered by the reading assigned below sub-subunit 3.2.2.  As you read this section, pay close attention to extraordinary items.  Think of how these items may occur and how they affect the income statement.

3.2.3 Pro Forma Earnings  

• Web Media: InformedTrades’ “Balance Sheets: About Pro-Forma Financial Statements”

  Link: InformedTrades’ “Balance Sheets: About Pro-Forma Financial Statements” (YouTube)
  
  Instructions: Please click on the link above and watch the short video about pro-forma earnings.  Pro-forma earnings are not actually earnings but instead are projected future earnings of a company.
  
  Watching this lecture and taking notes should take approximately 5 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

3.3 Statement of Shareholder’s Equity  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 13: Corporations: Paid-in Capital, Retained Earnings, Dividends, and Treasury Stock”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 13: Corporations: Paid-in Capital, Retained Earnings, Dividends, and Treasury Stock” (PDF)
  
  Instructions: If you have not already saved this document to your desktop, please click on the link above to download the PDF.  Read pages 569 and 570.  Begin your reading with the section titled “Statement of Retained Earnings” (p. 569).  Read the text through the section titled “Statement of Shareholder’s Equity,” which ends on page 570.  As you read, pay close attention to the distinction between the statement of retained earnings and the statement of shareholder’s equity.
  
  Reading this chapter and taking notes should take approximately 10 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

3.4 Balance Sheet  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 4: Completing the Accounting Cycle”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 4: Completing the Accounting Cycle” (PDF)
  
  Instructions: If you have not already saved this document to your desktop, please click on the link above to download the PDF.  Read the section titled “A Classified Balance Sheet” on pages 180–186.  As you read, pay attention to the components that make up the balance sheet.  By the end of this reading, you will be able to locate and identify the information to prepare a balance sheet as well as accurately report that information in a balance sheet.
  
  Reading this chapter and taking notes should take approximately 25 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

3.5 Statement of Cash Flows  

• Lecture: Dr. Larry Walther’s Principles of Accounting: “Evaluating Cash Flows”

  Link: Dr. Larry Walther’s Principles of Accounting: “Evaluating Cash Flows” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture, which discusses the components of the statement of cash flows.  Take notes on what each section of qualitative information indicates and the anatomy of the statement of cash flows.
  
  Watching this lecture and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

3.5.1 Operating Activities  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 16: Analysis of the Statement of Cash Flows”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 16: Analysis of the Statement of Cash Flows” (PDF)
  
  Instructions: If you have not already saved this document to your desktop, please click on the link above to download the PDF.  Read the section titled “Information in the Statement of Cash Flows” on page 676–678.  As you read, pay close attention to the operating activities portion of the statement of cash flows.  This reading also covers the topics outlined in sub-subunits 3.5.2 and 3.5.3.
  
  Reading this chapter and taking notes should take approximately 5 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

3.5.2 Investing Activities  

Note: This topic is covered in the reading assigned in sub-subunit 3.5.1.  As you read, pay close attention to the investing activities portion of the statement of cash flows.

3.5.3 Financing Activities  

Note: This topic is covered in the reading assigned in sub-subunit 3.5.1.  As you read, be sure to pay close attention to the financing activities portion of the statement of cash flows.

3.5.4 Direct vs. Indirect Method  

• Lecture: Dr. Larry Walther’s Principles of Accounting: “The Direct Approach for the Statement of Cash Flows”

  Link: Dr. Larry Walther’s Principles of Accounting: “The Direct Approach for the Statement of Cash Flows” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture, which discusses the components of the statement of cash flows.  Pay particular attention to the calculation of the indirect method, and the difference between the direct and indirect methods.
  
  Watching this lecture and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

• Lecture: Dr. Larry Walther’s Principles of Accounting: “The Indirect Approach for the Statement of Cash Flows”

  Link: Dr. Larry Walther’s Principles of Accounting: “The Indirect Approach for the Statement of Cash Flows” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture, which discusses the components of the statement of cash flows.  Pay close attention to the how the indirect method is calculated in terms of the statement of cash flows, and think about how this is different from the direct method.
  
  Watching this lecture and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

Unit 4: Accounts Receivable Reporting  

Suppose you purchase a new 3-D television from a local retailer and make the purchase on a store-issued credit card.  How does the retailer record this credit purchase?  As you will learn in this unit, credit purchases are commonly recorded as accounts receivables.  Accounts receivables include the money that a company expects to receive in the future for items purchased today.  Should the money be recorded now or when it is actually received?  You will explore this question as you learn the ins-and-outs of accounts receivables.

Companies’ accounts receivables are affected when customers cannot pay their outstanding balances.  These write-offs have to be carefully considered when deciding the amount of credit to be issued to each customer.  With the 2008 recession, many companies had large accounts receivables write-offs, as customers struggled to pay for credit-purchased merchandise.  Meanwhile, other companies were able to use their accounts receivables in negotiating for loans to sustain their businesses until sales rebounded.

While completing this unit, focus on the components that contribute to accounts receivables, how write-offs are determined and recorded, and how companies use their accounts receivables to access loans or generate cash.

Unit 4 Time Advisory   show close


Unit 4 Learning Outcomes   show close


4.1 What Are Accounts Receivables?  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 9: Receivables and Payables”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 9: Receivables and Payables” (PDF)
  
  Instructions: If you have not already saved this document to your desktop, please click on the link above to download the PDF.  Read the section titled “Accounts Receivable” on page 397–402.  By the conclusion of this reading, you should be able to define Accounts Receivable and be able to identify what components constitute Accounts Receivables.  Pay close attention to the example that is explained throughout this section and how Accounts Receivables are recorded on the Balance Sheet.
  
  Reading this chapter and taking notes should take approximately 20 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

4.2 Revenue Recognition  

• Lecture: Dr. Larry Walther’s Principles of Accounting: “The Costs and Benefits of Selling on Credit”

  Link: Dr. Larry Walther’s Principles of Accounting: “The Costs and Benefits of Selling on Credit” (YouTube)
  
  Instructions: Please click on the link above and watch the video lecture.  By the end of this lecture, you should be able to list the pros and cons of allowing customers to use credit to buy items as well as the likelihood that a merchandising company would have Accounts Receivables.  As mentioned in Units 1 and 2, revenue is recognized by different methods.  As you watch this lecture, think about how recognizing revenue may affect how businesses record their Account Receivables.
  
  Watching this lecture and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

4.3 Recording Bad Debt Expenses  

• Lecture: YouTube: ORU Accounting’s “Chapter 9 Lecture: Receivables”

  Link: YouTube: ORU Accounting’s “Chapter 9 Lecture: Receivables” (YouTube)
  
  Instructions: Please click on the link above and watch the entire lecture.  As you watch the lecture, pay close attention to how bad debt expenses arise and how businesses handle calculating and recording bad debt.  By the end of this lecture, you should be able to list several originations of bad debt and be able to record bad debt expenses as a journal entry.
  
