Sunday, February 26, 2012
ACL Video
I've posted the video of me walking through the ACL self study to Moodle. Keep in mind that the part at the beginning about AnywhereApps is outdated - you can only run the software on your own computer.
Summary (Week 5)
Now we are getting on to the real part of the course.
Up next: Finish revenue cycle, start expenditure cycle
Due next week: Quiz 1 on Monday (2/27)
Revenue Cycle
The revenue cycle includes all of the things a company does to interact with it’s customers, basically selling stuff and getting paid for it. It doesn’t matter which cycle we are talking about, it is important to remember that a well-functioning AIS will make sure that the following objectives are met; 1) transactions are properly authorized, 2) recorded transactions actually happened; 3) everything is recorded; 4) recording is accurate; 5) assets are safeguarded; and 6) managers can make good decisions. Note that some of these are financial reporting in nature, while others are operationally focused.
The revenue cycle’s cast of characters is organized in three primary categories. Sales interacts with the customer, Operations gets the product out to the customer, and Finance/Accounting makes sure that we get paid.
There are four primary steps within the revenue cycle:
Sales order entry
Shipping
Billing
Cash Collections
Sales order entry involves four sub-steps. First, we have to take the customer’s order. This involves documenting the details of the sale (item #, quantity, price, etc.) on a sales order. One thing that companies use to make this process is easier is a customer master file, which is basically a database containing things like contact information about customers, so that the company doesn’t have to ask for those details again when there is a repeat customer. We discussed two electronic/automated order management methods, one involving a direct link between the systems of customer and supplier (electronic data interchange), and one where no orders are needed because the vendor takes care of the ordering process (vendor managed inventory).
Once the details of the order have been obtained, a few things have to happen to make sure that the order is OK. The second major step involves checking the customer’s credit. This can be done either using general authorization, where companies rely on a credit limit, or specific authorization where someone (usually a credit manager) looks at things on a case-by-case basis. Specific authorization is appropriate when 1) The firm is dealing with a customer for the first time; 2) The customer is going over their credit limit; or 3) The dollars are big enough that it is worth it to have someone look at things. Sometimes the customer’s credit status can be linked into their customer master file record so that the credit check process is automated.
The third step within Sales Order Entry involves checking inventory availability. The question here is whether or not we have the stuff necessary to fulfill the order. We don't necessarily have to have the items in inventory at the time of the sale, but we at least need to be able to have them ready by the time the customer wants them.
Note that if we don't have the items available, then we need to go through the back order process, which notifies either manufacturing that they need to make more stuff, or purchasing that they need to buy more stuff. At this point, best practices dictate that the customer should have the option to 1) cancel the order; 2) request a hold until we can send all of the items, or 3) request a partial shipment if some of the product is available.
If everything is all set, then we can finalize the order. This involves updating the quantity available field in inventory (putting our claim on the items), sending an acknowledgment to the customer, and notifying the warehouse and billing departments about the order.
The last "step" in the revenue cycle responding to customer inquiries - just note that there should be a group dedicated to handling problems.
The next major step is shipping, which involves picking and packing the order, and formally shipping the order out.
In picking and packing the order, we basically want to compile the stuff that the customer ordered. A warehouse clerk is usually going to do this based on a picking ticket, which is an internal document telling them what items to pick up and how many. Note that we don't just send over the sales order, because that contains a lot of information that the warehouse clerk doesn't need to know. I walked through an example on how barcode scanners make this process easier, where warehouse clerks use a handheld scanner to scan a barcode on the picking ticket, then they scan a barcode on the shelf underneath the item they pick. Then the system double checks that the two match up, and the clerk enters in how many items they took, which automatically updates the inventory subsidiary ledger. Pretty cool process.
