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Santa Monica College|Academic Programs|Business Department|Accounting 1

Accounting 1

5 Units
Advisory:  Math 20 or higher   

This course introduces the student to the sole proprietorship, partnership, and corporate forms of ownership.  This course also familiarizes the student with recording, classifying and interpreting financial data for service and merchandising businesses.  It includes a study of the journals, ledgers and financial statements used by these entities.  Financial analysis and managerial accounting are included in each chapter. Also covered are computerized accounting systems, internal control, ethics, cash, accounts and notes receivable, merchandise inventory, plant assets and intangible assets, liabilities, and equity accounts.     

Course Objectives:

Upon completion of this course the student will be able to:

A. Describe the nature of a business, the role of accounting in business, the importance of business ethics, the basic principles of proper ethical conduct, the profession of accounting, and the financial statements of a proprietorship and explain how they interrelate.  Summarize the development of accounting principles and relate them to practice.  State the accounting equation, define each element of the equation, and explain how business transactions can be stated in terms of the resulting changes in the basic elements of the accounting equation.  Use the ratio of liabilities to owner's equity to analyze the ability of a business to withstand poor business conditions.

B. Explain why accounts are used to record and summarize the effects of transactions on financial statements, and describe the characteristics of an account.  List the rules of debit and credit and the normal balances of accounts.  Analyze and summarize the financial statement effects of transactions.  Prepare a trial balance and explain how it can be used to discover errors.  Discover errors in recording transactions and correct them.  Use horizontal analysis to compare financial statements from different periods.

C. Explain how the matching concept relates to the accrual basis of accounting and why adjustments are necessary.  List the characteristics of adjusting entries, journalize entries for accounts requiring adjustment, summarize the adjustment process and prepare an adjusted trial balance.  Use vertical analysis to compare financial statement items with each other and with industry averages.

D. Prepare a work sheet. Prepare financial statements and adjusting and closing entries from a work sheet.  Review the seven basic steps of the accounting cycle.  Explain what is meant by the fiscal year and the natural business year.  Analyze and interpret the financial solvency of a business by computing working capital and the current ratio.

E. Define an accounting system and describe its implementation from a managerial perspective.  List the three objectives of internal control, and define and give examples of the five elements of internal control.  Journalize and post transactions in a manual accounting system that uses subsidiary ledgers and special journals.  Describe and give examples of additional subsidiary ledgers and modified special journals.  Apply computerized accounting to the revenue and collection cycle.

F. Distinguish the activities of a service business from those of a merchandising business.  Journalize the entries for merchandising transactions.  Prepare a chart of accounts and an income statement for a merchandising business.  Describe the accounting cycle for a merchandising business.  Compute the ratio of net sales to assets as a measure of how effectively a business is using its assets.

G. Describe the nature of cash and the importance of internal control over cash.  Summarize basic procedures for achieving internal control over cash receipts and cash payments, including the use of a voucher system.  Describe the nature of a bank account and its use in controlling cash.  Prepare a bank reconciliation and journalize any necessary entries.  Account for small cash transactions using a petty fund.  Summarize how cash is presented on the balance sheet.  Compute and interpret the ratio of cash to current liabilities.

H. List the common classifications of receivables.  Summarize and provide examples of internal control procedures that apply to receivables.  Describe the nature of and the accounting for uncollectible receivables.  Journalize the entries for the allowance method of accounting for uncollectibles, and estimate uncollectible receivables based on sales and on an analysis of receivables.  Journalize the entries for the direct write-off method of uncollectible receivables.  Describe the nature and characteristics of promissory notes.  Journalize the entries for notes receivable transactions.  Prepare the Current Assets presentation of receivables on the balance sheet.  Compute and interpret the accounts receivable turnover and the number of days' sales in receivables.

I. Summarize and provide examples of internal control procedures that apply to inventories.  Describe the effect of inventory errors on the financial statements.  Describe three inventory cost flow assumptions and how they impact the income statement and balance sheet.  Compute the cost of inventory under the perpetual and periodic inventory systems using the first-in, first-out; last-in, first out; and average cost methods.  Compare and contrast the three inventory costing methods.  Compute the proper valuation of inventory at other than cost, using the lower-of-cost-or-market and net realizable value concepts.  Prepare a balance sheet presentation of merchandise inventory.  Estimate the cost of inventory using the retail method and the gross profit method.  Compute and interpret the inventory turnover ration and the number of days' sales in inventory.

J. Define fixed assets and describe the accounting for their cost.  Compute depreciation, using the straight-line, units-of-production, and declining balance methods.  Classify fixed costs as either capital expenditures or revenue expenditures.  Journalize entries for the disposal of fixed assets.  Define a lease and summarize the accounting rules related to the leasing of fixed assets.  Describe internal controls over fixed assets.  Compute depletion and journalize the entry for depletion.  Journalize the entries for acquiring and amortizing intangible assets. Describe how depreciation expense is reported in an income statement, and prepare a balance sheet that includes fixed assets and intangible assets.  Compute and interpret the ratio of fixed assets to long-term liabilities.

K. Define and give examples of current liabilities.  Journalize entries for short-term notes payable.  Describe the accounting treatment for contingent liabilities and journalize entries for product warranties.  Determine employer liabilities for payroll.  Describe payroll accounting systems.  Journalize entries for employee fringe benefits.  Use the quick ratio to analyze the ability of a business to pay its current liabilities.

L. Describe the characteristics and advantages and disadvantages of the partnership form of business organization.  Journalize partnership entries.

Course Content:

  20%    Managerial and decision making uses of accounting in business and the world economy
  7%    Analyzing and Recording Transactions
  7%    Adjusting Accounts and Preparing Financial Statements
  9%    Completing the Accounting Cycle
  7%    Accounting for Merchandising Operations
  7%    Inventories and Cost of Sales
  8%    Accounting Information Systems
  7%    Cash and Internal Controls
  7%    Accounting for Receivables
  7%    Plant Assets, Natural Resources, and Intangibles
  7%    Current Liabilities and Payroll Accounting
  7%    Accounting for Partnerships

Student Learning Outcome(s):
1. Students will be able to record, classify and interpret financial data and prepare reports for service and merchandising businesses.
As assessed by:  projects, midterm and final exams