ACCT 3311: Intermediate Accounting I Greg Sommers, PhD CPA

1. ACCT 3311: Intermediate Accounting IGreg Sommers, PhD CPA gsommers@smu.edu http://gsommers.cox.smu.edu/acct3311/ https://www.facebook.com/groups/263196983700206/

2. Syllabus It is our contract to protect you, me and your fellow students. Read it, know it.

3. Whatever be the detail with which you cram your students, the chance of their meeting in after-life exactly that detail is infinitesimal; and if they do meet it, they will probably have forgotten what you taught them about it. The really useful training yields a comprehension of a few general principles with a thorough grounding in the way they apply to a variety of concrete details. In subsequent practice the students will have forgotten your particular details; but they will remember by an unconscious common sense how to apply principles to immediate circumstances. Alfred North Whitehead The Aims of Education and Other Essays My Goal for You

4. Expectations – Content Accounting is different than 8th grade social science where you learned it and then after the test could forget it. The content you learn in each accounting course is the basis for the next course and must be retained. You are expected to know and be ready to use what you learned in Introductory Financial Accounting Chapter 2 and the Great Gifts Case will essentially be a review of Introductory Financial Accounting.

5. Expectations – Behavior Be ready to begin the discussion promptly and attend the section for which you registered. Your superiors, peers, and client personnel will have the same expectations in your firm and client assignments.  You are to occupy available seats from the front of the classroom first. Your superiors and clients would not expect you to sit a significant distance away during meetings/interactions. The use of laptop and other hand-held devices and/or audio/video recording devices during the class period is strictly prohibited without prior written consent.  These devices are distracting and their use has the ability to cause others to be skeptical of your intentions and commitment.

6. Chapter 1Environment and Theoretical Structure of Financial AccountingSommers – ACCT 3311 Chapter 1: Environment and Theoretical Structure of Financial Accounting.Chapter 1: Environment and Theoretical Structure of Financial Accounting.

7. Discussion Questions Q1–1 What is the function and primary focus of financial accounting?

8. Financial Accounting Environment Relevant financial information is provided primarily through financial statements and related disclosure notes. Balance Sheet Income Statement Statement of Cash Flows Statement of Shareholders’ Equity The primary means that profit-oriented companies use to provide financial information to investors, creditors and other external parties is through financial statements and their accompanying disclosure notes. The four financial statements used most frequently for this purpose are the: Balance Sheet. Income Statement. Statement of Cash Flows. Statement of Shareholders’ Equity. The primary means that profit-oriented companies use to provide financial information to investors, creditors and other external parties is through financial statements and their accompanying disclosure notes. The four financial statements used most frequently for this purpose are the: Balance Sheet. Income Statement. Statement of Cash Flows. Statement of Shareholders’ Equity.

9. Discussion Questions Q1– 2 What is meant by the phrase efficient allocation of resources? Q1– 2 What mechanism fosters the efficient allocation of resources in the United States? .

10. Discussion Questions Q1–4 What must a company do in the long run to be able to provide a return to investors and creditors?

11. Discussion Questions Q1–5 What is the primary objective of financial accounting?

12. Investment-Credit Decisions -A Cash Flow Perspective Part I. Investors and creditors are both concerned with providing resources, usually cash, to companies with the expectation of receiving more cash in return at some future time. Investors will receive future cash returns in the form of periodic dividends and from the sale of their ownership shares. Creditors will receive future cash returns in the form on interest and repayment of principal. Part II. The primary objective of financial accounting is to provide investors and creditors with financial information that will help them make investment and credit decisions. The information should help investors and creditors evaluate the amounts, timing, and uncertainty of the company’s future cash receipts and payments. With better financial information, investors and creditors will be able to make better resource allocation decisions. Part I. Investors and creditors are both concerned with providing resources, usually cash, to companies with the expectation of receiving more cash in return at some future time. Investors will receive future cash returns in the form of periodic dividends and from the sale of their ownership shares. Creditors will receive future cash returns in the form on interest and repayment of principal. Part II. The primary objective of financial accounting is to provide investors and creditors with financial information that will help them make investment and credit decisions. The information should help investors and creditors evaluate the amounts, timing, and uncertainty of the company’s future cash receipts and payments. With better financial information, investors and creditors will be able to make better resource allocation decisions.

13. Discussion Questions Q1–6 Define net operating cash flows. Q1–6 Briefly explain why periodic net operating cash flows may not be a good indicator of future operating cash flows.