We spent Friday talking about ACL and how it relates to the extra credit project. Don't worry if it is overwhelming - I expect it to be. This is a really good learning experience for you - in a few months you will be working in the real world, and you will have to figure out a lot of stuff on your own :)
Up next: Finish revenue cycle, start expenditure cycle
Due next week: Quiz 1 on Monday (2/27)
Revenue Cycle
The revenue cycle includes all of the things a company does to interact with it’s customers, basically selling stuff and getting paid for it. It doesn’t matter which cycle we are talking about, it is important to remember that a well-functioning AIS will make sure that the following objectives are met; 1) transactions are properly authorized, 2) recorded transactions actually happened; 3) everything is recorded; 4) recording is accurate; 5) assets are safeguarded; and 6) managers can make good decisions. Note that some of these are financial reporting in nature, while others are operationally focused.
The revenue cycle’s cast of characters is organized in three primary categories. Sales interacts with the customer, Operations gets the product out to the customer, and Finance/Accounting makes sure that we get paid.
There are four primary steps within the revenue cycle:
Sales order entry
Shipping
Billing
Cash Collections
Sales order entry involves four sub-steps. First, we have to take the customer’s order. This involves documenting the details of the sale (item #, quantity, price, etc.) on a sales order. One thing that companies use to make this process is easier is a customer master file, which is basically a database containing things like contact information about customers, so that the company doesn’t have to ask for those details again when there is a repeat customer. We discussed two electronic/automated order management methods, one involving a direct link between the systems of customer and supplier (electronic data interchange), and one where no orders are needed because the vendor takes care of the ordering process (vendor managed inventory).
Once the details of the order have been obtained, a few things have to happen to make sure that the order is OK. The second major step involves checking the customer’s credit. This can be done either using general authorization, where companies rely on a credit limit, or specific authorization where someone (usually a credit manager) looks at things on a case-by-case basis. Specific authorization is appropriate when 1) The firm is dealing with a customer for the first time; 2) The customer is going over their credit limit; or 3) The dollars are big enough that it is worth it to have someone look at things. Sometimes the customer’s credit status can be linked into their customer master file record so that the credit check process is automated.
The third step within Sales Order Entry involves checking inventory availability. The question here is whether or not we have the stuff necessary to fulfill the order. We don't necessarily have to have the items in inventory at the time of the sale, but we at least need to be able to have them ready by the time the customer wants them.
Note that if we don't have the items available, then we need to go through the back order process, which notifies either manufacturing that they need to make more stuff, or purchasing that they need to buy more stuff. At this point, best practices dictate that the customer should have the option to 1) cancel the order; 2) request a hold until we can send all of the items, or 3) request a partial shipment if some of the product is available.
If everything is all set, then we can finalize the order. This involves updating the quantity available field in inventory (putting our claim on the items), sending an acknowledgment to the customer, and notifying the warehouse and billing departments about the order.
The last "step" in the revenue cycle responding to customer inquiries - just note that there should be a group dedicated to handling problems.
The next major step is shipping, which involves picking and packing the order, and formally shipping the order out.
In picking and packing the order, we basically want to compile the stuff that the customer ordered. A warehouse clerk is usually going to do this based on a picking ticket, which is an internal document telling them what items to pick up and how many. Note that we don't just send over the sales order, because that contains a lot of information that the warehouse clerk doesn't need to know. I walked through an example on how barcode scanners make this process easier, where warehouse clerks use a handheld scanner to scan a barcode on the picking ticket, then they scan a barcode on the shelf underneath the item they pick. Then the system double checks that the two match up, and the clerk enters in how many items they took, which automatically updates the inventory subsidiary ledger. Pretty cool process.
We spent Friday talking about ACL and how it relates to the extra credit project. Don't worry if it is overwhelming - I expect it to be. This is a really good learning experience for you - in a few months you will be working in the real world, and you will have to figure out a lot of stuff on your own :)
Wednesday, February 22, 2012
Quiz 1
Quiz 1 is available in Moodle, and needs to be completed by Monday, February 27th by the time your class section starts. This gives you an extra weekend to work on things.