  Watching this lecture and taking notes should take approximately 1 hour.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

4.4 Allowance for Uncollectible Accounts  

• Lecture: Dr. Larry Walther’s Principles of Accounting: “Accounting Considerations for Uncollectible Receivables”

  Link: Dr. Larry Walther’s Principles of Accounting: “Accounting Considerations for Uncollectible Receivables” (YouTube)
  
  Instructions: Please click on the link above and watch the entire lecture.  As you watch the lecture, pay close attention to why uncollectible receivables arise and what a merchandising company can do to account for this type of receivables.  By the end of this lecture, you should be able to list several accounting considerations that have to be taken into account when it is deemed that a receivable is not going to be collected.
  
  Watching this lecture and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

• Lecture: YouTube: Susan Crosson’s “Cash and Receivables 4 – Uncollectible Accounts”

  Link: YouTube: Susan Crosson’s “Cash and Receivables 4 – Uncollectible Accounts” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture, which outlines how businesses record and handle uncollectible accounts.  By the completion of this lecture, you should be able to record a bad debt expense using journal entries, as described in the video.
  
  Watching this lecture and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

• Lecture: Dr. Larry Walther’s Principles of Accounting: “Alternative Approaches to Account for Uncollectibles”

  Link: Dr. Larry Walther’s Principles of Accounting: “Alternative Approaches to Account for Uncollectibles” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture.  As you watch the lecture, pay close attention to how the alternative approaches to handling uncollectible receivable accounts are generated and used.  By the end of this lecture, you should be able to identify how uncollectible accounts affect the Balance Sheet and the Income Statement.
  
  Watching this lecture and taking notes should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

4.5 Handling Write-Offs  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 9: Receivables and Payables”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 9: Receivables and Payables” (PDF)
  
  Instructions: If you have not already saved this document to your desktop, please click on the link above to download the PDF.  Read the section titled “Write-offs of Receivables” on page 402 and 403.  By the conclusion of this reading, you should be able to prepare a journal entry to write-off receivables that are deemed uncollectible.  This information is important as it will help you complete the next assignment for this section.
  
  Reading this chapter and taking notes should take approximately 5 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

• Activity: Dr. Larry Walther’s Principles of Accounting: “Chapter 7: Accounts Receivable: Write-off Worksheet”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 7: Accounts Receivable: Write-off Worksheet” (PDF)
  
  Instructions: Please click on the link above and carefully read the directions before completing the worksheet.  If you have difficulty completing the worksheet, refer back to the reading assignments for subunit 4.4.
  
  Reviewing your previous readings and completing this worksheet should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  The Saylor Foundation does not yet have materials for this portion of the course. If you are interested in contributing your content to fill this gap or aware of a resource that could be used here, please submit it here.

  Submit Materials

Unit 5: Inventory Reporting  

In this unit, you will learn about inventory reporting for merchandisers and manufacturing firms, and the conventions used in reporting inventory purchases and sales.  Managing inventory levels is essential when determining the appropriate amount of each product to carry in-store or in raw materials to produce finished products.  Large retailers such as Wal-Mart use “just-in-time” inventory systems that track store inventory levels as customers purchase items.  You will learn about how this method of recording inventory can help a company better regulate its profitability.

As you complete this unit, focus on the differences in inventory recording for merchandising and manufacturing firms, the cost conventions for reporting inventory, and how companies handle a decrease in the value of its current inventory.

Unit 5 Time Advisory   show close


Unit 5 Learning Outcomes   show close


5.1 The Inventory Equation  

• Lecture: Dr. Larry Walther’s Principles of Accounting: “Components to Include in Inventory”

  Link: Dr. Larry Walther’s Principles of Accounting: “Components to Include in Inventory” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture.  As you watch the lecture, pay close attention to how inventory balances are calculated during an accounting period.  By the end of this lecture, you should be able to clearly identify the steps to calculate beginning and ending inventory values.
  
  Watching this lecture and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

• Lecture: Dr. Larry Walther’s Principles of Accounting: “Basic Concepts of Inventory Costing Methods”

  Link: Dr. Larry Walther’s Principles of Accounting: “Basic Concepts of Inventory Costing Methods” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture.  As you watch the lecture, listen to the distinctions between the two inventory costing methods that merchandising firms use.  By the end of this lecture, you should be able to define the differences between inventory costing methods.
  
  Watching this lecture and taking notes should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

• Activity: Dr. Larry Walther’s Principles of Accounting: “Chapter 8: Inventory: Inventory Categories Worksheet”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 8: Inventory: Inventory Categories Worksheet” (PDF)
  
  Instructions: Please click on the link above and carefully read the directions before completing the worksheet.  Identify the different inventory methods that are appropriate for each scenario.  If you have difficulty completing the worksheet, refer back to the lectures assigned in this subunit.
  
  Reviewing your previous readings and completing this worksheet should take approximately 20 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  The Saylor Foundation does not yet have materials for this portion of the course. If you are interested in contributing your content to fill this gap or aware of a resource that could be used here, please submit it here.

  Submit Materials

5.1.1 Merchandising Firms  

• Lecture: Dr. Larry Walther’s Principles of Accounting: “The Merchandising Business and Related Sales Recognition Issues”

  Link: Dr. Larry Walther’s Principles of Accounting: “The Merchandising Business and Related Sales Recognition Issues” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture.  As you watch the lecture, pay close attention to the unique challenges that merchandising firms are faced with.  By the end of this lecture, you should be able to identify the characteristics of a merchandising firm and what types of businesses this definition may include.
  
  Watching this lecture and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of used displayed on the webpage above.

  See a broken link? Please let us know!

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 6: Merchandising Transactions”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 6: Merchandising Transactions” (PDF)
  
  Instructions: If you have not already saved this document to your desktop, please click on the link above to download the PDF.   Begin the reading on page 251 with the section “A career as CEO.”  Read through page 253; you do NOT need to read the “Sales Revenues” section.  Upon completion of this reading, you should be able to distinguish between merchandising and manufacturing firms based on how sales are recorded.
  
  Reading this chapter and taking notes should take approximately 5 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

5.1.2 Manufacturing Firms  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 18: Managerial Accounting Concepts/Job Costing”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 18: Managerial Accounting Concepts/Job Costing” (PDF)
  
  Instructions: If you have not already saved this document to your desktop, please click on the link above to download the PDF.  Read the section titled “Merchandiser and Manufacturing Accounting” on pages 780–787.  As you read, identify the characteristics of manufacturing firms and how this differs from merchandising firms.  By the end of this reading, you should be able to recount the different costing affects that occur with merchandising and manufacturing firms.
  
  Reading this chapter and taking notes should take approximately 30 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

5.2 FIFO (First In, First Out)  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 7: Measuring and Reporting Inventories”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 7: Measuring and Reporting Inventories” (PDF)
  
  Instructions: If you have not already saved this document to your desktop, please click on the link above to download the PDF.  Read the section titled “FIFO (First In, First Out)” on pages 309 and 310.  As you read, pay careful attention to how this inventory costing method is determined.
  