14. Cash Versus Accrual Accounting Cash Basis Accounting Revenue is recognized when cash is received. Expenses are recognized when cash is paid. Accrual Accounting Revenue is recognized when earned. Expenses are recognized when incurred. Using cash basis accounting, revenue is recognized when cash is received, and expenses are recognized when cash is paid. This net cash flow measure of income is easily understood, and all information to measure cash flows is factual. However, there is a major shortcoming to using current net cash flow to predict future periods’ cash flows. Consider the following example. Using cash basis accounting, revenue is recognized when cash is received, and expenses are recognized when cash is paid. This net cash flow measure of income is easily understood, and all information to measure cash flows is factual. However, there is a major shortcoming to using current net cash flow to predict future periods’ cash flows. Consider the following example.

15. Discussion Questions Q1–9 Explain the role of the auditor in the financial reporting process.

16. Discussion Questions Q1–11 Explain what is meant by adverse economic consequences of new or changed accounting standards.

17. Establishment of Accounting StandardsA Political Process The Financial Accounting Standards Board must consider the potential economic consequences of accounting standards. Many times, financial accounting standards are a compromise between the Board’s position and the wishes of various special interest groups. Especially controversial in recent years has been the efforts to develop accounting standards for employee postretirement benefits, employee stock options, and business combinations. On occasion, the financial Accounting Standards board has bowed to public pressure, and conceptual merit in the standards setting process has suffered. The Financial Accounting Standards Board must consider the potential economic consequences of accounting standards. Many times, financial accounting standards are a compromise between the Board’s position and the wishes of various special interest groups. Especially controversial in recent years has been the efforts to develop accounting standards for employee postretirement benefits, employee stock options, and business combinations. On occasion, the financial Accounting Standards board has bowed to public pressure, and conceptual merit in the standards setting process has suffered.

18. Rules based accounting standards vs. objectives-oriented approach US GAAP ? IFRS Objectives oriented (principles-based) approach stresses professional judgment A Move Away from Rules-Based Standards?

19. E1-2 (normally would be a Problem) Year 2 Year 3 Amounts billed to customers for services rendered $350,000 $450,000 Cash collected from credit customers 260,000 400,000 Cash disbursements: Payment of rent 80,000 –0– Salaries paid to employees for services rendered during the year 140,000 160,000 Travel and entertainment 30,000 40,000 Advertising 15,000 35,000 In addition, you learn that the company incurred advertising costs of $25,000 in year 2, owed the advertising agency $5,000 at the end of year 1, and there were no liabilities at the end of year 3. Also, there were no anticipated bad debts on receivables, and the rent payment was for a two-year period, year 2 and year 3.

20. FASB Accounting Standards Codification The objective of the codification project was to integrate and organize by topics all relevant accounting pronouncements into a searchable, online database. The Financial Accounting Standards Board goes through an elaborate information-gathering process before issuing standards. First an issue is identified and placed on the Board’s agenda by the Emerging Issues Task Force. Next a task force of knowledgeable persons is appointed to advise the Board on the issue. The Board’s technical staff investigates the issue. A discussion memorandum on the issue is then written and distributed to interested parties. The Board holds public hearings and solicits feedback on the issue. After public hearings, a preliminary draft (called an exposure draft) of a proposed Board statement is issued. Responses to the exposure draft are analyzed and the draft is revised as necessary. Finally, a new standard called a Statement of Financial Accounting Standards is issued.The Financial Accounting Standards Board goes through an elaborate information-gathering process before issuing standards. First an issue is identified and placed on the Board’s agenda by the Emerging Issues Task Force. Next a task force of knowledgeable persons is appointed to advise the Board on the issue. The Board’s technical staff investigates the issue. A discussion memorandum on the issue is then written and distributed to interested parties. The Board holds public hearings and solicits feedback on the issue. After public hearings, a preliminary draft (called an exposure draft) of a proposed Board statement is issued. Responses to the exposure draft are analyzed and the draft is revised as necessary. Finally, a new standard called a Statement of Financial Accounting Standards is issued.

21. Chapter 2REVIEW of theAccounting ProcessSommers – ACCT 3311 Chapter 1: Environment and Theoretical Structure of Financial Accounting.Chapter 1: Environment and Theoretical Structure of Financial Accounting.

22. Great Gifts Case This case is a review of your introductory financial accounting class. I assume you have learned and can recall this material throughout this course. To the extent you are not up to speed on this material from the prerequisite class, you will struggle in this class. For Wednesday, you need to have prepared the required journal entries including adjusting journal entries for the end of the period. Additionally, use t-accounts or a spreadsheet to determine the ending balances in each account.