ACL Session Friday (2/24)
I have posted a few files to the Moodle site way at the bottom that you will need to have during the Friday session. I also re-posted the self study on using ACL - one thing to keep in mind is that you can't access the application through AnywhereApps as described in the document. Its a long story why not (which is why the project is extra credit only).
I strongly recommend you come to Friday's session for several reasons:
(1) you will learn about a tool that is extensively used in practice
(2) it is a great opportunity to show me that you are interested in learning
(3) data analysis is fun
I strongly recommend you come to Friday's session for several reasons:
(1) you will learn about a tool that is extensively used in practice
(2) it is a great opportunity to show me that you are interested in learning
(3) data analysis is fun
Summary (Catch-up)
So I haven't been on top of my weekly summaries as I should be. Here is we covered through last week...
Theory of the Firm
We started with discussion of some big questions - what is a firm, why is there accounting, and does it matter if accounting is any good. I characterized the firm as a collection of contracts, and highlighted the importance of the contract between managers and owners. This is the classic agency relationship, where principals (shareholders) hire a set of agents (managers) to run the firm for them. This gives rise to agency costs given that it is unlikely that the managers will work as hard working for someone else as they would while working for themselves. Agency costs were defined as the loss in productive output because of the agency relationship.
Principals do have some options to try and limit agency costs - they can engage in monitoring by directly observing output, offer incentives linking pay to performance (through bonuses and stock options), or by bonding employees through an external review like an audit. Even if a principal chooses to do these things, there will be some agency costs left over, which we call residual losses (the only way to truly get the employee to work as hard as an owner would be to give them the firm, which doesn't make any sense). These actions do come at a cost though, and we formally defined net agency costs as the cost of actions (monitoring, incentives, bonding), plus any residual losses.
The public corporation involves separation of ownership (shareholders) and control (managers), and the board of directors is the body that tries to make sure the two sides play nice, thereby reducing agency costs.
We discussed the idea that the accounting scandals from 2002 (Enron, Worldcom) represented agency costs, because managers took actions that were not in the best interest of shareholders. Funny that the strategy intended to reduce agency costs (incentive compensation) created a whole set of other problems. We also went through an exercise that highlighted why this might be.
We walked through a bit on the Sarbanes-Oxley Act of 2002 (SOX). The primary things accomplished by the act were 1) Creation of the Public Company Accounting Oversight Board (PCAOB) designed to oversee auditing standards; 2) More defined auditor independence rules that limit the services that firms can offer to financial statement audit clients; 3) Requirement that CEOs and CFOs “certify” financial statements (increasing accountability); and 4) increased disclosure rules regarding internal control under Section 404.
With regard to internal control, it represents things firms do to make sure that a particular process works as intended. In terms of financial reporting, this means that we are trying to make sure that financial statements are in line with GAAP.
We think about internal control in terms of to COSO framework, which defines internal control as “…a process, effected by an entity’s board of directors, management, and other key personnel, designed to provide reasonable assurance regarding the achievement of objectives in financial reporting (i.e. GAAP)…” Note that internal control has nothing to do with profitability, at least directly. Firms that are losing money can have solid internal controls – it is really about telling the correct story in the financial statements, even if the story is lousy.
SOX includes changes in reporting requirements for both management and external auditors. Managers have to 1) State on a yearly basis that they are responsible for internal control over financial reporting; 2) Document their internal controls over financial reporting, then test to see if things are actually happening the way they say they do/should; and 3) Provide an assessment of their internal control process. Then, external auditors need to basically do things to get comfortable with what management did (review work, perform additional tests) so they can issue a formal report on their take regarding the firm’s internal control structure over financial reporting.
SOX has some pros and cons. On the pros side, you could argue that the additional transparency returned money to the capital markets, which helped to lower borrowing costs for everyone. Also, if the legislation made firms think critically about how they wanted to do things, then there is the possibility for better decision-making. On the cost side, 404 documentation was expensive (especially for small firms), it may have limited risk taking because of fears about having to write down everything you do, and it likely caused there to be fewer public companies, either because foreign firms not wanting to deal with SOX have incentives to see listing exchanges outside the US (London, Singapore, etc.) or because firms have chosen to “go private”.