  Reading this chapter and taking notes should take approximately 5 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

5.3 LIFO (Last In, Last Out)  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 7: Measuring and Reporting Inventories”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 7: Measuring and Reporting Inventories” (PDF)
  
  Instructions: If you have not already saved this document to your desktop, please click on the link above to download the PDF.  Read the section titled “LIFO (Last In, First Out)” on pages 310 and 311.  As you read, pay careful attention to how this inventory costing method is determined.
  
  Reading this chapter and taking notes should take approximately 5 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

5.3.1 LIFO Liquidation & LIFO Reserve  

• Lecture: YouTube: Ken Boyd’s “Financial Accounting 7A: Inventory – LIFO Reserve, LIFO Liquidation”

  Link: YouTube: Ken Boyd’s “Financial Accounting 7A: Inventory – LIFO Reserve, LIFO Liquidation” (YouTube)
  
  Instructions: Please click on the link above and watch the entire lecture.  As you watch the lecture, pay close attention to how LIFO reserves are calculated and what they indicate.  By the completion of this lecture, you should be able to clearly define how to convert from LIFO to FIFO inventory costing methods.  This lecture also covers the topic outlined in sub-subunit 5.3.2.
  
  Watching this lecture and taking notes should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

5.3.2 Converting LIFO to FIFO  

Note: This topic is covered in the lecture assigned in 5.3.1.  As you review this lecture, be sure to pay close attention to how LIFO can be converted to FIFO in the example outlined in the lecture.

5.4 Weighted Average Cost  

• Reading: Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 7: Measuring and Reporting Inventories”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 7: Measuring and Reporting Inventories” (PDF)
  
  Instructions: If you have not already saved this document to your desktop, please click on the link above to download the PDF.  Read the section titled “Weighted Average Cost” on pages 311 and 312.  As you read, pay careful attention to how this inventory costing method is determined.
  
  Reading this chapter and taking notes should take approximately 5 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

• Lecture: Dr. Larry Walther’s Principles of Accounting: “Comparison of Inventory Costing Methods”

  Link: Dr. Larry Walther’s Principles of Accounting: “Comparison of Inventory Costing Methods” (YouTube)
  
  Instructions: Please click on the link above and watch the entire lecture.  As you watch the lecture, pay close attention to how the inventory is calculated using the three different inventory costing methods you just studied.  Be sure to take notes throughout the lecture to ensure that you can also reproduce the same calculations and conclusions.
  
  Watching this lecture and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

• Activity: Dr. Larry Walther’s Principles of Accounting: “Chapter 8: Inventory: FIFO, LIFO, Weighted Average Practice Worksheet”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 8: Inventory: FIFO, LIFO, Weighted Average Practice Worksheet” (PDF)
  
  Instructions: Please click on the link above and carefully read the directions before completing the worksheet.  Calculate the inventory cost for each of the three methods you just reviewed.  If you have difficulty completing the worksheet, refer back to the lectures assigned in this subunit.
  
  Reviewing your previous readings and completing this worksheet should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  The Saylor Foundation does not yet have materials for this portion of the course. If you are interested in contributing your content to fill this gap or aware of a resource that could be used here, please submit it here.

  Submit Materials

5.5 Lower of Cost or Market  

• Lecture: Dr. Larry Walther’s Principles of Accounting: “Lower of Cost or Market”

  Link: Dr. Larry Walther’s Principles of Accounting: “Lower of Cost or Market” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture.  As you watch the lecture, take notes on what lower of cost or market means and how this is used to determine inventory values.
  
  Watching this lecture and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

• Activity: Dr. Larry Walther’s Principles of Accounting: “Chapter 8: Inventory: Lower of Cost or Market Worksheet”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 8: Inventory: Lower of Cost or Market Worksheet” (PDF)
  
  Instructions: Please click on the link above and carefully read the directions before completing the worksheet.  Calculate the lower of cost or market for the given scenario.  If you have difficulty completing the worksheet, refer back to the lectures assigned in this subunit.
  
  Reviewing your previous readings and completing this worksheet should take approximately 20 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  The Saylor Foundation does not yet have materials for this portion of the course. If you are interested in contributing your content to fill this gap or aware of a resource that could be used here, please submit it here.

  Submit Materials

Unit 6: Long-Term Tangible Asset Reporting  

In this unit, you will learn about “tangible assets,” or items that have a “physical” presence and are either owned or leased by the company.  Examples of tangible assets include warehouse space, retail stores, and machinery.  Depending on the type of company, tangible assets are extremely important to the value of the company and essential to operations.  Tangible assets are reflected on a company’s financial statements and must be recorded in a company’s accounting books.

Although assets generally add value to a company, they have the potential to lose value and are sometimes sold to generate cash.  For example, when a company sells its machinery and other operational equipment, the transactions must be properly recorded, because the sales affect the company’s tangible asset totals.  In this unit, you will learn the appropriate actions when a loss in value occurs, as well as the correct way to record the sale of tangible assets in accordance with the “fundamental accounting equation.”

By the end of this unit, you will be able to identify different types of long-term tangible assets and how they are recorded on a company’s financial statements.  As you work through this unit, be sure to pay close attention to the calculation and recording of depreciation and tangible asset losses.

Unit 6 Time Advisory   show close


Unit 6 Learning Outcomes   show close


6.1 Investments  

• Reading: Dr. Larry Walther’s Principles of Accounting: “Chapter 9: Long-Term Investments”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 9: Long-Term Investments” (HTML)
  
  Instructions: Please click on the link above and read all the sections included in this chapter.  As you read, take notes on the different long-term investment instruments that businesses can and often invest in.  Also, pay attention to how these investments are recorded on financial statements and how their changes in valuation may affect a company’s accounting statements.
  
  Reading this chapter and taking notes should take approximately 30 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

6.2 What Are Tangible Assets?  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 10: Property, Plant, and Equipment”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 10: Property, Plant, and Equipment” (PDF)
  
  Instructions: If you have not already saved this document to your desktop, please click on the link above to download the PDF.  Read the section titled “Property, Plant, and Equipment” on pages 438 and 439.  As you read, pay close attention to how tangible assets are defined and what examples could be used to define them.  By the end of this reading, you should be able to provide examples and definitions related to tangible assets.
  
  Reading this chapter and taking notes should take approximately 10 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

6.2.1 Property, Plant, & Equipment (PP&E)  

• Reading: Dr. Larry Walther’s Principles of Accounting: “Chapter 10: Property, Plant, and Equipment”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 10: Property, Plant, and Equipment” (HTML)
  
  Instructions: Please click on the link above and read the “What Costs Are Included in Property, Plant, and Equipment?” section in this chapter.  As you read, take notes on the various costs that are associated with buying and maintaining property, plant, and equipment.  By the end of this reading, you should be able to easily identify components that are included in the property, plant, and equipment category.
  
  Reading this chapter and taking notes should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

6.2.2 Acquisition of PP&E  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 10: Property, Plant, and Equipment”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 10: Property, Plant, and Equipment” (PDF)
  
  Instructions: If you have not already saved this document to your desktop, please click on the link above to download the PDF.  Read the section titled “Initial Recording of Plant Assets” on pages 440–444.  As you read, pay close attention to the costs associated with land improvements and how this may affect the book and market value of property, plant, and equipment.  By the end of this reading, you should be able to define acquisition cost, land improvement, book value, and market value.
  
