is financial accounting class hard

is financial accounting class hard

Demystifying Financial Accounting: A Comprehensive Guide for Students

1. Introduction to Financial Accounting

The primary objective of this first chapter is to provide an overview of the subject area of financial accounting, to identify who uses financial reports and what they require of them, and to outline the basic characteristics of these reports, which will be examined in detail in later chapters. First, however, we shall use the next section to define and specify the financial and accounting reports we are discussing.

Accounting is often popularly (although not accurately) described as “the language of business.” Accounts are used in business to record and analyze the financial effects of transactions, decisions, gains, and other economic events, which often affect the welfare of an organization over a given period of time. It is helpful to understand the commercial context in which accounting operates and, as with a spoken language, readers need a basic command of accounting to communicate effectively with the accounting systems of an organization. Indeed, one of the major aims of this text will be to show how accounting provides information that helps us see a range of organizational dynamics in new ways.

2. Key Concepts and Principles

Transactions that change the makeup of the accounting equation of a business are merely the everyday dealings that occur between the firm and various entities with which it interacts. Assets, claims, and ownership of a business post the accounting equation. These three elements are the base on which accounting reports are built. They are also the base from which fundamental accounting principles are derived. In subsequent chapters, we will study transactions (events) that lead to changes in assets and claims (or ownership), along with a host of technical skills that will enable the reader to prepare financial statements that serve the diverse needs of a large number of interested parties. The brevity and apparent simplicity of the accounting equation are deceiving. In fact, the accounting equation is the essential framework within which accounting information and accounting reports are prepared.

The focus of this book is on preparing and presenting financial statements for financial (as opposed to management) accounting purposes. The term financial accounting refers in a general sense to the system that provides quantitative financial information about a business enterprise and its financial posture. The basic purpose of financial accounting is to serve interested parties – who have a keen interest in assessing the financial prospects of the business enterprise – by providing them with useful information about the assets of the business, the claims against those assets, and the results accomplished by the business during the accounting period.

3. Financial Statements and Analysis

In this chapter, we describe financial statements whose primary purpose is to provide information useful for a variety of users, including present and potential investors, creditors, employees, and management. To do this, we need to present the basic accounting foundations underlying financial statements. Some events recorded in financial statements are easily recognized; for example, all costs related to the production of the period’s output or sale of products and services are not recognized as expenses at the time of the incurrence of the program. But if we use a longer time period for a discussion on the assets and liabilities concept (more specifically on their differences), we find the most important reason why we follow a specific allocation of costs and revenue recognition criteria: these rules help us to make a meaningful comparison across time periods.

To state that financial statements are important is an understatement. They are the heart of financial accounting and the oxygen of the business world. Financial statements are an information highway between the company, current and potential investors, regulators, suppliers, customers, and competitors. In the past two decades, financial statements have not only become the center of attention of professional investors, that is, analysts and investment advisors, but also of small investors in large corporations, through the easy and inexpensive availability of annual reports and the internet.

4. Common Challenges and How to Overcome Them

The three dimensions involved in any form of teaching and learning can be harnessed optimally once you develop and implement effective strategies including active and self-regulated learning, and collaboration with your peers to optimally utilize: you as an individual (so-called metacognitive awareness) – role of early childhood experiences, your preferences, your acquired knowledge and life experiences – use of simple balance sheet, income, and cash flow statements as skeleton structures for assimilation of interpretative power vested in accounting principles and systems; efficiently lodge, organize, and retrieve memory; physicists and accountants – differences between you, as students, learning to master historical financial accounting and undergraduate finance and accounting students; use of textbooks, slides, annotated notes, and supporting materials; audio-visual recordings; simple accounting software packages and tutorials; participate (attend lectures, seminars, or discussion groups); diagnose, monitor, and evaluate your competences; challenge, simulate, and reward your continuous progress; and the instructor or facilitator – assist a robust (synergistic) transfer of leading historical financial accounting concepts and principles.

This chapter equips you with potential strategies to effectively learn and understand the key features of financial accounting. Often, students face challenges while learning new concepts, principles, and associated skills, such as analyzing information – reflecting on how it can be generated and interpreted. They should also anticipate challenges and actively seek solutions – learning how to learn is a vital component of your education. Developing insight into how you, as an individual, learn and perform systematic, and utilizing time-tested strategies will greatly assist in surmounting many difficulties that may appear to be insurmountable at first glance. Remember, your external environment is as important as the application of the three dimensions of the educational process (you, as an individual, the study materials and the instructor or mentor).

5. Practical Applications and Real-World Examples

A company’s total stockholders’ equity and dividends paid were as follows: 2001 – $16,850; 2000 – $15,600; 1999 – $11,900. Make the journal entries made for 2001 and 1999 if the dividends were paid on February 1 of the following year. Also make the journal entry for the 2000 dividends if the declaration date was December 15, 2000, the date of record was December 22, and the payment date was January 22, 2001.

On December 31, 2002, Kemp Securities declared a 3% stock dividend (12,000 shares) when the market value of the stock was $80 a share. The stock was to be distributed on January 31 to stockholders of record on December 31. How would a stock dividend be recorded on December 31? On January 31?

According to the cash basis, dividends are recorded when paid. According to the accrual basis, dividends of $225,000 would be recorded on December 19, the date of record, because stockholders had a title to those dividends on that date.

On December 31, 2002, Applied Corporation paid cash dividends of $1.50 per share to stockholders of record on December 19. When would the dividend be recorded under the cash basis? The accrual basis?