Accounting 1

What a student will be able to do

• Say who uses a company's financial information and why - owners, lenders, managers, tax offices - and name who writes the rules and who checks that they are followed.
• Tell apart the three ways a business can be set up: one owner, a partnership, or a company.
• Use the basic words of accounting, and spot when a business breaks a ground rule - for example, showing an asset at today's market price instead of what was paid for it.
• Explain what the accounting equation (Assets = Liabilities + Equity) really means, and work out any missing part of it.
• Decide whether an event is a real transaction, then work out which accounts change, in which direction, and by how much.
• Build and read the main financial statements, and follow how profit moves into the owners' share and then onto the balance sheet.
• Judge how much a business can safely pay out to its owners, and make an honest choice when the easy answer is the wrong one.

The games that teach it — 25 in this chapter

What a student will be able to do

• Explain what debit and credit really mean - left side and right side, not good and bad - and name the normal side of any account.
• Use T-accounts (a simple two-sided page for one account) to place both halves of an entry and work out the account's balance.
• Write a journal entry in the correct format, and build complete entries on your own, including ones that touch more than two accounts.
• Build a trial balance (a list of every account balance) and explain why the two columns must add up to the same total.
• Find the errors a trial balance catches - and the ones it hides - then write the entry that fixes them.
• Work through the whole recording process from first entry to finished trial balance, and connect that trial balance to the financial statements.

The games that teach it — 15 in this chapter

What a student will be able to do

• Explain the difference between accrual accounting (record it when it happens) and cash accounting (record it when the money moves), and work out the profit under each.
• Adjust for money that moved early: rent and insurance paid in advance, supplies used up, and work a customer has paid for but not yet received - and spread the cost of equipment over its useful life (depreciation).
• Adjust for money that has not moved yet: wages owed, interest owed, and work finished but not yet billed to the customer.
• Post the adjustments to the accounts and build an adjusted trial balance, showing that the two columns still match.

The games that teach it — 27 in this chapter

What a student will be able to do

• Close the temporary accounts at year-end so revenue, expenses, and dividends start the new year at zero.
• Prepare a post-closing trial balance that lists only the accounts carried forward into the next year.
• Build a classified balance sheet that separates short-term items from long-term ones, then compute working capital and the current ratio and say what they tell you.
• Put the nine steps of the accounting cycle in order, and say which ones happen during the year and which happen at the end.
• Prepare an income statement from the adjusted trial balance, then follow the profit through to retained earnings and on to the balance sheet.

The games that teach it — 21 in this chapter

What a student will be able to do

• Tell the difference between a business that buys and resells goods and one that sells a service, and explain why only the first one has a cost of goods sold.
• Record a purchase of goods for resale, including the shipping cost paid by the buyer, goods sent back to the supplier, and a discount for paying early.
• Read the delivery terms on an invoice and say who owns the goods while they are travelling and who pays the shipping.
• Record every sale in two steps: the money earned from the customer, and the cost of the goods that left the shelf.
• Handle customer returns, price reductions given to customers, and discounts for customers who pay early.
• Build a multi-step income statement that shows net sales, gross profit, operating income, and net income in the right order.
• Work out the gross profit margin and the profit margin, and say what it means when either one goes up or down.

The games that teach it — 35 in this chapter

What a student will be able to do

• Decide which goods belong to the business at the end of the year, including goods still in transit and goods held on behalf of someone else.
• Work out the cost of goods sold and the value of goods still on hand using FIFO (first-in, first-out, so the oldest goods are treated as sold first), LIFO (last-in, first-out, so the newest goods are treated as sold first), and weighted average.
• Explain how each of these methods changes profit when prices are rising and when prices are falling.
• Report goods at the lower of what they cost and what they can now be sold for, and record the write-down when the value has dropped.
• Follow a counting or costing mistake through cost of goods sold, gross profit, and net income, and show how it corrects itself the next year.
• Work out inventory turnover and days in inventory, and say what a higher or lower figure tells you about the business.

The games that teach it — 22 in this chapter

What a student will be able to do

• Explain what internal control is - the rules and checks a business uses to protect its assets and keep its records honest.
• Name the three things every fraud needs: a reason, a chance, and an excuse.
• Match a business situation to the control rule it follows or breaks, such as keeping record-keeping and cash-handling in different hands.
• Find the weak point in a company's controls and choose the fix for it.
• Prepare a bank reconciliation that brings the company's own cash record and the bank statement to the same true cash balance.
• Record journal entries only for the items the company did not yet know about, and leave the bank's own items alone.
• Run a small petty cash fund: set it up, refill it, and deal with cash that is short or over.
• Decide whether an item counts as cash, a cash equivalent (a safe investment that turns into cash within 90 days), or neither.

The games that teach it — 21 in this chapter

What a student will be able to do

• Tell the difference between an account receivable (ordinary short-term credit given to a customer) and a note receivable (a written promise to pay, usually with interest).
• Estimate how much customer debt will never be collected, either as a percentage of credit sales or from an aging table that groups debts by how old they are.
• Record the year-end estimate for bad debts and work out the amount the business really expects to collect.
• Write off a customer who cannot pay, and show why this does not change profit.
• Record the two steps needed when a customer who was written off pays after all.
• Work out interest on a note from the amount lent, the rate, and the time, and record it as it is earned.
• Record a note that is collected on time, and one that the customer fails to pay on the due date.
• Work out how many times a year the business collects its debts and how many days each collection takes.

The games that teach it — 22 in this chapter