  Reading this chapter and taking notes should take approximately 20 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

6.2.3 Depreciation  

• Lecture: Dr. Larry Walther’s Principles of Accounting: “Depreciation Concepts”

  Link: Dr. Larry Walther’s Principles of Accounting: “Depreciation Concepts” (YouTube)
  
  Instructions: Please click on the link above and watch the entire lecture.  As you watch the lecture, take notes on depreciation and the importance of considering depreciation when evaluating the value of tangible assets.
  
  Watching this lecture and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

6.2.3.1 Straight-Line Depreciation  

• Lecture: Dr. Larry Walther’s Principles of Accounting: “Straight-Line Depreciation”

  Link: Dr. Larry Walther’s Principles of Accounting: “Straight-Line Depreciation” (YouTube)
  
  Instructions: Please click on the link above, and watch the entire lecture.  As you watch the lecture, take notes on how to calculate straight-line depreciation and how this is then recorded on the financial statements of a company.
  
  Watching this lecture and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

• Activity: Dr. Larry Walther’s Principles of Accounting: “Chapter 10: Property, Plant, and Equipment: Straight-Line Depreciation Worksheet”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 10: Property, Plant, and Equipment: Straight-Line Depreciation Worksheet” (PDF)
  
  Instructions: Please click on the link above and carefully read the directions before completing the worksheet.  Calculate the straight-line depreciation for the given scenarios.  If you have difficulty completing the worksheet, refer back to the lectures assigned in this sub-subunit.
  
  Reviewing your previous readings and lectures and completing this worksheet should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  The Saylor Foundation does not yet have materials for this portion of the course. If you are interested in contributing your content to fill this gap or aware of a resource that could be used here, please submit it here.

  Submit Materials

6.2.3.2 Double Declining Balance Depreciation  

• Lecture: Dr. Larry Walther’s Principles of Accounting: “Double-Declining Depreciation”

  Link: Dr. Larry Walther’s Principles of Accounting: “Double-Declining Depreciation” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture.  As you watch the lecture, take notes on how to calculate double declining depreciation and how this is then recorded on the financial statements of a company.
  
  Watching this lecture and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

• Activity: Dr. Larry Walther’s Principles of Accounting: “Chapter 10: Property, Plant, and Equipment: Double Declining Balance Worksheet”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 10: Property, Plant, and Equipment: Double Declining Balance Worksheet” (PDF)
  
  Instructions: Please click on the link above, and carefully read the directions before completing the worksheet.  Calculate the double declining balance depreciation for the given scenarios.  If you have difficulty completing the worksheet, refer back to the lectures assigned in this sub-subunit.
  
  Reviewing your previous readings and lectures and completing this worksheet should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  The Saylor Foundation does not yet have materials for this portion of the course. If you are interested in contributing your content to fill this gap or aware of a resource that could be used here, please submit it here.

  Submit Materials

6.2.4 Disposal of PP&E  

• Reading: Dr. Larry Walther’s Principles of Accounting: “Chapter 11: Advanced PP&E Issues/Natural Resources/Intangibles”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 11: Advanced PP&E Issues/Natural Resources/Intangibles” (HTML)
  
  Instructions: Please click on the link above and read the “Disposal of PP&E” section of this chapter.  As you read, take notes on how the disposal of property, plant, and equipment is handled and how the disposal value is calculated and recorded on the business’s financial statements.  By the end of this reading, you should feel comfortable with calculating disposal values and doing journal entries related to the values you calculate.
  
  Reading this chapter and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

• Activity: Dr. Larry Walther’s Principles of Accounting: “Chapter 11: Advanced PP&E Issues/Natural Resources/Intangibles: PP&E Disposal Worksheet”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 11: Advanced PP&E Issues/Natural Resources/Intangibles: PP&E Disposal Worksheet” (PDF)
  
  Instructions: Please click on the link above, and carefully read the directions before completing the worksheet.  Calculate the PP&E disposal for the given scenarios.  If you have difficulty completing the worksheet, refer back to the lectures assigned in this sub-subunit.
  
  Reviewing your previous readings and completing this worksheet should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  The Saylor Foundation does not yet have materials for this portion of the course. If you are interested in contributing your content to fill this gap or aware of a resource that could be used here, please submit it here.

  Submit Materials

6.2.5 Asset Impairment of PP&E  

• Reading: Dr. Larry Walther’s Principles of Accounting: “Chapter 11: Advanced PP&E Issues/Natural Resources/Intangibles”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 11: Advanced PP&E Issues/Natural Resources/Intangibles” (HTML)
  
  Instructions: Please click on the link above and read the “Accounting for Asset Exchange” and “Asset Impairment” sections of this chapter.  As you read, take notes on how the value of assets is determined throughout the usable life of the asset.  By the end of this reading, you should be able to outline how increase in asset value and how decreases in asset values are calculated and recorded in journal entries.
  
  Reading this chapter and taking notes should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

• Activity: Dr. Larry Walther’s Principles of Accounting: “Chapter 11: Advanced PP&E Issues/Natural Resources/Intangibles: Asset Impairment Worksheet”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 11: Advanced PP&E Issues/Natural Resources/Intangibles: Asset Impairment Worksheet” (PDF)
  
  Instructions: Please click on the link above and carefully read the directions before completing the worksheet.  Calculate the asset impairment for the given scenarios.  If you have difficulty completing the worksheet, refer back to the lectures assigned in this sub-subunit.
  
  Reviewing your previous readings and completing this worksheet should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  The Saylor Foundation does not yet have materials for this portion of the course. If you are interested in contributing your content to fill this gap or aware of a resource that could be used here, please submit it here.

  Submit Materials

Unit 7: Long-Term Intangible Asset Reporting  

In Unit 6, you learned about tangible assets or items that have a “physical” presence.  Tangible assets, however, are not the only types of assets that it may hold rights to, or own.  Copyrights, trademarks, and patents are types of “intangible assets” that are highly valuable though they cannot be physically held or accessed.

In this unit, you will also learn about mergers, acquisitions, and goodwill – another type of intangible asset that is also recorded on financial statements.  For example, a company may pay more than the book value to acquire another company.  Imagine giving a waiter a 200% tip for the outstanding service he or she provided.  This is similar to the concept of goodwill that many companies follow when buying other companies.  You will learn more about goodwill, why companies extend this courtesy, and how this transaction is recorded in accordance with accounting principles.

As you work through this unit, be sure to focus on the difference between tangible and intangible assets.  Be particularly mindful of the different ways incremental losses are rectified and recorded on financial statements.

