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  • Hello, I hope everybody's semester is starting out well. This is the first official lecture

  • of Accounting 01. Now, everybody should have had a previous session where we talked about

  • class policies. For you face to facers we did that last time we didn't film that, and

  • for you people at home I did a separate filming and taping of going through the class policies

  • for you, so please make sure those folks at home are taking this as an online class that

  • you watch that don't just skip it thinking it's not going to be important. It's very

  • important to succeed in this class I want you to know how we're going to do things so,

  • for the people watching at home on You-Tube or on DVDs, or on that cable TV channel never

  • skip the lectures ok, watch them in sequence watch the whole thing. If you try to shortcut

  • it you'll do yourself harm so, at this point everybody knows the class policies and procedures

  • and everything we're going to go ahead, and start the subject of accounting now, I always

  • like to say at the very beginning some people have to take this class, and it's like "oh

  • I wish I didn't have to take this, but I have to it's required" some people want to take

  • it. Truth be told out of the fifteen of you here there's maybe only one or two who want

  • to be a full-time accountant someday so sometimes the question comes up "why do we have to take

  • accounting", and I'll tell you. Several reasons, but one of them is statistically speaking

  • about half of you are going to own, or co-own a business sometime in your life. Now it may

  • not be your sole source of making money, but it may be just an ancillary income, but you

  • will own or co-own a business. Now I've talked to some of you, and a lot of my students they

  • want to be entrepreneurs, they want to own a business someday. Well if you do that you

  • need to know accounting at least at some level, and you might say "well I'll just hire somebody

  • to do my accounting", but what's the problem with that? Anybody know? It costs money, and

  • what's the other one? you might get ripped off. You can look at the business section,

  • and see what happens when a business owner gives all of their accounting responsibilities

  • to somebody else. It's like "will we trust that person?" I could tell you horror story

  • after horror story from my days as a Financial statement Auditor of small businesses that

  • somebody ripped them off, because that person didn't know accounting at all. So, maybe you

  • won't do all the book keeping, but you at least at some level need to know accounting.

  • Accounting is the language of business, plus, wherever you all end up working there's going

  • to be a bottom line. There's going to be a net income that you need to meet, right, I

  • mean JCCC isn't out for profit, but we concentrate on that bottom line too. We have to stay afloat

  • don't we? In your own homes you have financial situations right? So, the language of business

  • is accounting, it's very important to know, so I know there are a lot of reasons for being

  • in this class, but I want you to remember that there's basic concepts of business, and

  • how important it is to apply to accounting. The first thing I want to do is go over and

  • you should have the PowerPoint slides for you folks here in the face to face. I handed

  • these out to you, and for you folks at home, I have these on ANGEL under the lessons tab.

  • I thinks it's very beneficial to have these so, you don't have to copy everything down

  • that's on the screen, and you can just take notes to the side, or however you'd like to

  • do it. Let's go ahead and go through the very first slide for chapter one, and that is going

  • to be kind of the definition of accounting. I spend a lot of time on this slide so don't

  • think that every slide we do we'll spend this much time on, but I think this is a real nice

  • definition, and I'm not the type of teacher who's going to give you a test question that

  • says "write out the definition of accounting", because truth be told you can find another

  • text-book, and it probably would be slightly different, but this one has a lot of good

  • aspects, and I want to concentrate on that a little bit. It says accounting is a system

  • that identifies, records, and communicates information that is relevant, reliable, and

  • comparable to help users make better decisions. Let's go off the PowerPoint, and come back

  • and I want to step away from that for a second, and take you to a different example I think

  • will help flesh out that definition. Let me write something down here that has absolutely

  • nothing to do with accounting, and tell me if anybody knows what I'm doing? I'll give

  • you a clue it has to do with sports. I'm sure you're all like what is he doing? Right, any

  • idea what that is? Anybody want to make a guess? It has to do with basketball. Anybody

  • here play basketball? You've watched basketball right? You know what a free throw is right?