Intro to Processes
We began with some definitions. A system is a set of two or more interrelated components that interact to achieve a goal, and it usually involves a series of subsystems that perform specific functions. Good systems make effective use of integration, by trying to eliminate doing things twice.
Good information has value, but it needs to be thought of by comparing costs and benefits. Benefits include better decisions and reduced uncertainty, while the costs are preparing and disseminating the info. There are 7 characteristics of good information: 1) relevance (on point); 2) reliability (dependable); 3) complete (getting everything); 4) timely; 5) understandability; 6) verifiability (can be re-calculated by someone else), and 7) availability
An AIS in a nutshell is supposed to be able to 1) Collect and store data; 2) process those data into information useful for decision making (both externally and internally), and 3) provide controls to ensure that data are accurate and that assets are safeguarded. It consists of more than just computer stuff, it includes people and policies and procedures as well.
We introduced the business cycles by formally defining what a transaction. Transactions are economic events that can be measured. This involves some sort of exchange of resources (selling something) or something that involves the passage of time (like depreciating equipment)
There are 5 major transaction cycles.
Revenue cycle: Selling stuff and getting paid
Expenditure cycle: Buying stuff and paying for it
Production cycle: Making stuff
Human resources/payroll cycle: Interacting with employees (hire, train, pay, evaluate promote, and fire)
Financing cycle: Borrowing money and paying it back
Everything gets tied together in the general ledger and reporting system (GLARS). We need to be comfortable with how data are input stored, processed, and output to be able to move forward.
Whenever we deal with data input, we need to capture details on Resources, Events, and Agents. Data are entered into our system, and are stored in three layers of detail. The first layer involves journals, which is where you will store the detail of individual transactions. Transactions that are “routine” (meaning they are part of the day-to-day operations of the firm) will have their own specific journal (i.e. one for sales, purchases, cash collections, etc.). Transactions that are “non-routine” (i.e things that don’t happen every day) will get grouped into what is known as the general journal. The next layer of detail up involves a subsidiary ledger, which summarizes transaction detail according to a meaningful category. For example, there will be a subsidiary ledger for each customer that owes us money, for each supplier to which we owe money, or each item inventory. The top level of detail involves the ledger, which stores cumulative information about resources and agents. It is basically a running tab of each account that shows up on the financial statements.
We also briefly distinguished batch processing, where transactions are saved up and processed all at once, from on-line processing where transactions are processed in real time.
More and more companies are relying on Enterprise Resources Planning (ERP) systems that are designed to integrate operations in with the accounting system. We’ll discuss more on ERP systems as we move forward in the class.
Theory of the Firm
We started with discussion of some big questions - what is a firm, why is there accounting, and does it matter if accounting is any good. I characterized the firm as a collection of contracts, and highlighted the importance of the contract between managers and owners. This is the classic agency relationship, where principals (shareholders) hire a set of agents (managers) to run the firm for them. This gives rise to agency costs given that it is unlikely that the managers will work as hard working for someone else as they would while working for themselves. Agency costs were defined as the loss in productive output because of the agency relationship.
Principals do have some options to try and limit agency costs - they can engage in monitoring by directly observing output, offer incentives linking pay to performance (through bonuses and stock options), or by bonding employees through an external review like an audit. Even if a principal chooses to do these things, there will be some agency costs left over, which we call residual losses (the only way to truly get the employee to work as hard as an owner would be to give them the firm, which doesn't make any sense). These actions do come at a cost though, and we formally defined net agency costs as the cost of actions (monitoring, incentives, bonding), plus any residual losses.
The public corporation involves separation of ownership (shareholders) and control (managers), and the board of directors is the body that tries to make sure the two sides play nice, thereby reducing agency costs.
We discussed the idea that the accounting scandals from 2002 (Enron, Worldcom) represented agency costs, because managers took actions that were not in the best interest of shareholders. Funny that the strategy intended to reduce agency costs (incentive compensation) created a whole set of other problems. We also went through an exercise that highlighted why this might be.