Unit 7 Time Advisory   show close


Unit 7 Learning Outcomes   show close


7.1 What Are Intangible Assets?  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 11: Plant Asset Disposals, Natural Resources, and Intangible Assets”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 11: Plant Asset Disposals, Natural Resources, and Intangible Assets” (PDF)
  
  Instructions: If you have not already saved this document to your desktop, please click on the link above to download the PDF.  Read the section titled “Intangible Assets” on pages 492–497.  As you read, take notes on what intangible assets are and how they differ from general assets.  By the end of this reading, you should be able to name several examples of intangible assets that a company may own.
  
  Reading this chapter and taking notes should take approximately 30 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

7.1.1 Identifiable Intangible Assets  

7.1.1.1 Amortization  

• Lecture: Khan Academy’s “Introduction to Amortization”

  Link: Khan Academy’s “Introduction to Amortization” (YouTube)
  
  Instructions: Please click on the link above and watch the video lecture, which details the difference between depreciation and amortization.  By the end of this lecture, you should be able to calculate straight-line amortization and distinguish when depreciation and amortization is used in business settings.
  
  Watching this lecture and taking notes should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

7.1.1.2 Definite-Life Intangibles and Indefinite-Life Intangibles  

• Reading: Dr. Larry Walther’s Principles of Accounting: “Chapter 11: Advanced PP&E Issues/Natural Resources/Intangibles”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 11: Advanced PP&E Issues/Natural Resources/Intangibles” (HTML)
  
  Instructions: Please click on the link above and read the “Intangibles” section of this chapter.  As you read, take notes on how the differences between definite life and indefinite life intangible assets and how they are handled in terms of recording amortization.
  
  Reading this chapter and taking notes should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

• Activity: Dr. Larry Walther’s Principles of Accounting: “Chapter 11: Advanced PP&E Issues/Natural Resources/Intangibles: Amortization Practice Worksheet”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 11: Advanced PP&E Issues/Natural Resources/Intangibles: Amortization Practice Worksheet” (PDF)
  
  Instructions: Please click on the link above and carefully read the directions before completing the worksheet.  Calculate the straight-line amortization for the given entries, where appropriate.  If you have difficulty completing the worksheet, refer back to the lectures and readings assigned below subunit 7.1.
  
  Reviewing your previous readings and completing this worksheet should take approximately 30 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  The Saylor Foundation does not yet have materials for this portion of the course. If you are interested in contributing your content to fill this gap or aware of a resource that could be used here, please submit it here.

  Submit Materials

• Activity: Dr. Larry Walther’s Principles of Accounting: “Chapter 11: Advanced PP&E Issues/Natural Resources/Intangibles: Intangible Asset Practice Worksheet”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 11: Advanced PP&E Issues/Natural Resources/Intangibles: Intangible Asset Practice Worksheet” (PDF)
  
  Instructions: Please click on the link above and carefully read the directions before completing the worksheet.  Calculate the straight-line amortization for the given entries, where appropriate.  If you have difficulty completing the worksheet, refer back to the lectures and readings assigned in subunit 7.1.
  
  Reviewing your previous readings and completing this worksheet should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  The Saylor Foundation does not yet have materials for this portion of the course. If you are interested in contributing your content to fill this gap or aware of a resource that could be used here, please submit it here.

  Submit Materials

7.1.2 Goodwill & Goodwill Impairment  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 11: Plant Asset Disposals, Natural Resources, and Intangible Assets”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 11: Plant Asset Disposals, Natural Resources, and Intangible Assets” (PDF)
  
  Instructions: If you have not already saved this document to your computer, please click on the link above to download the PDF.  Read the section titled “Intangible Assets,” specifically the section with topic heading “goodwill” on pages 497–499.  As you read, take notes on what type of asset goodwill is and how it is defined and calculated.  By the end of this reading, you should be able to define goodwill and explain why a company would extend this when purchasing another company.
  
  Reading this chapter and taking notes should take approximately 10 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

• Lecture: YouTube: Money Week’s “What Is Goodwill?”

  Link: YouTube: Money Week’s “What Is Goodwill?” (YouTube)
  
  Instructions: Please click on the link above and watch the video lecture, which details the specifics of goodwill, how to calculate goodwill, and how goodwill impairment can be harmful for a company.  By the end of this lecture, you should be able to define goodwill impairment and describe how it is handled according to accounting rules.  Please note that the money references in the video are in United Kingdom denominations.  This should not change the understanding of the material.  Pay close attention to the mathematical calculations that are done as opposed to the currency that is used.
  
  Watching this lecture and taking notes should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

7.2 Intangible Assets on Financial Statements  

• Reading: Financial Accounting: “Section 11.2: The Balance Sheet Reporting of Intangible Assets”

  Link: Financial Accounting: “Section 11.2: The Balance Sheet Reporting of Intangible Assets” (PDF)
  
  Instructions:  Please click on the link above and scroll down to section 11.2. Intangible assets are not physical in nature and include such items as copyrights, patents, trademarks, good will, brand recognition, etc.
  
  Reading this section and note taking should take you approximately 20 minutes to complete.
  
  Terms of Use: The text was adapted by The Saylor Foundation under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work's original creator or licensee.

  See a broken link? Please let us know!

Unit 8: Liability Reporting  

Bill Bowerman and Phil Knight started the athletic company Nike with an initial investment of $1,000 in 1972.  Just 40 years later, Nike is the world’s leader in innovative athletic footwear and apparel, and a multi-billion dollar corporation with retail stores worldwide and over 30,000 employees.  How do you grow a $1,000 investment into billions of dollars?  In some cases, the growing company has to take on debt by securing bank loans or issuing bonds to investors.  Taking on these liabilities, a company – especially a new company – can secure the cash it needs to get started or expand its scope.  In this unit, you will learn about liabilities, why they may be helpful for company operations, and when they may signal a larger operational problem.  As with managing personal finances, a company’s ability to meet current financial obligations is a key factor in maintaining finances and even credit score points.  Accordingly, you will examine where liabilities are recorded on financial statements and learn how bonds are priced to attract more investors.

In this unit, focus on the differences between current and long-term liabilities, and what they may convey about a company’s ability to meet debt obligations.  Pay close attention to the way bonds are priced and what this can mean for the purchaser.

Unit 8 Time Advisory   show close


Unit 8 Learning Outcomes   show close


8.1 What Are Current Liabilities?  

• Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 9: Receivables and Payables”

  Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 9: Receivables and Payables” (PDF)
  
  Instructions: If you have not already saved this document to your desktop, then click on the link above to download the PDF.  Read the section titled “Current Liabilities,” beginning on page 406 through page 413.  As you read, take notes on the different types of liabilities that exist and how they are distinguished from each other.  By the end of this reading, you should be able to identify at least 3 types of liabilities and explain where they are recorded on the business’s financial statements.
  
  Reading this chapter and taking notes should take approximately 25 minutes.
  
  Terms of Use: The book above is released under a Creative Commons Attribution-Non-Commercial-Share-Alike License 3.0.  It is attributed to James Don Edwards and Roger H. Hermanson, and the original version can be found here.

  See a broken link? Please let us know!

