Accounting for Decision Making

About this course: Through this course, you will start by addressing the two “big questions” of accounting: “What do I have?” and “How did I do over time?” You will see how the two key financial statements – the balance sheet and the income statement - are designed to answer these questions and then move on to consider how individual transactions aggregate to make up these financial statements. After developing a broad understanding of accounting and financial statements, you will begin to develop a more nuanced understanding of individual components of doing business, such as making a sale or building inventory. By considering many of the more common actions of a company, you will build your understanding of accounting, and explore these concepts by applying them across various types of transactions. Once you understand these individual concepts better, you will be ready to return to the overall financial statements and use them as informational tools, including building ratios.

Who is this class for: This class is intended for anyone seeking to make better decisions and/or provide better information to decision makers. This course is especially useful for managers with profit and loss responsibility, individuals at any level who help to form decisions within a company and individuals seeking to apply to or have been accepted into an MBA program. In either case, it will provide fundamental skills that will allow for a richer MBA experience from the beginning of the program.

Created by:  University of Michigan

• Taught by:  Greg Miller, Professor

  Ross School of Business

Level Intermediate Commitment 2-3 hours per week Language English How To Pass Pass all graded assignments to complete the course. Coursework

Each course is like an interactive textbook, featuring pre-recorded videos, quizzes and projects.

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University of Michigan The mission of the University of Michigan is to serve the people of Michigan and the world through preeminence in creating, communicating, preserving and applying knowledge, art, and academic values, and in developing leaders and citizens who will challenge the present and enrich the future.

Syllabus


WEEK 1


Why Do We Have Accounting and How Can You Make it Work for You?



Every organized society needs information about its activities and accomplishments. Accounting was created to fulfill this need. In this module we will explore how accounting was designed to meet the needs of decision makers and what this means to you as a user of accounting information. We will discuss the concept behind accrual accounting including introducing the two primary accrual accounting financial statements - the balance sheet and income statement. This module will discuss the purpose and goal of those financial statements, but we will save your experience in creating those statements until module two. In lesson two of this module, we will explore some basic bookkeeping tools that will get you ready to create a set of financial statements. The material in this module is likely to take less than a week, but we will make up for it in module two.


10 videos, 5 readings, 3 practice quizzes expand

1. Video: Welcome
2. Reading: The Structure of the Course
3. Reading: The Syllabus
4. Reading: Introduction and Overview of Lesson One
5. Video: Why Do We Have Accounting?
6. Discussion Prompt: Reconciling the goal of accounting with patterns of use
7. Video: What is Accrual Accounting?
8. Video: What is a Balance Sheet?
9. Video: What is an Income Statement?
10. Video: Comparing the Two Statements
11. Practice Quiz: Overview Material
12. Reading: Introduction and Overview of Lesson Two
13. Video: Transactions to Financial Statements
14. Video: Journal Entries
15. Practice Quiz: Transactions and Journal Entries
16. Video: T-Accounts
17. Video: Using T-Accounts for Account Analysis
18. Practice Quiz: T-Accounts and Other Ways to Post
19. Reading: Transactions for quiz

Graded: Module One Test

WEEK 2


The Accounting Cycle and Bookkeeping: Foundational Tools for a Deeper Understanding



In this module we will create a set of accrual accounting financial statements. We will use that experience to walk you through the accounting cycle - which is the process by which accounting captures and aggregates all of the transactions in the period into a set of financial statements. We will examine each step in the accounting cycle using a comprehensive example of a start up wholesale book retailer. You will learn how the steps combine to create the statements. In addition to the comprehensive example we will do together, there will be plenty of chances to practice each step yourself. This module ends with a chance for you to build your own set of financial statements for a start up company. Fair warning: in my opinion this is the least exciting material covered in any accounting class (including this one). It is the basic bookkeeping process, not the interesting part of building an understanding of the business. But just as you need to learn basic addition and subtraction before you can master the math to design a beautiful building, you also need to learn basic bookkeeping as a foundation for the more interesting accounting.


7 videos, 6 readings, 4 practice quizzes expand

1. Reading: Introduction and Overview of Lesson Three
2. Video: An Overview of the Accounting Cycle
3. Video: Comprehensive Example Set Up
4. Practice Quiz: Quiz on Introduction to the Accounting Cycle
5. Reading: Introduction and Overview of Lesson Four
6. Video: Recording Externally Prompted Transactions
7. Practice Quiz: Transaction Entries
8. Reading: Introduction and Overview of Lesson Five
9. Video: Recording Adjusting Journal Entries
10. Video: Recording Closing Journal Entries
11. Practice Quiz: Adjusting and Closing Journal Entries
12. Reading: Introduction and Overview of Lesson Six
13. Video: Making an Income Statement
14. Video: Making a Balance Sheet
15. Practice Quiz: Quiz Financial Statements
16. Discussion Prompt: Understanding the process for using financial statements
17. Reading: Instructions for Quiz
18. Reading: Transactions to be Used for the Quiz

