Highlights from Course Syllabus:

1. BMGT 220 Principles of Accounting IDr. ProgyanBasuR.H. Smith School of BusinessVan Munching Hall 4333Rpbasu@rhsmith.umd.edu

2. Highlights from Course Syllabus: • Online Homework on WileyPLUS due every Friday at 8 am, starting February 1 – no deadline extensions will be provided • Inclass Quizzes will be given every Friday (starting January 25) - based on the Schedule of Assignments • There are no makeups for inclass quizzes to be given during your Friday discussion sections (see course syllabus for slack to accommodate classes that you may need to miss for reasons beyond your control) • Exam Schedule: Exam 1 - Thursday, February 21 (7 pm to 8:15 pm) Exam 2 - Thursday, April 4 (7 pm to 8:15 pm) Final Exam - Tuesday, May 14(10:30 am to 12:30 pm) (refer to Syllabus for dates and times for alternate exams) Classroom etiquette policy: You will be NOT be allowed to use your laptops/tablets/smartphones during class.

3. FALL 2012 Semester Grade Distribution in BMGT 220

4. FALL 2012 Semester Grade Distribution in BMGT 220

5. Financial Accounting, Seventh Edition Accounting in Action Chapter1

6. Why do we study Accounting? An investment in GROUPON of $1,000 on November 4, 2011 (Price per share = $26.11) Is worth $197.63 on January 24, 2013 (Price per share = $5.16)

7. Why did this happen?? In his introductory note to the company’s public-offering filing, founder Andrew Mason wrote, “Life is too short to be a boring company.”

8. A few Wall Street Journal headlines about GROUPON: Groupon Bows to Pressure Yielding to SEC, Web Coupon Firm Removes Unusual Measure From IPO Report The Wall Street Journal, August 11, 2011) The unusual measure, which the e-commerce had invented, paints a more robust picture of its performance. Removal of the measure was in response to pressure from the Securities and Exchange Commission, a person familiar with the matter said. More Trouble for Groupon IPO  The Wall Street Journal, September 24, 2011 On Friday, Groupon said it would change what it books as revenue after discussions with the Securities and Exchange Commission. It will now only count as revenue its commission on sales, rather than the total value of an online coupon. Previously, when it sold a restaurant gift certificate for $10, for instance, it would book the full amount, even though a portion went to the business owner GROUPON Accounting Obscures Value of Goods Business  The Wall Street Journal, August 15, 2012 Groupon aggregated the Goods revenue under “direct revenues,” a category which included revenue from other items such as movie tickets and travel vouchers. The company also didn’t disclose the cost of its Goods inventory and rolled the cost of goods sold into its broad cost of revenue metric, moves that some said that will make it difficult to gauge how sustainable profits are from that business.

9. What do these numbers mean ? Where do they come from?

10. Financial Accounting, Seventh Edition Accounting in Action Chapter1

11. What is Accounting? • The purpose of accounting is to: • identify, record, and communicate the economic events of an • organization to • interested users.

12. What is Accounting? Three Activities The accounting process involves all three activities.

13. is a system that information that is Importance of Accounting Accounting Identifies / Analyzes Records (Bookkeeping) Relevant Communicates (Financial Statements) Reliable to help users make better decisions. Comparable

14. External Users Financial Accounting provides external users with financial statements. Users of Accounting Information Internal Users IRS Management Investors Human Resources Creditors Customers Finance Marketing SEC Labor Unions Managerial Accounting provides information needs for internal decision makers.

15. The Building Blocks of Accounting • Financial Statements • Balance Sheet • Income Statement • Statement of Owner’s Equity • Statement of Cash Flows • Note Disclosure Various users need financial information The accounting profession has attempted to develop a set of standards that are generally accepted and universally practiced. Generally Accepted Accounting Principles (GAAP)

16. S.E.C. F.A.S.B. I.A.S.B. Securities and Exchange Commission: Federal agency to ensure that investors are provided with full and fair information on publicly traded companies. Financial Accounting Standards Board: Responsible for setting accounting standards for all US companies. International Accounting Standards Board: Responsible for issuing international financial reporting standards (I.F.R.S.) Who determines “Generally Accepted Accounting Principles”?

17. Cost Principle: Accounting information is based on actual cost. Measurement Principles of Accounting Fair Value Principle: Indicates that Assets and Liabilities should be reported at fair market value

18. Monetary Unit Assumption: Accounting transactions can ONLY be expressed in financial terms. Assumptions of Accounting Economic Entity Assumption: Requires that a business be accounted for separately from other businesses, including its owner/s.

19. Sole Proprietorship Partnership Corporation Forms of Business Entities based on Ownership

20. Forms of Business Ownership Proprietorship Partnership Corporation Generally owned by one person. Often small service-type businesses Owner receives any profits, suffers any losses, and is personally liable for all debts. Owned by two or more persons. Often retail and service-type businesses Generally unlimited personal liability Partnership agreement Ownership divided into shares of stock Separate legal entity organized under state corporation law Limited liability

21. Knowledge Check # 1:The Maximum Experience Company acquired a building for $500,000. Maximum Experience had an appraisal done, and found that the building was worth $575,000. The seller had paid $300,000 for the building 6 years ago. Which accounting principle/assumption would prescribe that Maximum Experience record the building on its records at $500,000? • Cost principle. • Fair Value principle. • Monetary Unit Assumption. • Economic Entity Assumption

22. Stockholders’ Equity = Liabilities + Assets The Basic Accounting Equation Liabilities & Equity Assets

23. Knowledge Check # 2:A company has twice as much owners’ equity as it does liabilities. If total liabilities are $50,000, what amount of assets are owned by the company? • $ 50,000. • $100,000. • $150,000. • $200,000.