• Lecture: Dr. Larry Walther’s Principles of Accounting: “Notes Payable”

  Link: Dr. Larry Walther’s Principles of Accounting: “Notes Payable” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture.  As you watch the lecture, take notes on the definition of a note and why a company would use notes in their day-to-day operations.  By the end of this lecture, you should be able to identify how notes are recorded in journal entries and explain why notes may be an important part of financing for a company.
  
  Watching this lecture and taking notes should take approximately 20 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

• Activity: Dr. Larry Walther’s Principles of Accounting: “Chapter 12: Current Liabilities and Employer Obligations: Current Liability Practice Worksheet”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 12: Current Liabilities and Employer Obligations: Current Liability Practice Worksheet” (PDF)
  
  Instructions: Please click on the link above and carefully read the directions before completing the worksheet.  Identify what conditions are needed for a liability to be classified as a current liability.  If you have difficulty completing the worksheet, refer back to the lecture and reading assigned in this subunit.
  
  Reviewing your previous readings and completing this worksheet should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  The Saylor Foundation does not yet have materials for this portion of the course. If you are interested in contributing your content to fill this gap or aware of a resource that could be used here, please submit it here.

  Submit Materials

8.2 What Are Long-Term Liabilities?  

• Lecture: YouTube: Susan Crosson’s “Long-Term Liabilities - Types”

  Link: YouTube: Susan Crosson’s “Long-Term Liabilities - Types” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture, which outlines how long-term liabilities are defined.  By the completion of this lecture, you should be able to explain the difference between current liabilities and long-term liabilities as well as give an example of a long-term liability.
  
  Watching this lecture and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

• Lecture: Dr. Larry Walther’s Principles of Accounting: “Long-Term Notes”

  Link: Dr. Larry Walther’s Principles of Accounting: “Long-Term Notes” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture.  As you watch the lecture, take notes on the definition of a long-term note.  By the end of this lecture, you should be able to distinguish between a current note and a long-term note as well as give an example of a long-term note and why a company would use them.
  
  Watching this lecture and taking notes should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

• Lecture: YouTube: Susan Crosson’s “Long-Term Liabilities – Bond Types”

  Link: YouTube: Susan Crosson’s “Long-Term Liabilities – Bond Types” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture, which outlines how the different bond types are defined.  Remember bonds are a type of long-term liability.  In the next subunit, you will learn all about bonds and bond pricing.  By the completion of this lecture, you should be able to explain what a bond is in general terms and name at least two different types of bonds and their characteristics.
  
  Watching this lecture and taking notes should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

8.3 Bonds  

• Reading: Dr. Larry Walther’s Principles of Accounting: “Chapter 13: Long-Term Obligations”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 13: Long-Term Obligations” (HTML)
  
  Instructions: Please click on the link above and read the “Bonds Payable” section of this chapter.  As you read, take notes on the different types of bonds.  By the end of this reading, you should be able to identify when a company would use one bond and when a company would use a different type of bond.
  
  Reading this chapter and taking notes should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

8.3.1 Bond Pricing  

• Lecture: YouTube: Susan Crosson’s “Long-Term Liabilities – Bond Price”

  Link: YouTube: Susan Crosson’s “Long-Term Liabilities – Bond Price” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture, which outlines how bond prices are determined.  By the completion of this lecture, you should be able to explain the different types of bond pricing that exist and why a company would use each bond price type.
  
  Watching this lecture and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

• Lecture: Khan Academy’s “Introduction to Bonds”

  Link: Khan Academy’s “Introduction to Bonds” (YouTube)
  
  Instructions: Please click on the link above and watch the video lecture, which continues an introduction to bonds and interest calculations.  By the end of this lecture, you should be able to calculate coupon payments of a bond.
  
  Watching this lecture and taking notes should take approximately 20 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

8.3.2 When Are Bonds “on Par”?  

• Lecture: Dr. Larry Walther’s Principles of Accounting: “Bonds Premiums and Discounts”

  Link: Dr. Larry Walther’s Principles of Accounting: “Bonds Premiums and Discounts” (YouTube)
  
  Instructions: Please click on the link above and watch the entire lecture.  As you watch the lecture, take notes on the three types of bond pricing.  By the end of this lecture, you should be able to distinguish between the three different types of bond pricing and provide an example for each.
  
  Watching this lecture and taking notes should take approximately 20 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

8.3.3 When Are Bonds “at a Premium” or “at a Discount”?  

• Lecture: Khan Academy’s “Relationship between Bond Prices and Interest Rates”

  Link: Khan Academy’s “Relationship between Bond Prices and Interest Rates” (YouTube)
  
  Instructions: Please click on the link above and watch the video lecture, which summarizes how bond prices are related to the interest promised by an issued bond.  By the end of this lecture, you should be able to determine if a bond is issued at a premium, discount, or at par.
  
  Watching this lecture and taking notes should take approximately 25 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

Unit 9: Calculating Financial Ratios  

In Unit 3, you learned how to prepare a company’s financial statements.  In this unit, you will learn to calculate financial ratios given a company’s financial statements.  As discussed in previous units, financial statements must be prepared in accordance with accounting principles.  Analysts often use a company’s financial statements to determine the growth and viability of a company and then decide if they want to invest in that company or not.  If every company recorded its financial transactions and prepared its financial statements differently, it would be very difficult to calculate meaningful financial ratios.

Financial statements are analyzed by calculating mathematical financial ratios using the numerical information in financial statements.  By calculating financial ratios, investors can determine the profitability or liquidity of a company without having to set foot into corporate offices or work in production facilities.  A company’s profitability and solvency (its ability to meet their financial obligations) can be calculated from the financial statements.  This unit serves as a window into the life of a financial analyst, as you learn important mathematical ratios.  In the next unit, you will delve deeper into the importance of financial ratios and examine what factors influence a company’s financial ratios.

As you complete this unit, be sure to focus on how each financial ratio is calculated and what financial statements are helpful when calculating each financial ratio.

Unit 9 Time Advisory   show close


Unit 9 Learning Outcomes   show close


9.1 What Are Financial Ratios?  

9.1.1 Calculating ROA  

• Lecture: Khan Academy’s “ROA Discussion”

  Link: Khan Academy’s “ROA Discussion” (YouTube)
  
  Instructions: Please click on the link above and watch the video lecture, which details how ROA is calculated from financial statement values.  By the end of this lecture, you should be able to calculate the ROA of a company by using the company’s financial statements.
  
  Watching this lecture and taking notes should take approximately 20 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

9.1.2 Calculating ROE  

• Lecture: YouTube: Money Week’s “What Is Return on Equity?”

  Link: YouTube: Money Week’s “What Is Return on Equity?” (YouTube)
  
  Instructions: Please click on the link above and watch the video lecture, which details the specifics of return on equity.  As you view this lecture, be sure to think about how return on equity may affect the view of a company’s profitability.  By the end of this lecture, you should be able to calculate a company’s return on equity when given the company’s financial statements.
  