We walked through a bit on the Sarbanes-Oxley Act of 2002 (SOX). The primary things accomplished by the act were 1) Creation of the Public Company Accounting Oversight Board (PCAOB) designed to oversee auditing standards; 2) More defined auditor independence rules that limit the services that firms can offer to financial statement audit clients; 3) Requirement that CEOs and CFOs “certify” financial statements (increasing accountability); and 4) increased disclosure rules regarding internal control under Section 404.
With regard to internal control, it represents things firms do to make sure that a particular process works as intended. In terms of financial reporting, this means that we are trying to make sure that financial statements are in line with GAAP.
We think about internal control in terms of to COSO framework, which defines internal control as “…a process, effected by an entity’s board of directors, management, and other key personnel, designed to provide reasonable assurance regarding the achievement of objectives in financial reporting (i.e. GAAP)…” Note that internal control has nothing to do with profitability, at least directly. Firms that are losing money can have solid internal controls – it is really about telling the correct story in the financial statements, even if the story is lousy.
SOX includes changes in reporting requirements for both management and external auditors. Managers have to 1) State on a yearly basis that they are responsible for internal control over financial reporting; 2) Document their internal controls over financial reporting, then test to see if things are actually happening the way they say they do/should; and 3) Provide an assessment of their internal control process. Then, external auditors need to basically do things to get comfortable with what management did (review work, perform additional tests) so they can issue a formal report on their take regarding the firm’s internal control structure over financial reporting.
SOX has some pros and cons. On the pros side, you could argue that the additional transparency returned money to the capital markets, which helped to lower borrowing costs for everyone. Also, if the legislation made firms think critically about how they wanted to do things, then there is the possibility for better decision-making. On the cost side, 404 documentation was expensive (especially for small firms), it may have limited risk taking because of fears about having to write down everything you do, and it likely caused there to be fewer public companies, either because foreign firms not wanting to deal with SOX have incentives to see listing exchanges outside the US (London, Singapore, etc.) or because firms have chosen to “go private”.
Intro to Processes
We began with some definitions. A system is a set of two or more interrelated components that interact to achieve a goal, and it usually involves a series of subsystems that perform specific functions. Good systems make effective use of integration, by trying to eliminate doing things twice.
Good information has value, but it needs to be thought of by comparing costs and benefits. Benefits include better decisions and reduced uncertainty, while the costs are preparing and disseminating the info. There are 7 characteristics of good information: 1) relevance (on point); 2) reliability (dependable); 3) complete (getting everything); 4) timely; 5) understandability; 6) verifiability (can be re-calculated by someone else), and 7) availability
An AIS in a nutshell is supposed to be able to 1) Collect and store data; 2) process those data into information useful for decision making (both externally and internally), and 3) provide controls to ensure that data are accurate and that assets are safeguarded. It consists of more than just computer stuff, it includes people and policies and procedures as well.
We introduced the business cycles by formally defining what a transaction. Transactions are economic events that can be measured. This involves some sort of exchange of resources (selling something) or something that involves the passage of time (like depreciating equipment)
There are 5 major transaction cycles.
Revenue cycle: Selling stuff and getting paid
Expenditure cycle: Buying stuff and paying for it
Production cycle: Making stuff
Human resources/payroll cycle: Interacting with employees (hire, train, pay, evaluate promote, and fire)
Financing cycle: Borrowing money and paying it back
Everything gets tied together in the general ledger and reporting system (GLARS). We need to be comfortable with how data are input stored, processed, and output to be able to move forward.
