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Session 1 - Actg 500 Intro to Financial Accounting...

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Actg 500: Intro to Financial Accounting Meeting #1: The Financial Accounting and Reporting Environment Professor Ryan Casey College of Business Administration University of Illinois at Chicago
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Class Administration Course structure Class structure Philosophy Admin: requirements, grading, background.
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Overview of Actg 500 We have 6 areas spread over 13 meetings (15 total but two are exams) Financial statements and articulation Accrual accounting and revenue recognition Asset valuation Accounting for liabilities Accounting for taxes Equity
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Overall Themes for Course There are two overall themes to which we will continually return Accounting measures wealth, (in particular, cash and wealth flow differently), and There is no Truth in accounting, (in particular, no such thing as good accounting).
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Good Accounting depends on Users Accounting is good if it helps users make better decisions. Primary users of (Reading 1, pg 13) financial accounting – investors, creditors managerial accounting - management Others users include: employees, regulators (e.g. EPA), tax authorities, rating agencies, bankers, academics, competitors, suppliers, etc.
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Overview of Today s Lecture Today s lectures will cover: Brief summary of accounting discipline Introduction to & articulation of financial statements (F/S) Transaction analysis (preview of Ben and Jerry s case)
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Accounting rules are based on Concepts The basic accounting concepts include: the entity concept, money unit principle, historical cost, acctg period, going concern, revenue recognition, matching, consistency, conservatism, industry practice, etc. (Reading 1, pg 10) One concept we stress is the accounting equation: Assets - Liab = Equity, that is A - L = E or A = L + E
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Accounting Rules and Regulators Accounting rules = Generally Accepted Accounting Principles (GAAP). Regulators include - Financial Accounting Standards Board (FASB) - Securities Exchange Commission (SEC) - Public Auditors (AICPA) Reports - 10K, 10Q, 8K, and annual report
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U.S. Financial Reporting Entities FASB SEC AICPA GAAP Financial Reporting Creditors Investors Other Users
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Okay!!! STOP and think… What is accounting? It is a language used to communicate information about certain economic events. So what information is important? Depends on user and decision they are making. (Reading 1, pg 3) Suppose I am deciding whether to invest in a firm s stock. What do I want to know?
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The Basic Structure of Accounting Resource beg - Oblig beg = Wealth beg Activity /Use of Net Resources Change in Net Resources Change in Wealth [& Capital Changes] = Resource end - Oblig end = Wealth end
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Basic Structure of Accounting Economics: Resource –Obligation = Wealth Accounting: Asset – Liabilities = Equity + Unrecorded Goodwill Price or Value
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The Annual Report Audited Information: Financial Statements Income Statement (I/S)
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