  Watching this lecture and taking notes should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

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9.1.3 Calculating Gross & Net Profit Margin  

• Reading: Dr. Larry Walther’s Principles of Accounting: “Chapter 5: Special Issues for Merchants”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 5: Special Issues for Merchants” (HTML)
  
  Instructions: Please click on the link above and read the “Analysis of a Detailed Income Statement” section of this chapter.  As you read, take notes on the formulas used to calculate the gross and net profit margins.  By the end of this reading, you should be able to calculate the gross and net profit margins when given a company’s income statements.
  
  Reading this chapter and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

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9.2 What Is Asset Utilization?  

9.2.1 Calculating Asset & Inventory Turnover  

• Reading: Dr. Larry Walther’s Principles of Accounting: “Chapter 8: Inventory”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 8: Inventory” (HTML)
  
  Instructions: Please click on the link above and read the “Inventory Management” section of this chapter.  As you read, take notes on the formula used to calculate the inventory turnover.  By the end of this reading, you should be able to calculate the inventory turnover when given a company’s financial statements.
  
  Reading this chapter and taking notes should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

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• Activity: Dr. Larry Walther’s Principles of Accounting: “Chapter 8: Inventory: Inventory Turnover Worksheet”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 8: Inventory: Inventory Turnover Worksheet” (PDF)
  
  Instructions: Please click on the link above and carefully read the directions before completing the worksheet.  Identify and calculate the turnover ratios indicated.  If you have difficulty completing the worksheet, refer back to the reading assigned in this subunit.
  
  Reviewing your previous readings and completing this worksheet should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  The Saylor Foundation does not yet have materials for this portion of the course. If you are interested in contributing your content to fill this gap or aware of a resource that could be used here, please submit it here.

  Submit Materials

9.2.2 Calculating Days Inventory Held  

• Lecture: YouTube: TreasuryOcean’s “Inventory Conversion Period”

  Link: YouTube: TreasuryOcean’s “Inventory Conversion Period” (YouTube)
  
  Instructions: Please click on the link above and watch the video lecture, which details the specifics of how inventory turnover can be used to calculate the days that inventory is held.  By the end of this lecture, you should be able to calculate a company’s days inventory held when given the company’s inventory turnover.  You should also be able to qualitatively explain what this calculation means for the company.  Please note that to calculate the days held inventory, divide 365 (number of days in a year) by the inventory turnover.
  
  Watching this lecture and taking notes should take approximately 5 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

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9.2.3 Calculating Days Receivables Outstanding  

• Reading: Dr. Larry Walther’s Principles of Accounting: “Chapter 7: Accounts Receivable”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 7: Accounts Receivable” (HTML)
  
  Instructions: Please click on the link above and read the “Monitoring and Managing Accounts Receivable” section of this chapter.  As you read, take notes on the formula used to calculate the accounts receivable turnover and accounts receivable days outstanding.  By the end of this reading, you should be able to calculate both the accounts receivable turnover and the accounts receivable days outstanding when given a company’s income statements.
  
  Reading this chapter and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

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9.3 What Are Liquidity Ratios?  

9.3.1 Calculating the Quick & Current Ratio  

• Reading: Dr. Larry Walther’s Principles of Accounting: “Chapter 4: Reporting Cycle”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 4: Reporting Cycle” (HTML)
  
  Instructions: Please click on the link above and read the “Current Ratio” section of this chapter.  As you read, take notes on the formulas used to calculate the quick and current ratios.  By the end of this reading, you should be able to calculate the quick and current ratios when given a company’s financial statements.
  
  Reading this chapter and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

• Activity: Principles of Accounting: Dr. Larry Walther’s “Chapter 4: Inventory: Current and Quick Ratio Worksheet: Current and Quick Ratio Worksheet”

  Link: Principles of Accounting: Dr. Larry Walther’s “Chapter 4: Inventory: Current and Quick Ratio Worksheet: Current and Quick Ratio Worksheet” (PDF)
  
  Instructions: Please click on the link above and carefully read the directions before completing the worksheet.  Identify the needed financial data and calculate the current and quick ratios.  If you have difficulty completing the worksheet, refer back to the reading assigned in this subunit.
  
  Reviewing your previous readings and completing this worksheet should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  The Saylor Foundation does not yet have materials for this portion of the course. If you are interested in contributing your content to fill this gap or aware of a resource that could be used here, please submit it here.

  Submit Materials

9.3.2 Calculating Working Capital  

• Reading: Dr. Larry Walther’s Principles of Accounting: “Chapter 4: Reporting Cycle”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 4: Reporting Cycle” (HTML)
  
  Instructions: Please click on the link above and read the “Working Capital” section of this chapter.  As you read, take notes on the formula used to calculate the working capital.  By the end of this reading, you should be able to calculate a company’s working capital when given a company’s financial statements.
  
  Reading this chapter and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

9.3.3 Calculating the Cash Conversion Cycle  

• Lecture: YouTube: Econo McCall’s “Cash Conversion Cycle”

  Link: YouTube: Econo McCall’s “Cash Conversion Cycle” (YouTube)
  
  Instructions: Please click on the link above and watch the video lecture, which details the definition of the cash conversion cycle and what financial data is needed to calculate a company’s cash conversion cycle.  As you view this lecture, be sure to pay close attention to the financial statements needed to calculate this cycle.  By the end of this lecture, you should be able to calculate the cash conversion cycle and explain its significance in understanding the financial operations of a company.
  
  Watching this lecture and taking notes should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

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9.4 What Are Long-Term Solvency Ratios?  

9.4.1 Calculating the Debt-to-Equity Ratio  

• Reading: Dr. Larry Walther’s Principles of Accounting: “Chapter 13: Long-Term Obligations”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 13: Long-Term Obligations” (HTML)
  
  Instructions: Please click on the link above and read the “Analysis, Commitments, and Leases” section of this chapter.  As you read, take notes on the formula used to calculate the debt to equity ratio.  By the end of this reading, you should be able to calculate a company’s debt to equity ratio when given a company’s financial statements.
  
  Reading this chapter and taking notes should take approximately 5 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

• Activity: Dr. Larry Walther’s Principles of Accounting: “Chapter 13: Long-Term Obligation: Debt to Equity Practice Worksheet”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 13: Long-Term Obligation: Debt to Equity Practice Worksheet” (PDF)
  
  Instructions: Please click on the link above and carefully read the directions before completing the worksheet.  Identify the needed financial data and calculate the debt to equity ratios indicated.  If you have difficulty completing the worksheet, refer back to the reading assigned in this sub-subunit.
  
  Reviewing your previous readings and completing this worksheet should take approximately 15 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  The Saylor Foundation does not yet have materials for this portion of the course. If you are interested in contributing your content to fill this gap or aware of a resource that could be used here, please submit it here.

  Submit Materials

9.4.2 Calculating the Times Interest Earned Ratio  

• Reading: Dr. Larry Walther’s Principles of Accounting: “Chapter 13: Long-Term Obligations”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 13: Long-Term Obligations” (HTML)
  
  Instructions: Please click on the link above and read the “Analysis, Commitments, and Leases” section of this chapter.  As you read, take notes on the formula used to calculate the times interest earned ratio.  By the end of this reading, you should be able to calculate a company’s times interest earned ratio when given a company’s financial statements.
  