  • It's when a player gets fouled they go to the line, and they shoot free throws, right?

  • Well, one of the things I did in high school (I love basketball still do), but I couldn't

  • make the basketball team at my high school. So, what I did and this sounds like a geeky

  • future accounting professor thing to do - I kept stats for the basketball team. Traveled

  • around with them, and kept stats. So, let's go back to this do you see how this applies

  • to free-throws. What this meant is player twelve got fouled, and he went to the line

  • for two free-throws he missed the first one, so I didn't color in that bubble, and he made

  • the second so I colored that in, you with me? Okay then player seventeen got fouled

  • for two shots he made both of them so I colored in the bubbles. Number nine player got fouled,

  • and that looks a little different doesn't it? Anybody want to venture a guess what that

  • is? Not a technical - do you know what a one and one is? Certain types if you get fouled

  • you don't get two free-throws, but if you make the first one you get a second attempt.

  • Does that make sense? So I would draw that kind-of like a little cherry. So, this guy

  • got fouled and he made the first one, so he got a second attempt, right? If he wouldn't

  • have made the first one it would have just looked like that. This one has just one bubble,

  • what does that mean? Anybody want to guess? He made the shot, but he got a free-throw

  • so, if you get fouled while making a shot you make the basket, you get one free-throw.

  • Now, why do I show you this, because this has nothing to do with accounting? Well this

  • is one of the things as a basketball statistician that I kept track of for the coaches. Now,

  • the next day when I would come to school do you think the coach wanted me to hand him

  • this report, with the bubbles? Go back to the screen do you think that this is what

  • they wanted? What did they want? They wanted a condensed report, and I made out just a

  • sample report ok, this is kind-of what they wanted. This is a free-throw report for Northwest

  • vs. Southeast on October 20, 2011. This is the player Jones. This is the free-throws

  • attempted eight, and he made 4 free-throws, so he shot fifty percent. Smith went to the

  • line, and attempted ten free-throws only made eight, and shot eighty percent, do you see

  • what I'm saying? This was the report I gave the coach. Now, why would the coach care about

  • having this information? To know who the best free-throw shooters are may be there's a technical

  • during the game, and who would you want to put to the line, probably your best free-throw

  • shooter, right. You'd want to know who needs to work on free-throws, who's getting better,

  • who's getting worse, right. Do you agree if you were a basketball coach a report like

  • this would help you make better decisions, is that correct? Let's go back to the PowerPoint

  • definition, and let's apply this to the basketball example I just gave. That was a system that

  • identified, recorded, and communicated, wasn't it? For instance I would hear the whistle

  • blow, and it would identify that I need to record something, correct? It identified that

  • somebody was going to go to the line, and I needed to record it with that little bubble

  • method, and there's nothing magical about that little bubble method. I didn't make it

  • up as a common way to keep track of free-throws. Eventually I would need to communicate that

  • to my coach, right. Now, I would communicate it so it would help him make better decisions.

  • However, for it to be able to help him to make a better decision, it had to be relevant,

  • reliable, and comparable, what does that mean? Let's talk about that, what does it mean to

  • be relevant? To be relevant means it needs to be in regards, to the game that he's concerned

  • about, right? What if I were to give him the free-throw statistics for the 1972 Olympic

  • Games between Russia and U.S.A., is that relevant? Is that going to help him make a better decision?

  • No. So, it has to be relevant, it has to be related to what he's concerned about. It has

  • to be reliable. What if I don't know what I'm doing as a statistician - is it going

  • to help him make better decisions? No. What if I told him "hey coach, here's your report

  • for last night, but I'm going to be honest with you I was pretty drunk when I did it,

  • there's a lot of mistakes, I fell asleep during the third quarter... don't know how reliable

  • it is. Is it going to help him at all? No, and I did not drink as a high school student.

