Compare yearly and total Net Income (i.e., for 1990 + 1991) of the scenario posed above under the three accounting treatments.ģ. 12/91, the customer brings the stereo in again actual cost to CC is $15.Ģ. 12/90, the customer brings the stereo in for inspection. Customer also pays $100 cash for 2-year warranty coverage, which CC expects to require $20 in parts and labor over that period (through 12/31/91).ī.
On 1/1/90, CC sells a stereo for $1,000 cash. Show the BSE (Balance Sheet Equation) effects of the following events under the 3 accounting alternatives described on pp. In addition to the two questions at the back of Circuit City (CC), answer the following:ġ. Illustrate how accounting numbers can influence the operating decisions they reflect. Reinforce and extend your understanding of revenue recognition.Ģ. How would you go about calculating Intel's cash collections in 2002? (Hint: preview the class lecture notes).ġ. What is Intel's revenue recognition policy?Ħ. Financial Accounting in an Economic Context. Problem E6-7 from the course textbook: J. Instead of using an ADA (Allowance for Doubtful Accounts) account, why can't we just subtract estimated future write-offs from the Accounts Receivable?Ĥ. Under what circumstances would managers have the incentive to manipulate the timing of revenue recognition? How would they do it? What risks are involved?ģ. What are the criteria necessary to recognize revenue?Ģ.
Work on a detailed example: reverse engineering Intel's cash collections in 2001.ġ. Understand the three alternative methods used to calculate the Allowance for Doubtful Accounts: direct method, percentage of sales, and aging.Ĥ. Introduce the different types of contra-asset accounts related to Accounts Receivable: Allowance for Doubtful Accounts ("ADA"), Allowance for Returns, and Deferred Income Liability.ģ. Discuss the criteria for revenue recognition under accrual accounting: a firm recognizes revenue when it is deemed to beĢ.
Revenue Recognition and Accounts Receivable ( PDF)ġ. Questions about the Intel 2002 Annual Report ( PDF) Begin to understand commonly-used financial ratios. Understand the distinction between recognition and disclosure of information.ĥ. Become familiar with the types of economic activity that are associated with common financial-statement line items, and thus the reasons why users of financial reports might find these items useful.Ĥ. Understand the purposes of the four financial statements:ģ. Become familiar with the main parts of an annual report:Ģ. Pratt E4-19 (we will do this in class).Įlements of an Annual Report and Financial Ratios ( PDF)ġ. How is recognizing depreciation for PP&E an example of the Matching Principle?ħ. What is the difference between capitalizing and expensing a cost?Ħ. accounting principles require the former but not the latter?ĥ. From a financial reporting perspective, what's the difference between consistency and uniformity? Why do U.S. How do you determine what fiscal period a firm is using? Why would companies use something other than calendar year as a fiscal period?Ĥ. 167 of Pratt, Why does Net Income appear on both the Income Statement AND the Statement of Retained Earnings? Why does Ending Retained Earnings Balance not equal Ending Cash Balance on the Balance Sheet?ģ. What does a firm's ending balance of Retained Earnings represent? In Figure 4-11 on p. How do the Income Statement and the Balance Sheet relate to one another?Ģ. recording events during the accounting period,ġ. Become familiar with the basic bookkeeping model that illustrates how record keeping impacts the financials.Ī. Understand how accruals affect the financial statement.Ĥ. Develop a mental model for classifying types of accounting accruals.ģ. Understand how accrual accounting differs from a cash basis.Ģ. Understand how individual events affect financial statements.ġ. Begin to gain an understanding of the course framework.ĥ. Understand the course objective and challenges, and our strategy to meet them.Ĥ. Answer the following: What do accountants do and why is it important?ģ. Build a working relationship: What are our responsibilities?Ģ.
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