  Reading this chapter and taking notes should take approximately 5 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

Unit 10: Financial Statement Analysis  

In this unit, you will learn how to analyze financial statements and financial ratios.  In the last unit, you examined the information necessary for calculating financial ratios related to a company’s profitability, solvency, and liquidity.  Now, you will learn how investors draw conclusions from these ratios, as well as the factors that influence a company’s financial ratios.  For example, the ROA of one technology company may be 10%, whereas the ROA of a similarly sized technology company may be 25%.  Comparing companies based on company size or industry is one way for analysts to decipher qualitative findings in quantitative information.  In this unit, you will learn about different financial statement analyses and the information that can be surmised from each method.

Publicly traded companies release financial statements every quarter.  Once per year these statements may be used by investors to analyze the current financial profitability and operations of companies within their investment portfolio.  In some cases, these financial statements can be the basis for projecting a company’s growth or profitability, based on past performance.

While working through this unit, be sure to focus on the ways in which financial ratio values, as well as qualitative data, can be portrayed with each ratio calculation, and the ways company operations affect these values.

Unit 10 Time Advisory   show close


Unit 10 Learning Outcomes   show close


10.1 What Is Financial Statement Analysis?  

• Lecture: YouTube: Susan Crosson’s “Final Performance Overview”

  Link: YouTube: Susan Crosson’s “Final Performance Overview” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture, which outlines how a company’s financial performance can be determined using the financial statements.  By the completion of this lecture, you should be able to explain how each financial statement can be used to provide a financial overview of the company’s performance.
  
  Watching this lecture and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

10.1.1 Vertical Analysis  

• Lecture: YouTube: Susan Crosson’s “Vertical Analysis”

  Link: YouTube: Susan Crosson’s “Vertical Analysis” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture, which outlines how to conduct a vertical analysis of a company’s financial statements.  By the completion of this lecture, you should be able to explain how to do a vertical analysis and how this analysis can be important in viewing the company’s financial health.
  
  Watching this lecture and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

10.1.2 Horizontal Analysis  

• Lecture: YouTube: Susan Crosson’s “Horizontal Analysis”

  Link: YouTube: Susan Crosson’s “Horizontal Analysis” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture, which outlines how to conduct a horizontal analysis of a company’s financial statements.  By the completion of this lecture, you should be able to explain how to do a horizontal analysis and how this analysis can be important in viewing the company’s financial health.
  
  Watching this lecture and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

10.2 What Are Profitability Ratios?  

• Lecture: YouTube: Money Week’s “What Is Profit?”

  Link: YouTube: Money Week’s “What Is Profit?” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture, which outlines what profit is and how it is calculated.  As you watch the lecture, you should be able to identify what financial statements provide vital information about a company’s profit.  By the end of this lecture, you should have a very firm understanding of profit.
  
  Watching this lecture and taking notes should take approximately 20 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

• Lecture: YouTube: Susan Crosson’s “Final Performance Profitability Ratios”

  Link: YouTube: Susan Crosson’s “Final Performance Profitability Ratios” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture, which outlines the qualitative information that profitability ratios provide.  As you view this lecture, be sure to review the profitability ratios that are discussed and pay close attention to what these ratios may reveal about a company’s financial health.  By the end of this lecture, you should be able to explain what profitability ratios can be used to calculate the profitability of a company when given a company’s financial statements.
  
  Watching this lecture and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  See a broken link? Please let us know!

10.3 Company Factors Affecting Profitability  

10.3.1 Internal Versus External Growth  

• Activity: Dr. Larry Walther’s Principles of Accounting: “Chapter 13: Financial Analysis and Statement of Cash Flows: Cash Flow Analysis Practice Worksheet”

  Link: Dr. Larry Walther’s Principles of Accounting: “Chapter 13: Financial Analysis and Statement of Cash Flows: Cash Flow Analysis Practice Worksheet” (PDF)
  
  Instructions: Please click on the link above and carefully read the directions before completing the worksheet.  If you have difficulty completing the worksheet, refer back to the reading and lectures assigned in this subunit as well as in subunit 3.2.
  
  Reviewing your previous readings and completing this worksheet should take approximately 20 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  The Saylor Foundation does not yet have materials for this portion of the course. If you are interested in contributing your content to fill this gap or aware of a resource that could be used here, please submit it here.

  Submit Materials

10.3.2 Recurring and Transitory Items  

• Reading: Boundless: “Using Financial Statements to Understand a Business”

  Link: Boundless: “Using Financial Statements to Understand a Business” (PDF)
  
  Instructions: Read this section of Boundless’s Accounting textbook. Earnings on the income statement may be divided into recurring items and transitory (non-recurring) items. Normal earnings are “more permanent, and therefore more relevant for prediction and valuation.”
  
  Reading this section should take approximately 20 minutes to complete.
  
  Terms of Use: This resource is licensed under Creative Commons Attribution-ShareAlike 3.0 Unported License. It is attributed to Boundless and the original version can be found here.

  See a broken link? Please let us know!

10.3.3 Operating Efficiencies & Liquidity  

• Lecture: YouTube: Econo McCall’s “Ratios: Efficiency”

  Link: YouTube: Econo McCall’s “Ratios: Efficiency” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture, which outlines how mathematical ratios discussed in Unit 9 can be used to make qualitative conclusions about a company’s operating efficiencies.  By the end of this lecture, you should be able to identify at least 2 ratios that can be used to determine a company’s operating efficiencies and what insight these ratios provide.
  
  Watching this lecture and taking notes should take approximately 20 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

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• Lecture: YouTube: Econo McCall’s “Ratios: Liquidity”

  Link: YouTube: Econo McCall’s “Ratios: Liquidity” (YouTube)
  
  Instructions: Please click on the link above and watch the lecture, which outlines how mathematical ratios discussed in Unit 9 can be used to make qualitative conclusions about a company’s liquidity.  By the end of this lecture, you should be able to identify at least 2 ratios that can be used to determine a company’s liquidity and what insight these ratios provide.
  
  Watching this lecture and taking notes should take approximately 10 minutes.
  
  Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

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10.4 Financial Statement Forecasting  

• Reading: Boundless: “Forecasting the Income Statement”

  Link: Boundless: “Forecasting the Income Statement” (PDF) 
  
  Instructions: Please read this section of Boundless’s Finance textbook to learn about various types of forecasts, such as sales, production schedules, and cost of goods sold (COGS).
  
  Reading this section and note taking should take you approximately 45 minutes to complete.
  
  Terms of Use: This resource is licensed under Creative Commons Attribution-ShareAlike 3.0 Unported License. It is attributed to Boundless and the original version can be found here.

  See a broken link? Please let us know!

Final Exam  

• Final Exam: The Saylor Foundation’s “PRDV201 Final Exam”

  Link: The Saylor Foundation’s “PRDV201 Final Exam”
  
  Instructions: You must be logged into your Saylor Foundation School account in order to access this exam.  If you do not yet have an account, you will be able to create one, free of charge, after clicking the link.

  See a broken link? Please let us know!