Whenever we deal with data input, we need to capture details on Resources, Events, and Agents. Data are entered into our system, and are stored in three layers of detail. The first layer involves journals, which is where you will store the detail of individual transactions. Transactions that are “routine” (meaning they are part of the day-to-day operations of the firm) will have their own specific journal (i.e. one for sales, purchases, cash collections, etc.). Transactions that are “non-routine” (i.e things that don’t happen every day) will get grouped into what is known as the general journal. The next layer of detail up involves a subsidiary ledger, which summarizes transaction detail according to a meaningful category. For example, there will be a subsidiary ledger for each customer that owes us money, for each supplier to which we owe money, or each item inventory. The top level of detail involves the ledger, which stores cumulative information about resources and agents. It is basically a running tab of each account that shows up on the financial statements.
We also briefly distinguished batch processing, where transactions are saved up and processed all at once, from on-line processing where transactions are processed in real time.
More and more companies are relying on Enterprise Resources Planning (ERP) systems that are designed to integrate operations in with the accounting system. We’ll discuss more on ERP systems as we move forward in the class.
Sunday, February 19, 2012
Office Hrs Monday 2/20
I've got a 2:30 meeting on Monday, so my office hours will be from 1:00 - 2:30 for those of you wanting to review your exam.
Tuesday, February 14, 2012
Wiley Plus Solutions
I have posted the solutions to Wiley Plus for Chapters 20 and 23 to Moodle under Midterm #1. Enjoy!
Wednesday, February 8, 2012
Summary of Week 3
We started the week by talking about the direct method. The direct method is more focused on explicitly highlighting cash inflows and cash outflows. Companies report cash collected from customers as the inflow, and cash paid to suppliers, the government (for taxes), and to other parties in operating expenses as the outflow. We went through some formulas that help to get at these.
We also talked about how to prepare the investing and financing sections of the statement of cash flows. Both sections make use of the direct method, meaning that we focus on cash inflows and outflows. For the investing section, inflows come in the form of proceeds from selling long-lived assets or investments, while outflows occur when we buy long-lived assets or investments. For the financing section, inflows come in the form of money borrowed from creditors or proceeds from selling equity, while outflows occur when we pay back debt, re-purchase stock, or pay dividends.
We had a brief discussion of the pros and cons of the direct versus indirect method. Basically, the indirect method is easier, but some argue that the direct method is more informative about cash inflows and outflows. The indirect method does highlight the differences between accrual income and cash flow, which can be nice when evaluating the quality of earnings.
We also walked through some other technical details related to cash flow. The first group involved thinking about other non-cash expenses (like depreciation) that need to be added back to net income when using the indirect method. For example, when firms show an increase in their deferred tax liability, this will decrease net income (through income tax expense), but there is no cash piece. The second group had us think about issues such as stock options and pensions. Recall that issuing stock options yields compensation expense but no cash outlay, so this needs to be added back to net income (net of tax of course because of the deferred taxes piece). Additionally, any change in the funded status of a pension fund needs to be adjusted for because we want to end up with cash contributed to the plan not pension expense (that is in net income).
Chapter 24: Full Disclosure
We began the full disclosure chapter with a discussion of the full disclosure principle. Basically it says that financial reporting should present any financial facts that are significant enough for an informed decision maker to care. Disclosure comes from a lot of sources ranging from financial statements, the notes to the financial statements, other management communication (such as MD&A and forecast), and info provided by people outside the firm (analysts, journalists, etc.).
We discussed the idea of subsequent events (i.e. events that happen after the fiscal year end, but before final publication of the financial statements). If the subsequent event provided additional information about conditions that existed at the balance sheet (like resolution of a pending lawsuit), then firms need to go back and adjust the F/S at the balance sheet date. If the event is a new event (like a fire at the factory), you don't have to retroactively adjust your financials, but you do have to disclose the existence of the significant subsequent event.
We went through the idea of segment reporting, which requires firms to provide information about their different business lines using the same framework that management uses to run the firm. Firms must provide segment details about segments that pass at least one of the following tests:
Segment revenue is at least 10% of total revenue for all segments
Segment Profit or loss is at least 10% of the greater of the total segment profit for all profitable segments or the total segment loss for all loss segments
Segment assets are at least 10% of total assets for all segments
75% of segment stuff is covered
When segment reporting is required, firms must disclose a general background about the segment, give profit and loss results, total assets, and reconciliations between the reported segment figures and what is on the balance sheet/income statement for the overall firm.
