Coursera Accounting Course Notes

Syllabus

Week 1: Introduction and Balance Sheet

accounting is a language.
overview of financial reporting. What kinds of reports are required?
Who makes and enforces the rules?
Balance Sheet Equation
Definitions -Assets, Liabilities, Stock Holder's Equity
Introduction to Debit/Credit Bookkeeping
Practice - Translating transactions into debit/credit
Case Study - Startup Company - recording all transactions -> first set of financial
statements for the company

Week 2 Accrual Accounting and Income Statement

Accrual Accounting
How Accrual Accounting affects the statement of Income Statement Accounts
Adjusting Entries - needed to prepare our internal books for financial statements
Closing Entries
Preparation of Balance Sheet and Income Statement - Revenues and Expenses

Week 3 Cash Flows

Classification of cash flows into operating, investing, financing activities
Preparing and Analyzing Statement of Cash Flows
Differences between earnings, cash from operations, EBITDA, and Free Cash Flow

Week 4 Ratio Analysis and Final Exam

FAQ

Follow Up Course = More Introduction to Financial Accounting - Deeper into each

component of balance sheet

1. Financial Reporting
Video 1.1 Financial Reporting Overview
Accounting is a system of recording information about business transactions to
provide summary statments of a company's financial position and performanc.

Different users need different summary statements.

Most companies keep 3 sets of books
Financial Accounting - standardized reports for external stakeholders -
investors, creditors, customers, suppliers, - *not* used for internal reporting
Tax Accounting - separate books based on IRS rules to determine tax payable
Managerial Accounting - customized reports for internal decision making

Financial Reporting requirements

SEC demands periodic financial statement filings
annual 10-k report
quarterly 10-q report
8k material event report for something significant that happens within a
quarter

all these must be prepared in accordance with Generally Accepted Accounting

Principles or GAAP
formally applies to US public companies, but more or less universally .

Periodic Filing Requirements cause 'tension' in filing requirements.

e.g ; We ship goods to the customer in one quarter. Collect cash the next. In which
quarter did the sale occur?
e.g: Buy equipment in one quarter. Use it to create items to sell for the next 23
quarters. In which quarter(s) is the expense recorded?

2 big standards US GAAP, IFRS. Both are very similar wrt basic accounting.

managements are responsible for preparing financial statements. But, to avoid them
getting creative, there are several checks and balances.
1. Audit Commitee of the Board of Directors provides oversight of management's
processes
2. Auditors are hired by the Board to "express an opinion" about whether
management's statements conform to GAAP
3. Next line of defense is SEC and other regulators taking punitive action against
a firm for any violation of GAAP standards or other rules (but they are reactive
not proactive)

4. By and large information intermediaries - stock analysts, institutional

investors, the media - who expose or flee firms with questionable accounting

Required Financial (Accounting) Statements

1. Balance Sheet.
gives a company's financial position (listing of resources and obligatons)
on a particular date
2. Income Statement
gives results of operations over a period of time (between two balance
sheets) using accrual accounting (i.e recognition tied to business activities,
*not* cashflows)
3. Statement of Cash Flows - Sources and Uses of Cash over a period of time
4. Statement of Shareholders Equity - Changes in stockholders equity over a period
of time

Video 1.1.2
What can financial statements tell us about a business?
A very simple example of a business with only a few transactions

Video 1.2.1 The Balance Sheet Equation

BSE is the *one grammar rule* in the accounting language. Makes all financial
statements fit together.
BSE = Accounting Identity

assets = liabilities + equity

resources of the company = claims on those resources by outsiders and owners

Key Features of BSE

It must always balance (Double Entry Bookkeeping where two entries any time you
tinker with any factor on either side)
Changes over a period between two balance sheets is summarized in Income Statement
+ Statement of Stock Holder's Equity + Statement of Cash Flow

Assets = Liabilities + Equity

At the beginning *and* end of a financial year, (Cash + Non cash assets) =
Liabilities + (Contributed Capital + Retained Earnings). (two balance sheets, each
showing status at a distinct point in time)

The difference between the Retained Earnings at beginning and end of year is shown
in the income statement.
The difference in Cash (between beginning and end of year) is shown in Statement of
Cash Flows for the year
500,000 for 50,000 in cash and 450,000 as a mortgage. At the end of the year, the
house rises in value to 1000,000
Assets = Liabilities + Equity
Cash + NonCash = Liabilities + (Contributed Capital + Retained Earnings)

(beg)0 + 500,000 = 450,0000 + 0 + 50,000

(end)0 + 1000,000 = 450,0000 + (0 + 550,000)

Cash has not increased, which will be shown in cash flow statement
Retained Earnings has increased by 500,000 which will be shown in income statement
Statement of StockHolder's Equity shows any changes in SEE.

so, summary =
given

assets = liability + equity

cash + noncash assets = liabilities + contributed capital + retained earning

delta cash = statement of cash flow

delta retained earnings = income statement
delta contributed capital = statement of shareholder equity

Complete Balance Sheet Equation

1. Assets = Liability + Stockholder's Equity

2. Stockholders Equity = Contributed Capital + Retained Earnings
3. Retained Earnings = Prior Retained Earnings + Net Income - Dividends
4. NetIncome = Revenues - Expenses

Substituting 2,3,4 in 1

Assets = Liabilities + Contributed Capital + (Prior Retained Earnings + (Revenues -

Expenses) - Dividends)