CLASS NOTES FOR SESSION # 1

Outline for Session #1

1.    WELCOME TO MY WORLD -- What this course is, and more importantly,
                what it is NOT...

• Student Questionaires - Note the Disclaimer...
• Syllabus
• My role as "coach"
• The role of homework/problems/exercises

2.    DEFINITION OF ACCOUNTING - What do CPA's do?
               Is accountancy an art or a science?

    A.    Stereotypes of Accountants - Don't believe everything you have heard...
                  What is "creative accounting"?    2 + 2 = what would you like it to equal?

    B.    Distinguishing between Bookkeeping vs. Accounting

    C.    So what do we do all day?

    Definition of Accountancy: a measurement and communication PROCESS used to
                                                 report on the activities of a business.   

               Observe, Identify & Measure - understand and identify an economic transaction; pick it apart.

                Record, classify & summarize measurements - double-entry accounting; Debits and Credits.

                Report on the results - Financial Statements/reports together with interpretations

   D.     Financial              vs.        Managerial     Accounting
            for EXTERNAL use              for INTERNAL use

3.    CHARACTERISTICS OF ACCOUNTING INFO:

        USEFUL                         A) Relevant

                                                B) Reliable -  free from error
                                                                       faithful representation
                                                                       free from bias

                                                C) Comparable

                                                D) Consistent

        UNDERSTANDABLE

4.    GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:

•   Who makes these rules up???    The FASB, AICPA, SEC....[But what about the IRS?]

    I.    Pervasive Principles

        A.     Underlying Assumptions:
                1.     Entity Theory - separate economic entity; distinct
                2.     Going Concern Concept - business has indefinite existence
                3.     Stable Monetary measure
                4.     Periodicity Concept

        B.     Measurement Principles:

                1.     Historical Cost
                2.     Revenue Recognition Principle - Realization of some benefit
                3.     Matching Principle
                4.     Full Disclosure Principle

        C.     Modifying Conventions:

                1.     Cost - Benefit Relationship
                2.     Materiality - importance - by judgement of the CPA
                3.     Industry Practices
                4.     Conservatism - emphasis on fair presentation

    II.     Broad Operating Principles - somewhat more specific than pervasive principles

    III.    Detailed Principles - very narrow, specific to a particular set of circumstances

5.    FINANCIAL STATEMENTS

        A.    A simplified definition: A presentation of financial data...

                "...in accordance with generally accepted accounting principles or a comprehensive
                 basis of accounting other than generally accepted accounting principles."

        B.     Examples of financial statements

        C.    What a financial statement is NOT... not a TRIAL BALANCE

        D.     Levels of service/responsibility on financial statements

                1.    Compilations - garbage in, garbage out
                                no assurance

                2.     Reviews
                                negative assurance

                3.     Audits
                                positive assurance; the attest function

        E.     Dissections of Compilation, Review & Audit Reports

6.    BASIC ELEMENTS OF FINANCIAL STATEMENTS

                Assets, liabilities, equity, etc.

7    THE STANDARD FINANCIAL STATEMENTS:

•        Balance Sheet - "snapshot" of solvency

•        Income Statement - aka "P & L" - profitability

•        Statement of Cash Flows - "sources" and "uses" of cash...
                   Illustrates the effects on cash of it's operating activities, investing activities
                  and financing activities.

•         Statement of Retained Earnings - connects the income statement and the B/S.
                  explains changes in retained earnings between 2 B/S dates.

8.    THE MEANING OF LIFE [as applied to my world of accountancy]

        A.     Basic truth:    The books of the world will always balance...so will yours...

        B.    The basic accounting equation:

                               Assets = Liabilities + Equity

        C.     Transaction analysis - analyze a transaction to see each effect on the accounting equation.

Copyright 1998
Steven L. Jager, CPA, An Accountancy Corporation