Graded: Accounting Cycle Comprehensive Quiz

WEEK 3


Revenue, Accounts Receivable, Inventory and Cost of Goods Sold



In the last module we took an overview perspective to get a sense of the structure of financial statements. For the next three modules we are going to delve into the details of specific items on the accrual financial statements. We will work through the most common items on the balance sheet and income statement to develop an understanding of those items. While we will consider specific items, we will also be building a thought process that we can apply to any future accounting items - even if they are topics that we do not cover in this course. That will allow you to confidently use accounting for years to come, regardless of changes in items or in the specific accounting rules. There are two lessons in this module. The first will cover revenue and the related balance sheet item of accounts receivable. The second lesson will cover costs of goods sold and inventory. We will cover the conceptual economics of each, discuss the current accounting rules and end with a video that applies our bookkeeping tools. The readings for each lesson provide more details.


7 videos, 2 readings, 3 practice quizzes expand

1. Reading: Introduction and Overview of Lesson Seven
2. Video: The Economics of Value Creation
3. Video: Accounting Guidance on Revenue Recognition
4. Video: Bookkeeping for Revenue Recognition
5. Practice Quiz: Revenue
6. Video: Accounting for the Allowance for Doubtful Accounts and the Bad Debt Expense
7. Practice Quiz: Allowance for Doubtful Accounts
8. Discussion Prompt: Explaining the challenge of clarifying revenue recognition criteria
9. Reading: Introduction and Overview of Lesson Eight
10. Video: What goes into Inventory and Cost of Goods Sold
11. Video: Which One Did We Sell? Inventory Cost Flow Assumptions
12. Video: Bookkeeping for Inventory Transactions
13. Practice Quiz: Inventory and Cost of Goods Sold
14. Discussion Prompt: Defining an acceptable range of judgement for accounting classification

Graded: Module Three Test

WEEK 4


Long-Lived Assets



As firms operate, they often use long-lived assets to execute their business models. Some of these assets are tangible, such as factories or computers. Others are intangible, such as trademarks and brands. In either case, managers face the issue of determining how much of these items were used in each period as well as the related question of how much remains. In this module, we will examine the economics of such transactions as well how accountants reflect them on financial statements. This module will also cover the most nebulous of intangible assets - goodwill.


10 videos, 5 readings, 5 practice quizzes expand

1. Reading: Introduction and Overview of Lesson Nine
2. Video: How Do We Think About Long Lived Assets?
3. Video: Basic Bookkeeping for Depreciation
4. Video: Changing Depreciation Estimates
5. Practice Quiz: Basics of Depreciation
6. Discussion Prompt: Discussing the usefulness of creating standard lives and salvage values
7. Reading: Introduction and Overview of Lesson Ten
8. Video: Selling an Asset
9. Video: When an Asset is used to make another Asset
10. Practice Quiz: Advanced Depreciation Topics
11. Discussion Prompt: Adjusting Estimates Going Forward
12. Reading: Introduction and Overview of Lesson Eleven
13. Video: How Do We Think About Non-Physical Assets?
14. Video: Bookkeeping for Amortization and Intangibles
15. Discussion Prompt: The Trouble with Understanding Intangibles
16. Practice Quiz: Intangible Assets
17. Reading: Introduction and Oveview for Lesson Twelve
18. Video: What is Goodwill?
19. Video: Calculating Goodwill
20. Practice Quiz: Goodwill
21. Discussion Prompt: So is Goodwill Really an Asset
22. Reading: Introduction and Overview of Lesson Thriteen
23. Video: Asset Impairments
24. Practice Quiz: Impairments

Graded: Quiz for Long Lived Assets

WEEK 5


Liabilities and Stockholders Equity



In the last two modules we have been exploring assets and their impact on both the balance sheet and income statement. In this module we will turn to discussing the other two components of the balance sheet: liabilities and owners equity.As firms operate, they make promise to deliver value to other entities. Accountants call these promises liabilities. You have already seen some liabilities as we discussed assets - after all, you get many assets by promising to give up future value. We will review those liabilities here as well as introducing a few new ones. Firms also have owners. Those owners sometimes directly provide capital and other times let managers retain capital generated by firm operations. Combined, those two sources of capital represent owners equity. We will discuss interaction with owners and how they impact our firms economic situation. We will also discuss how the accounting statements reflect these interactions.