  • Note that if my mom is watching. The third one - it has to be comparable, what does that

  • mean? What that means is there has to be a consistent method that we are using to keep

  • track of this stuff, there has to be rules. For instance we always count a free-throw

  • made if it goes through the hoop, right? What if I said "I changed the rules I started to

  • count the free-throws even if it just hit the rim and even if it didn't go through,

  • well I changed the rules." Is that the way we've been doing it? No. Ok so it's no longer

  • comparable to previous games. Is it going to help him make a better decision? No. Go

  • back to that one more time this was a system that identified, recorded, and communicated,

  • and if it was relevant, reliable, and comparable it would help him make better decisions. Accounting

  • is the same way; now let's stay on this for a second. We identified things that needed

  • to be recorded these will be transactions that need to be recorded such as, buying office

  • supplies, or selling services to a customer, or paying our employees, or getting a loan

  • from the bank. We record that information, and eventually we're going to communicate

  • it through a report, through a summation like you were saying. And if that information is

  • relevant, and if it is reliable, and if it is comparable we're following the rules, it

  • will help our users make better decisions. What sort of decisions would you see in the

  • business world that would be aided by financial information presented to them in a report?

  • Do I want to invest in this company? Maybe, Do I want to extend credit, or make a loan

  • to this company? How's the business doing? Are we going to have enough cash to pay salaries

  • next month? Right, if you have a business you want to have accurate financial information,

  • financial reports - that's what accounting is about. Does that flesh that out a little

  • bit for you? Let's move on a little bit, I like to have our lectures be a mixture of

  • me talking, and then maybe taking a break and doing some exercises and then going over

  • those. I don't like it just to be me talking, but like I always have to say this first lecture

  • is a lot of me talking, because we really haven't done anything yet. So please don't

  • be concerned if you're going "gosh... are we just going to have to listen to this guy

  • every fifty minutes every time?" No, we'll be doing stuff that's why I want you to bring

  • your textbooks and your calculator to class. There will be a lot of times where we take

  • breaks, and you'll work on it for a while, but this lecture is kind of me jumping around

  • and giving a lot of basic business concepts, so we can start to build our foundation. Alright

  • let's go on, there are two sets of users of accounting information. There are external

  • users, and there are internal users. External users are those that do not work at the company.

  • They work outside of the company such as, lenders, or banks, or credit unions, or share

  • holders, or stock holders, or potential share holders and stock holders, the government,

  • consumer groups, customers, external auditors. Do you know what an audit is? An audit is

  • when you go in and you look at the records of a company, and you verify it. Sometimes

  • people think of an IRS audit. All of those individuals are external to the company, correct?

  • They don't work there, they're just they're outside the company. Now, external user's

  • financial accounting is the accounting that serves external users primarily, and that's

  • this class. Now, there are also internal users, these are the people that work at the company

  • such as, managers, or the sales staff, or the internal auditors. Some companies are

  • so big for instance; Sprint, they have their own internal audit department they're internal

  • within the company. There's also the controller, do you know what a controller is? The controller

  • is the chief accounting individual. He or she is in charge of all the accounting - they're

  • called the accounting controller, but all of those individuals are internal to the company.

  • Now, the type of accounting that is mainly concerned with internal users is managerial

  • accounting. Have you heard of managerial accounting? Does anybody already know they're going to

  • have to take managerial accounting? A lot of people will take financial accounting which

  • is mainly concerned of the external users, and then they eventually take managerial accounting

  • which is the internal users. Alright, let's go to the next slide just like there are rules

  • of basketball that must be followed there are rules of accounting that must be followed,

  • and this will help insure that the information remains relevant, reliable, and comparable,

  • and we know it has to be those three things for it to be useful. So, there are what's

  • called generally accepted accounting principles sometimes we abbreviate that GAAP (G double

  • A P) these are the rules that have been put into place that we have to follow for accounting.