We also talked about how to prepare the investing and financing sections of the statement of cash flows. Both sections make use of the direct method, meaning that we focus on cash inflows and outflows. For the investing section, inflows come in the form of proceeds from selling long-lived assets or investments, while outflows occur when we buy long-lived assets or investments. For the financing section, inflows come in the form of money borrowed from creditors or proceeds from selling equity, while outflows occur when we pay back debt, re-purchase stock, or pay dividends.
We had a brief discussion of the pros and cons of the direct versus indirect method. Basically, the indirect method is easier, but some argue that the direct method is more informative about cash inflows and outflows. The indirect method does highlight the differences between accrual income and cash flow, which can be nice when evaluating the quality of earnings.
We also walked through some other technical details related to cash flow. The first group involved thinking about other non-cash expenses (like depreciation) that need to be added back to net income when using the indirect method. For example, when firms show an increase in their deferred tax liability, this will decrease net income (through income tax expense), but there is no cash piece. The second group had us think about issues such as stock options and pensions. Recall that issuing stock options yields compensation expense but no cash outlay, so this needs to be added back to net income (net of tax of course because of the deferred taxes piece). Additionally, any change in the funded status of a pension fund needs to be adjusted for because we want to end up with cash contributed to the plan not pension expense (that is in net income).
Chapter 24: Full Disclosure
We began the full disclosure chapter with a discussion of the full disclosure principle. Basically it says that financial reporting should present any financial facts that are significant enough for an informed decision maker to care. Disclosure comes from a lot of sources ranging from financial statements, the notes to the financial statements, other management communication (such as MD&A and forecast), and info provided by people outside the firm (analysts, journalists, etc.).
We discussed the idea of subsequent events (i.e. events that happen after the fiscal year end, but before final publication of the financial statements). If the subsequent event provided additional information about conditions that existed at the balance sheet (like resolution of a pending lawsuit), then firms need to go back and adjust the F/S at the balance sheet date. If the event is a new event (like a fire at the factory), you don't have to retroactively adjust your financials, but you do have to disclose the existence of the significant subsequent event.
We went through the idea of segment reporting, which requires firms to provide information about their different business lines using the same framework that management uses to run the firm. Firms must provide segment details about segments that pass at least one of the following tests:
Segment revenue is at least 10% of total revenue for all segments
Segment Profit or loss is at least 10% of the greater of the total segment profit for all profitable segments or the total segment loss for all loss segments
Segment assets are at least 10% of total assets for all segments
75% of segment stuff is covered
When segment reporting is required, firms must disclose a general background about the segment, give profit and loss results, total assets, and reconciliations between the reported segment figures and what is on the balance sheet/income statement for the overall firm.
Monday, February 6, 2012
Wiley Plus AE23-16
So the goof in Wiley for 23-16 was worse than I thought. For some students it is basically impossible to get the right answer per Wiley, so I have just decided to give everyone credit for the full problem.
Friday, February 3, 2012
Professional Headshot
One of the things that the department likes to do is showcase past accounting majors at our accounting career opportunities fair every fall. We will be bringing in a professional photographer next week on Wednesday (2/8) to take headshots of our students. Please do your best to come to class that day, and dress professionally (at least from the waist up).
I managed to dig up this comic that was in my school newspaper when I was an undergrad that I think sums it up...
I managed to dig up this comic that was in my school newspaper when I was an undergrad that I think sums it up...
Thursday, February 2, 2012
AE23-16 Wiley Plus
There may be a slight error in your homework assignment for Chapter 23 on problem 23-16. Some of you may note that the change in land is not equal to the amount of land acquired by issuing common stock. This is an oversight by WileyPLUS - just pretend that the amount of land issued is equal to the change in land balance and call it a day. Since it is a non-cash transaction, there will be no consequence on the SCF.
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