ACC 201 notes PDF

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lecture notes for first few chapters...

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ACC 201 Chapter 1 – Why Accounting? Financial Accounting I. Financial accounting focuses on outside decision makers such as investors, lenders, customers, suppliers and the government II. It provides them with financial statements in the form of balance sheet, cash flow statement, and income statement III. These financial statements must be prepared according to strict rules like formal writing that has to be written grammatically IV. Main concerns: a. Believability and comparability V. Must be in accordance with GAAP a. G = generally b. A = accepted c. A = accounting d. P = principles VI. Publicly traded companies must have their financial statements verified by their auditors VII. Certified public accountants (CPA) VIII. Backward looking (historical) IX. F/A will be useful to you as a future investor Managerial Accounting I. Focuses on inside decision makers, namely the mangers within an organization II. It augments information in financial statements with decision tools and internal reports that can enhance managerial decisions III. These tools and internal reports do not have to follow strict rules IV. Reports do not have to be audited V. Certified management accountants (CMA) VI. Forward looking (futuristic) VII. M/A will be useful to you as a future manager The Informational View of Accounting I. Accounting is a set of activities that translates day-to-day business transactions quantifiable information useful for decision making a. Data  accounting  information The Language View of Accounting II. Language is an effective way to communicate thoughts and ideas between various individuals and groups III. Accounting is seen as the language of business

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Accounting helps the various disciplines of the business communicate effectively with outsiders as well as with each other V. Accounting is like the trunk of the business tree The Importance of Accounting I. Financial a. Without financial statements, investors will make poor investment decisions b. Without financial statements, banks will make poor lending decisions II. Managerial a. Without managerial accounting concepts, managers will make poor purchasing, production, marketing and financial decisions Chapter 2 – Why a Side Business? I.

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Employment & Happiness a. Most students earn a degree believing it can get them a job that pays well b. With a good pay, they have the ability to fulfill their many desires c. Students believe that happiness results when their desires are fulfilled d. Can a good pay provide the lasting happiness that our hearts long for? i. The happiness that fulfilled desires provide are short-lived ii. The majority of people in the work force seems to lack job satisfaction DNA: Desires, Needs, Assets a. Pursue a career that is in line with your DNA b. D = desires  if your career is in line with our deep-down desires, you will be motivated c. N = needs  if your career meets a major need in the world, you will feel good about what you do d. A = assets  if your career utilizes your top assets, you will be good at what you do compared to your competition e. Jim Collins: Hedgehog Concept i. Calls us to be a master in our niche rather than a jack of all trades Meeting a Mountainous Need a. Finish your major  get the job  make sure that job is in line with your DNA Accounting for Entrepreneurs a. Who is an Entrepreneur? i. A person who has the drive and ability to bring together human and financial resources to meet societal needs, usually be assuming a considerable amount of personal risk b. Business Entrepreneur i. Earns a profit while meeting a societal need c. Social Entrepreneur i. Motive is purely to meet a societal need ii. Typically requires funding from donors d. Corporate Social Responsibility

i. The growing expectation in today’s marketplace that even profitdriven businesses should become socially responsible by sharing their profits and/or resources with the less fortunate ones e. Why does an Entrepreneur need Financial Accounting i. An entrepreneur as an investor in his/her own business, seeks other investors in his business ii. Knowledge of financial accounting helps him/her be effective in attracting capital f. Why does an Entrepreneur need Managerial Accounting i. An entrepreneur is also a manager of various resources of his/her business including the human resource ii. Knowledge of managerial accounting helps him/her make efficient use of labor and other resources g. Entrepreneurial Context  Accounting i. An entrepreneur is both an investor and manager ii. While planning and executing a side-business, you by yourself are being called an entrepreneur Chapter 3 – How to Estimate and Increase Revenue? I.

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Why is it a Good Idea to Focus Initially on a Single Product? a. It is easier to understand the accounting concepts with a single product b. Estimated revenues = price per unit x expected demand c. Price is the amount the customer is willing to pay i. It is in between the cost to the producer and the value to the customer d. Expected demand: number of units of the product or service that target customers are expected to purchase in a year e. Most uncertain part of estimating revenues  estimating the expected demand What is Marketing? a. Marketing: meeting the needs of customers while earning a profit for the company b. Managing the marketing function well will help a company generate greater revenues (top line) and earn a higher income (bottom line) What is Marketing Management? a. Marketing management: the art and science of targeting, getting, retaining and growing customers through designing and offering products they value b. The end result of marketing management is a marketing plan Marketing Plan a. The four Ps make the marketing plan: i. Product: how to bundle of goods to increase the value to the customers? ii. Price: what is the customer willing to pay in exchange for the bundle of goods?

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iii. Place: where should the exchange take place (distribution channels)? iv. Promotion: how does the seller communicate with the customer? 1. Initial promotion is to attract customers 2. Routine promotion is to retain and grow customers How do you Estimate the Target Demand for a Product or Service? a. Based on your marketing plan, how many customers will be attracted to your product each year? = x b. On average how many units will each customer consume in a year? = y c. What then is the target demand? = x * y How do you Estimate the Demand Growth? a. In a typical firm, it takes a couple of years to reach this target demand b. For simplicity, we have assumed that the target will be reached by the 3rd year c. We have also assumed that 90% of the target will be reached in the second year d. And 60% of the target will be reached in the first year...