24. ASSETS Cash Accounts Receivable Notes Receivable Resources owned or controlled by a company Vehicles Land Buildings Store Supplies Equipment

25. LIABILITIES Accounts Payable Notes Payable Creditors’ claims on assets Wages Payable Taxes Payable

26. STOCKHOLDERS’ EQUITY Owner’s claim on assets Contributed Capital Retained Earnings

27. Knowledge Check # 3:A company's balance sheet shows: Cash $22,000, Accounts Receivable $16,000, Office equipment $50,000, and Accounts Payable $17,000. What is the amount of stockholders’ equity? • $ 29,000. • $ 71,000. • $ 88,000. • $105,000.

28. Changes to Stockholders’ Equity Revenues are resources generated by a business through selling of products or providing services. Expenses are the costs of generating revenues. They could be resources (such as, cash) that have been used up, or they could increase the liabilities for the business. Dividends are the distribution of cash or other assets to stockholders. Dividends reduce retained earnings. However, dividends are not an expense.

29. Stockholders’ Equity Liabilities Assets _ _ = + Common Stock Dividends Revenues Expenses + Retained Earnings Expanded Accounting Equation +

30. How does Stockholders’ Equity change during a year?

31. Knowledge Check # 4:Fran Company has beginning equity of $257,000, net income of $51,000, dividends of $40,000 and investments by owners in exchange for stock of $6,000. Its ending equity is: • $223,000 • $240,000. • $268,000. • $274,000.

32. = + Assets Liabilities Equity Using The Accounting Equation to record transactions • Transactionsare a business’s economic events recorded by accountants. • Generally, are exchanges that can be measured in monetary terms. • Not all economic events represent transactions (such as natural disasters). • Each transaction has a dual effect on the accounting equation. The accounting equation must remain in balance after each transaction. 10,000 - 5,000 ??? 10,000 - 5,000 +15,000

33. Transaction Analysis Example 1 1. On December 1, 2011, Scott invests $10,000 cash to start a management consulting business (Scott Company).

34. Transaction Analysis Example 2 2. Scott Company purchased office supplies paying $1,000 cash.

35. Transaction Analysis Example 3 3. Scott Company purchased Supplies of $600 and Computer Equipment of $3,000 on account.

36. Transaction Analysis Example 4 4. Scott Company borrowed $4,000 from Bank of Maryland.

37. Transaction Analysis Example 5 5. During the month of December 2011 , Scott Company provided consulting services for $3,500. The company receives cash of $1,000, and bills the balance $2,500 to the customers.

38. Transaction Analysis Example 6 6. During the month of December 2011 , Scott Company paid cash of $800 for Rent, and $1,200 for Salaries to its only employee.

39. Transaction Analysis Example 7 7. During the month of December 2011 , Scott Company received a bill for $300 from the electric company, but decides to pay the bill at a later date.

40. Transaction Analysis Example 8 8. Scott Company received a check for $1,500 form a customer who was billed earlier.

41. Transaction Analysis Example 9 9. Scott Company paid $2,500 for the computer equipment that it had purchased in transaction (3).

42. Transaction Analysis Example 10 10. Scott Company paid a dividend of $500 to its owner/stockholder.

43. Financial Statements Let’s prepare the Financial Statements reflecting the transactions we have recorded. • Income Statement • Statement of Retained Earnings • Balance Sheet • Statement of Cash Flows

44. Income Statement Net income is the difference between Revenues and Expenses. Theincome statementdescribes a company’s revenues and expenses along with the resulting net income or loss over a period of time due to earnings activities.

45. Statement of Retained Earnings

46. Balance Sheet TheBalance Sheetdescribes a company’s financial position at a point in time.

47. Statement of Cash Flows

48. Knowledge Check # 5:A corporation purchased a $40,000 delivery truck by paying 4,000 cash and signing a $36,000 note payable. Immediately prior to this transaction the corporation had liabilities of $52,000, and owners’ equity $23,000. What is the total amount of the corporation’s assets after this transaction has been recorded? • $115,000 • $111,000 • $ 79,000 • $ 71,000

49. Knowledge Check # 6:On January 1, 2012, Kroger company’s Stockholder’s Equity account had a balance of $23,500. During the year 2012, the company issued additional stock for $6,000, generated revenues of $92,200, and recorded expenses of $64,100. They also paid dividends to their shareholders. If the Stockholders’ Equity had a balance of $55,600 on December 31, 2012, determine the amount of dividends paid by Kroger Company during 2012. • $4,000 • $3,000 • $2,000 • $1,000

50. End of Chapter 1 Far and Away the Best Prize that Life Offers is the Chance to Work Hard at Work Worth Doing Theodore Roosevelt