Financial and Organizational Accounting

2020/2021

Academic Year

ENG

Instruction in English

6

ECTS credits

Delivered at:

Bachelor's Programme in Digital Product Management

Course type:

Compulsory course

When:

2 year, 1, 2 module

Instructors

Kondrakhina, Olesya

Shurchkova, Tatiana

Course Syllabus

Abstract

The course develops background for understanding and reading companies’ financial reports and for assessing company’s financial position and making managerial decisions. The course covers basic concepts of modern financial reporting, essentials in UK standard of financial and managerial accounting. It provides basic knowledge in preparing, processing and interpreting the data about business transactions for different types of external as well as internal investors, management and other accounting information users. The course requires the knowledge in micro and macroeconomics and banking. The course is a one-semester course is based on lectures, seminars, case studies and self-study.

Learning Objectives

• The course is focused on developing skills in preparing and analyzing companies’ financial statements and data for decision-making purposes. By the end of autumn semester students are expected to be able to apply a set of accounting concepts to read annual financial report of a corporation and financial ratios to assess its position.

Expected Learning Outcomes

• distinguish between different uses of accounting information and relate these uses to the needs of different groups of users
• explain the limitations of such statements and their analysis
• categorise cost behaviour, and prepare and contrast inventory valuations under different costing methods
• describe the budgeting process and discuss the use of budgets in planning and control
• explain, discuss and apply relevant techniques to aid internal users in decision-making.

Course Contents

• Introduction to The Course. The Scope of Accounting.
  Accounting as an information system. Functions of accounting. Users of accounting information and their requirements: investors and investment analysts, creditors and lenders, managers, customers, employees, government, competitors and public. Types of accounting. Major difference between accounting and financial accounting, financial accounting versus management accounting. Accounting entities. Major types of organizations: the sole proprietorship, the partnership, the limited companies (corporations). The type of organization and the scope of accounting information. Accounting leaders and institutions. The regulation of financial reporting: institutional framework and the role. The usefulness of accounting standards. Generally Accepted Accounting Principles and accounting policies. The need for harmonization of financial accounting standards: what has been done in IAS and under European Directives. Assets and their recognition criteria. Types of assets: current and non- current, liquid and illiquid, tangible and intangible. Claims on organization’s assets. Liabilities and their recognition criteria. Types of liabilities. Owner’s capital (equity) and its forms. Accounting equation: initial version. Revenues and expenses: the criteria and influence on owner’s capital. Drawings (withdrawals) and owners’ investments. The expanded accounting equation.
• Accounting Process
  Types of accounts. Main T-accounts. Double entry bookkeeping techniques. Applying double-entry rule to expanded accounting equation. Accounting equation and basic statements. The balance sheet the statement of financial position. Profit and loss statement the statement of performance.
• Accounting Adjustments
  Accounting concepts and the need to adjust revenues and expense accounts. Adjusting revenues accounts for amounts owing. at the end of the period. The use of debtors’ accounts. The types of debtors and the types of debts. The reasons for bad debts and accounting for bad debts. Provisions for doubtful debts. Adjusting accounts for prepayments. Adjusting accounts for accruals. The introduction to the concept of depreciation expense: the useful life, and the need for allocation of acquisition cost of fixed asset. The residual value of fixed asset and its depreciable value. Traditional method of depreciation straight line. The accounting entries for depreciation. Preparing Trading and P&L statements. Adjusting revenues for returns inwards and for discounts allowed. Gross trading profit. Net profit. Different layouts for P&L: horizontal and vertical formats. Preparing balance sheet. The role of the trial balance. The types of adjustments to the trial balance. Accounting errors. The suspense account. Different layouts for the balance sheet: horizontal and vertical formats. Net working capital. Capital employed
• Accounting and Reporting Noncurrent Assets: Fixed Assets
  Capital and revenue expenditures and their accounting treatment. Traditional method of depreciation for fixed assets: units of production (YOP). Accelerated depreciation: reducing (declining) balance (DB), sum of years digits (SYD). Factors affecting the choice of fixed assets depreciation methods. Fixed asset disposal. Disposal account. Recording changes in remaining useful life and residual value. Accounting for fixed assets and accounting policies. Fixed assets revaluation. Accounting treatment of leased assets. Operating leases and their influence on financial reports. Finance leases and their accounting problems. Principles of reporting financial investments in securities (bonds and shares).
• Accounting for Inventories
  The asset of stock and the need for closing stock adjustments. Perpetual and periodic stock (inventory) measurement. The need for stock (inventory) valuation. The type of the business and the stock flows. Stock (inventory) costing: first-in, first-out (FIFO); last-in, first-out (LIFO); average cost (AVC). The choice of stock flow assumptions and accounting policies. The influence of inventory costing over the reported profit. Inventory (illusory) profit. Lower of costs or market rule. Net realizable value of stocks.
• The Conceptual Framework
  The role of accounting theory. The GAAP and fundamental accounting concepts. Entity concept and its requirements. Going-concern concept. Cost concept, money measurement concept and conventional accounting. Accrual concept versus cash accounting: advantages of accrual accounting, its limitations. Realization concept and revenue recognition criteria. Matching principle. Prudence concept and its constrains. The relevance and reliability of accounting information. Disclosure principle and the need for additional accounting information for limited company (corporation).
• Accounting in Corporations: Equity, Capital and Dividends
  The sources of financing in a limited company / corporation. The types of loan capital (debt finance). The issue of corporate bonds (debentures). Accounting treatment of debt finance. Preference shares and ordinary shares. The issue of shares. Authorized capital, issued capital, called up capital, calls in arrears. Accounting entries for dividend payments. Cash dividend, stock dividend, share repurchase. Bonus shares (scrip dividend). The types of reserves of limited company. Revenue reserves and their role. General reserve. Capital reserve. Statement of changes in equity.
• The Cash Flow Statement
  The need for the Statement of cash flows. Accounting definition of cash and cash equivalents. Types of company’s activities and cash flows: cash flow from operating, investing and financing activities. Net (gross) cash flow. Direct method of operating cash flow calculation. Indirect method of operating cash flow computation and working capital adjustments. Advantages of cash flow over net income for financial analysis. The reconciliation of cash flows from operating activities to the profit. The cash flow statement formats: UK standard as compared to international standard.
• Using and Understanding Financial Statements: Ratio Analysis
  Horizontal and vertical analysis of financial statements. Ratio analysis. Types of financial ratios: liquidity, solvency, gearing, activity, profitability. Ratio analysis from lenders, owners and managers points of view. Du Pont earning power analysis. EPS computations. Advantages of ratio analysis. Limitations for ratio analysis: the type of industry, accounting policies. The sources of information for comparative ratio data.
• Introduction to Costing
  The organizations, their objectives and structure. The management need for information. A perspective for cost Analysis and classification. General cost classifications: manufacturing, nonmanufacturing, product and period costs. Costs for planning and control: direct and indirect, controllable and non-controllable, differential costs. Types of costing systems. Job-order costing and the flow of costs. Measurement and application of manufacturing overheads. Process costing: the flow of costs, the problem of overheads. Advantages and disadvantages of traditional costing systems.
• ABC and Traditional Costing
  Design of activity-based costing (ABC). Assumptions of activity based costing. Tracing costs to activity centers. Application of overheads in ABC. Benefits and limitations of activity-based costing. Just-in-time inventories and its influence over costing systems
• Cash Budgeting
  Master budget and its structure. Steps in budgeting. Types of budgets. Cash budget and its role in planning and control. Cash budget and financing choices. The budgeted balance sheet and the budgeted P&L. Budgeting systems. The role of budgeting in planning and control. Using ratios in planning.