7 videos, 4 readings, 4 practice quizzes expand

1. Reading: Introduction and Overview Lesson Fourteen
2. Video: An Overview of Liabilities
3. Video: Deferred Revenue
4. Practice Quiz: Basic Liabilities, including Deferred Revenue
5. Reading: Introduction and Overview Lesson Fifteen
6. Video: What is a Contingent Liability?
7. Video: Bookkeeping for Contingent Liabilities
8. Discussion Prompt: Judgement in Contingent Liabilities
9. Practice Quiz: Contingent Liabilities
10. Reading: Introduction and Overview Lesson Sixteen
11. Video: The Economics of Interacting with Owners
12. Video: Basic Bookkeeping for Equity
13. Practice Quiz: Basic Equity Transactions
14. Reading: Introduction and Overview for Lesson Seventeen
15. Video: Treasury Stock
16. Practice Quiz: Treasury Stock

Graded: Liabilties and Stockholders Equity

WEEK 6


Cash Flow Statements



We have been spending our time developing the concepts of accrual accounting. We started with the big picture, learned how to use bookkeeping to construct accrual statements and then spent the last three modules deep diving into various accrual accounting topics that help to create a useful set of financial statements. Throughout that time we have focused on capturing economics, not just cash flow. Of course, many of you still want to know about cash (so do I - it is important). But I have put off the cash flow statement for two reasons. First, I wanted you to really give accrual accounting a chance. If we mix cash in from the beginning, most students seem to drift back to cash every time things get a little complicated. But we have demonstrated that often leads to misinformed choices. Second, the cash flow statement effectively requires you to "undo" accrual accounting. That means you have to know accrual accounting pretty well to do a cash flow statement. I am going to be honest (I have all along, after all). The cash flow statement is tough. It seems like it should be really straight forward. Parts of it are. But a few choices were made when the cash flow statement rules were set. The choices make sense (well, somewhat), but they also make cash flow statements hard. We will break it down into pieces to make it approachable, but it is my experience that people need to see this multiple times. Lucky for you, the videos can be watched as often as you want. In this module I will systematically walk you through how cash flow statements are constructed. We will start with a cash T account and build statements from there. Our goal is to build an understanding of what information you can take from a cash flow statement. We are going to spend an entire week just on the cash flow statement. At the end of that week, I will expect you can understand an overall statement, but I will not expect you to be able to build one from scratch. Finally, I want to point out that this module is an inflection point in the course. We started looking at the idea of financial statements and creating broad statements in modules one and two. In modules three through five we began to look at the financial statements one item at a time. With this module we are moving back to the overall statement level, which is the perspective we will also take next module (which will be our last).


7 videos, 3 readings, 3 practice quizzes expand

1. Reading: Introduction and Overview of Lesson Eighteen
2. Video: Why Do We Have Cash Flow Statements?
3. Video: Putting Cash into Categories
4. Video: Direct Cash Flow Example
5. Practice Quiz: Introduction to Cash Flows and Direct Cash Flow Statements
6. Reading: Introduction and Overview of Lesson Nineteen
7. Video: What is an Indirect Cash Flow Statement
8. Video: Indirect Cash Flow Example
9. Discussion Prompt: Direct vs. Indirect Cash Flow Statements
10. Practice Quiz: Indirect Cash Flow Statements
11. Reading: Introduction and Overview Lesson Twenty
12. Video: Changes in Working Capital
13. Video: Indirect with Changes in Working Capital Example
14. Discussion Prompt: What Information is on a Cash Flow Statement
15. Discussion Prompt: Changes in Working Capital Shortcut
16. Practice Quiz: Changes in Working Capital Approach

Graded: Cash Flow Statements

WEEK 7


Ratios and Course End Assessment



We have covered a lot of ground. You now are familiar with financial statements and the underlying transactions that create them. Our goal is to help you use accounting to make decisions and you have surely gotten much better at that. Now we get the big payoff - we learn how to build ratios to provide insights regarding the decisions we are making (maybe even to help us decide what types of decisions we should consider). We have seen a few ratios as we went through the course, but in this module we are going to discuss how to go about making your own ratios related to whatever question you want to answer. I think you will be surprised to find how easy it is now that you understand accounting. In fact, it is so easy that it will be just a couple of short lessons. Along with those short lessons, the rest of the week can be used to prepare for and take the final comprehensive exam. It will go back over material from each module to assure that you can pull it all together.


7 videos, 3 readings, 2 practice quizzes expand

1. Reading: Introduction and Overview of Session Twenty One
2. Video: What is a Ratio?
3. Video: Warnings About Ratios
4. Practice Quiz: Introduction to Ratios
5. Reading: Introduction and Overview of Lesson Twenty Two
6. Video: Build Your Own Ratios
7. Video: Stock Over Stock
8. Video: Flow Over Flow
9. Video: Stock and Flow Ratios
10. Practice Quiz: Build Your Own Ratios
11. Reading: Comprehensive Evalution
12. Video: Congratulations

Graded: Ratios
Graded: Cumulative Final Exam