  • We'll start learning some of those. Now, who sets those rules? Those are set by what is

  • called the Financial Accounting Standard Board, and we abbreviate that sometimes the FASB.

  • This is the private group that sets the rules of accounting. Now, they take input from a

  • lot of different groups such as the SEC the Security and Exchange Commission, have you

  • heard of that group? They're the government body that has the reporting rules for companies

  • that trade stock, and issue stock to the public they certainly have input to the FASB on what

  • GAAP is. There's also something called the International Accounting Standards Board,

  • and they deal with international standards ok, so they certainly have input to the FASB

  • as well. Now, one thing about international standards is that we're becoming a much smaller

  • world in some ways, aren't we? Have any of you going to these classes, have any of you

  • ever Skyped, do you know what Skyping is? Have you ever Skyped to somebody overseas?

  • Have you ever purchased something over the internet overseas? If I were to ask this in

  • an accounting class twenty years ago I probably would get responses like this - first of all

  • you would say: what is Skype, second thing you wouldn't think about buying something

  • from somebody in Germany for example, because it's just not possible. But with technology,

  • with communications we're becoming a smaller world aren't we? It's always interesting with

  • these accounting lectures being on YouTube I'll get emails from people in Poland, Saudi

  • Arabia, London, all over the world that somehow they stumble upon these lectures, and for

  • some reason they watch them. Maybe they're taking an accounting class and it kind of

  • helps them, but it's kind of fun to hear from those if somebody out there is watching it

  • shoot me an email I'd love to hear from those people, but it's a small world isn't it? Well,

  • because of that we have to start having some international standards, because companies

  • are becoming global with operations not in just the United States, but other countries

  • as well. So, you might hear of something called IFRS that stands for International Financial

  • Reporting Standards, and they identify the preferred accounting for companies ok. We

  • won't get too much in this, but I want you to be aware of it that IFRS is more and more

  • concerned each year with how are we going to make the accounting operations in London

  • comparable with the ones in Georgia ok. How are we going to do that, we want to try to

  • find a common set of rules, and that's what IFRS is. Ok, I want you to read about next

  • now were into a different subject, and I want you to read about this in your books. The

  • Business Entity Forms and this is on page eleven and twelve in your textbook. Now, I'm

  • not going to go through every aspect of this, but I want to hit some high points, it's on

  • page eleven and twelve in your textbook. And what I want to do is, and I going to double-check

  • that make sure I gave you the right pages. Yes I did ok eleven and twelve in your textbook.

  • Now, if you start a business one of the first things that you have to decide is, how do

  • I want to set up my business? And there's three main ways you can set up that business.

  • You can set it up as a sole proprietorship, as a partnership, or as a corporation ok those

  • are the three main ways. Now there is kind-of different sub-ways under each one of those,

  • but for the purposes of this class we're going to kind-of concentrate just on those three

  • ways. Now, there is a nice chart in your book I'm not going to talk about every little row

  • and column on here, but I want you to read about this and to know this. Let's highlight

  • a few of those ok proprietorship versus a partnership versus a corporation ok. Now let's

  • come off the slides for a second, and it's Jake right? Let's say you started a landscaping

  • business Jake you can set it up as a sole proprietorship where you are the only owner,

  • and you don't incorporate anything you're just a sole proprietorship, right? Or what

  • you can do is let's say there are two owners, and it's Jake and Matt let's say there were

  • going to be two owners, and you're not going to incorporate but you're going to be a partnership

  • you can set it up that way, or the other thing you can do is incorporate now going back to

  • the previous slide looking back at it real quick. You might think sole proprietorship

  • means one owner, partnership just a few, and corporation means a lot of owners that slide

  • kind-of indicates that, but that's not totally true, because going back to you Jake even

  • if you were the only owner you could incorporate what it means to incorporate is you set your

  • business up as a separate legal entity, a separate legal entity if you're a corporation.

  • Not so much a contractor, but like Sprint is a separate legal entity but even your landscaping