Assessment Elements

• Exam
  Examination format: The exam is taken with asynchronous proctoring Asynchronous proctoring means that all the student's actions during the exam will be “watched” by the computer. The exam process is recorded and analyzed by artificial intelligence and a human (proctor). Please be careful and follow the instructions clearly! The platform: The exam is conducted on the StartExam platform. StartExam is an online platform for conducting test tasks of various levels of complexity. The link to pass the exam task will be available to the student in the RUZ. The computers must meet the following technical requirements 1. Desktop computer or laptop only (mobile devices are not supported); 2. Operating systems: Windows( v. 7, 8, 8.1, 10), Mac OS X Yosemite 10.10 and higher; 3. Google Chrome of the latest (by the day of the control) update (to download use the link: https://www.google.com/chrome/, to update follow chrome://help/ with browser version and the update button if available) or Yandex Browser of the latest update. 4. Network port data allowed: 80 TCP, 443 TCP, 3478 TCP/UDP (check it with your provider / select control panel – system and security – Miscrosoft Deneder Firewall – additional options. Make sure that your inbound and outbound connection is not limited). 5. Adjusted and turned on web-camera (including a laptop integrated one) 6. Adjusted and turned on microphone (including a laptop integrated one); 7. High-speed stable Internet access 5 Mbit/s and higher; it is not recommended to use mobile Internet access since technical failure and cutting off are highly likely to occur during proctoring control. 8. Your desktop computer or laptop must successfully complete verification which is available only after authorization. All students are expected to do their best to ensure their computers (laptops) meet all the requirements described above. A student is supposed to follow the requirements below (With proctoring): Prepare identification documents (а passport on a page with name and photo) for identification before the beginning of the examination task; Check your microphone, speakers or headphones, webcam, Internet connection (we recommend connecting your computer to the network with a cable, if possible); Prepare the necessary writing equipment, such as pens, pencils, pieces of paper, and others. Disable applications on the computer's task other than the browser that will be used to log in to the StartExam program. If one of the necessary requirements for participation in the exam cannot be met, a student is obliged to inform a program manager 7 days before the exam date to decide on the student's participation in the exams. Important rules: All rules are available in exam regulations using asynchronous proctoring technology in the framework of intermediate certification. Connection failures: A short-term connection failure during the exam is considered to be the loss of a student's network connection with the StartExam platform for no longer than 5 minutes per exam. A long-term connection failure during the exam is considered to be the loss of a student's network connection with the StartExam platform for longer than 5 minutes per exam and will be the basis for the decision to terminate the exam. In case of long-term connection failure in the StartExam platform during the examination task, the student must record the fact of connection failure (screenshot, a response from the Internet provider). Then contact the program manager with an explanatory note about the incident to decide on retaking the exam.
• Home assignments
• Class participation
• Mock exam
• Case study

Interim Assessment

• Interim assessment (2 module)
  0.1 * Case study + 0.05 * Class participation + 0.4 * Exam + 0.2 * Home assignments + 0.25 * Mock exam

Bibliography

Recommended Core Bibliography

• Accounting : understanding and practice, Leiwy, D., 2013
• Cost accounting : a managerial emphasis, Horngren, C. T., 2015

Recommended Additional Bibliography

• Principles of accounting : essential reading, Barone, E., 2011