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PRDV201: Accounting Principles I

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
This unit should take approximately 3 hours to complete.

☐    Subunit 1.1: 0.25 hours

☐    Subunit 1.2: 0.25 hours

☐    Subunit 1.3: 0.75 hours

☐    Subunit 1.4: 0.75 hours

☐    Subunit 1.5: 1 hour

Unit1 Learning Outcomes
Upon successful completion of this unit, the student will be able to: - Describe the process of accounting and the uses of accounting information. - Identify and distinguish between the different types of financial statements. - Identify and describe the functions of government agencies and laws that establish rules for financial reporting.

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.

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.

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](http://creativecommons.org/licenses/by-nc-sa/3.0/).  It is
attributed to James Don Edwards and Roger H. Hermanson,  and the
original version can be found
[here](http://dl.dropbox.com/u/31779972/Accounting%20Principles%20Vol.%201.pdf).

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](http://creativecommons.org/licenses/by-nc-sa/3.0/).  It is
attributed to James Don Edwards and Roger H. Hermanson,  and the
original version can be found
[here](http://dl.dropbox.com/u/31779972/Accounting%20Principles%20Vol.%201.pdf).

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.

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.

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](http://creativecommons.org/licenses/by-nc-sa/3.0/).  It is
attributed to James Don Edwards and Roger H. Hermanson, and the
original version can be found
[here](http://dl.dropbox.com/u/31779972/Accounting%20Principles%20Vol.%201.pdf).

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](http://creativecommons.org/licenses/by-nc-sa/3.0/).  It is
attributed to James Don Edwards and Roger H. Hermanson, and the
original version can be found
[here](http://dl.dropbox.com/u/31779972/Accounting%20Principles%20Vol.%201.pdf).
  • 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.