ACCOUNTING BASICS Susan M. Moncada, Ph.D., CPA Indiana

ACCOUNTING BASICS Susan M. Moncada, Ph.D., CPA Indiana State University Questions for Cribbingo Activity Principles of Financial Accounting 06/13/2024 Susan M. Moncada, Ph.D., CPA – Indiana State University 1

Playing Cribbingo 06/13/2024 Every time a question is answered, a card will be called. Students who have the card on their Cribbingo board, place an “X” through the card. Incorrect answers cause the question to pass to the student on the right. Student who answers the question pegs 1 point for each student who passed it. 5 cards in a row, horizontally, vertically, or diagonally is a Cribbingo, and you win a prize! Susan M. Moncada, Ph.D., CPA – Indiana State University 2

06/13/2024 Also, peg (fill in) the point value of the hand on cribbage board. Point values are listed at the top and right of the cribbingo card. Play continues with the same card. Every time you have Cribbingo, peg your points, and win a prize. At the end of class time, the student with most points gets a grand prize. Susan M. Moncada, Ph.D., CPA – Indiana State University 3

Learning Goals After studying Chapter 2, you should be able to: 1. Identify the components of a classified balance sheet. 2. Identify and compute measures for analyzing a company’s profitability. 3. Identify and compute measures for analyzing liquidity and solvency. 4. Explain and apply financial reporting concepts. 06/13/2024 Susan M. Moncada, Ph.D., CPA – Indiana State University 4

Goal #1: Identify the components of a classified balance sheet. 1. What are the major sections of assets on the classified balance sheet? 2. What is the definition of a current asset? 3. What are some examples of current assets? (list 3) 4. What are some more examples of current assets? (list 3 more) 5. What is a prepaid asset? 06/13/2024 Susan M. Moncada, Ph.D., CPA – Indiana State University 5

6. What are examples of long-term investments? 7. How do we determine whether an asset is classified as property, plant, and equipment? 8. What are some specific examples of property, plant, and equipment? 9. What is the definition of an intangible asset? 10.What are some examples of intangible assets? 06/13/2024 Susan M. Moncada, Ph.D., CPA – Indiana State University 6

How is the liability section of a classified balance sheet divided? 11. 12.How are current liabilities defined? What are some examples of current liabilities? 13. What are some examples of long-term debt? 14. What are the two components of stockholders’ equity? 15. 06/13/2024 Susan M. Moncada, Ph.D., CPA – Indiana State University 7

Goals 2 & 3: Measuring profitability, liquidity, & solvency 1. What is the difference between an intracompany comparison and an intercompany comparison. 2. What is the purpose of a profitability ratio? 3. What does earnings per share measure? 4. How is earnings per share computed? 5. What is liquidity? 06/13/2024 Susan M. Moncada, Ph.D., CPA – Indiana State University 8

Goals 2 & 3: Measure for analyzing profitability, liquidity, & solvency 6. How is working capital computed? 7. How is the current ratio computed? 8. How is a current ratio of 2.5:1 interpreted? 9. What is a potential weakness of the current ratio? 10. How is solvency defined? 11. What is one measure of solvency? 06/13/2024 Susan M. Moncada, Ph.D., CPA – Indiana State University 9 9

Cash . 40,000 Accounts Receivable . 35,000 Inventory . 20,000 Delivery truck . 15,000 Accounts payable . 10,000 Bonds payable . 15,000 13. What is working capital? 14. What is the current ratio? 15. What is the debt to total asset ratio? 06/13/2024 Susan M. Moncada, Ph.D., CPA – Indiana State University 10

Goal 4: Applying Financial Reporting Concepts 1. What is GAAP? 2. What does the SEC do? 3. What is the FASB? 4. What is the IASB? 5. In terms of useful information what is relevance? 6. In terms of useful information what is reliability 06/13/2024 Susan M. Moncada, Ph.D., CPA – Indiana State University 11

7. What is consistency? 8. What does comparability mean? 9. What does the cost principle require? 10. What does the monetary unit assumption require? 11. What does the economic entity assumption imply? 12. What does the going concern assumption imply? 06/13/2024 Susan M. Moncada, Ph.D., CPA – Indiana State University 12

13. What are the two constraints that affect the application of accounting principles? 14. In terms of accounting, what does the term “immaterial” mean? 15. What is an example of an immaterial item? 16. What does the conservatism constraint require? 06/13/2024 Susan M. Moncada, Ph.D., CPA – Indiana State University 13