5. Accounting for More Transactions

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Из курса от партнера IESE Business School

Accounting: Principles of Financial Accounting

748 оценки

IESE Business School

Accounting: Principles of Financial Accounting

748 оценки

Курс 1 из 5 — Specialization Foundations of Management

Financial Accounting is often called the language of business; it is the language that managers use to communicate the firm's financial and economic information to external parties such as shareholders and creditors. Nobody working in business can afford financial illiteracy. Whether you run your own business, work as a manager or are just starting your career, you want to understand financial information and be able to interact with accountants, controllers, and financial managers. You want to talk business! This course will provide you with the accounting language's essentials. Upon completion, you should be able to read and interpret financial statements for business diagnosis and decision-making. More importantly, you will possess the conceptual base to keep learning more sophisticated accounting and finance on your own. Do not forget that, as with any other language, becoming proficient with accounting requires constant practice.

Из урока

Course Overview & Week 1: Introduction to Accounting - The Balance Sheet

Welcome! Before you start today's videos, please have a look at the syllabus. In this first session, I'll give you an overview of what accounting is all about and why it's important to have a basic proficiency in this "language." In addition, I'll introduce one of the most important financial reports - the balance sheet - and a practical real-world case so you can put theory into practice. Objectives: To gain insight into the essence of accounting and become familiar with the balance sheet and its purpose.

1. Accounting: The Language of Business6:17

2. Practice Case: The Campus Bookstore I7:07

3. Practice Case: The Campus Bookstore II3:09

4. Accounting for our First Transactions3:10

5. Accounting for More Transactions5:07

6. Explaining the Balance Sheet7:05

7. Defining an Asset6:04

8. Defining a Liability4:26

Познакомьтесь с преподавателями

Marc Badia
Assistant Professor
Accounting and Control

[MUSIC]

Let's continue recording our transactions at the campus book store.

If you remember from the previous video this is what we had.

So we had sources of capital of 70,000 and uses a capital of 70,000.

We had the bank loan and the shareholders capital contributed by the shareholders.

So the next transaction is the purchase of furniture and equipment.

The total value of the purchase is 25,000, but

Christina has only paid 15,000 in cash so far.

So the other 10,000,

she's going to pay it within the next year, within the next few weeks.

Let's observe [INAUDIBLE] part here, so we are paying cash 15,000 right?

So the next thing to do is to decrease cash by 15,000.

Now my next question for you is the following.

Obviously, we are purchasing furniture and equipment, so

we need to recognize that new use of capital.

My question to you is, what is the amount that we need to recognize here?

So, the answer to the question is, 25,000.

The full amount of the purchase, no matter whether you have credit or not.

The key thing here is that the suppliers have already delivered to us

the full amount of the furniture and equipment.

We are the owners.

We run the risk of ownership.

If something happens to this furniture and equipment, we are responsible for it, and

we actually can use it already to open up our store.

So, the big question here is, okay, so,

now the quality of sources and uses of capital doesn't hold.

So, what is the missing piece of information?

The missing account here in the [INAUDIBLE] section.

We have that cash goes down in 15,000, furniture and equipment goes up by 25,000,

but remember we still owe 10,000 to the suppliers.

So, we have a new source of capital.

Suppliers are actually financing us, financing our investments.

By the way, do you think that this furniture and equipment will last forever?

We're talking about the shelves, the counter, the cash register, the computer.

Well, according to Christina, the useful life of all these equipment and

this furniture is five years.

Since we purchased it on the last day of the year,

on December 31st, we don't need to do anything yet because no time has passed.

In the next week,

we are going to see how to take care of this loss of value over time.

For the moment, forget about it.

In the next transaction, Christina purchased software to manage the business.

She paid 3,000 in cash.

I'm sure that by now you already know how to account for it.

So my first question to you would be, is that a new source of capital here?

Are we getting new capital from outsiders in the company?

Not really.

Actually, we pay everything in cash.

So the first thing is, cash is going to decrease.

I mean, exchange of this cash, we're going to get another use of capital.

In this case, the software.

So let's just call it software.

In this case, as you see, it's sort of intangible use of capital, right?

So in our next transaction,

Christina said that she had purchased 40,000 euros of books.

Now she even payed in cash, so she owes this money to the suppliers.

She already owns these books, so

she actually can sell them although she has not paid them yet.

So we need to recognize probably the full amount of the books.

So the first thing,

we have a new use of capital, for 40,000, the inventory of books.

And second, we have a new source of capital.

Suppliers are financing us, let's call this accounts payable.

So the supplier is actually financing our inventory and

we can start selling without paying the supplier yet.

Finally, Kristina prepares the store rent.

She pays 6,000 euros in advance for one full year.

She doesn't own the store, but she has the right to use it for one year.

She pays on December 31st.

So the first thing we need to recognize is that cash goes down by 6,000,

and then we need to recognize some other use of capital, right?

Let's call this prepaid rent.

And it's not that we own the store again, but

that we have the right to use the premises of the store for one full year.

Great, we have accounted for all the transactions that took

place in this preoperational period of the campus book store.

So let's see how the summary looks like.

As you see, the total amount of sources of capital is the same

as the total amount of uses of capital, 120,000 euros.

In the next video, we are going to give a proper name to these documents,

to these financial statements, and

also to all the different components that you'll find on them.

[MUSIC]

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