Key Learning Points*

• Explain how accountants measure income.
• Determine when a company should record revenue from a sale.
• Use the concept of matching to record the expenses for a period.
• Prepare an income statement and show how it is related to a balance sheet.
• Account for cash dividends and prepare a statement of stockholders’ equity.
• Compute and explain earnings per share, price-earnings ratio, dividend-yield ratio, and dividend-payout ratio.
• Explain how the conceptual framework guides the standard setting process and how accounting regulators trade off relevance and faithful representation in setting accounting standards.
• Explain how the following concepts affect financial statements: entity, going concern, materiality, stable monetary unit, periodicity, and reliability.

Key Learning Points*

• Use double-entry accounting.
• Describe the five steps in the recording process.
• Analyze and journalize transactions and post journal entries to the ledgers.
• Prepare and use a trial balance.
• Close revenue and expense accounts and update retained earnings.
• Correct erroneous journal entries and describe how errors affect accounts.
• Explain how computers have transformed the processing of accounting data.

Key Learning Points*

• Understand the role of adjustments in accrual accounting.
• Make adjustments for the expiration or consumption of unexpired costs.
• Make adjustments for the earning of revenues received in advance.
• Make adjustments for the accrual of unrecorded expenses.
• Make adjustments for the accrual of unrecorded revenues.
• Describe the sequence of steps in the recording process and relate cash flows to adjusting entries.
• Prepare a classified balance sheet and use it to assess short-term liquidity.
• Prepare single- and multiple-step income statements.
• Use ratios to assess profitability.

Key Learning Points*

• Identify the purposes of the statement of cash flows.
• Classify activities affecting cash as operating, investing, or financing activities.
• Compute and interpret cash flows from financing activities.
• Compute and interpret cash flows from investing activities.
• Use the direct method to calculate cash flows from operations.
• Use the indirect method to explain the difference between net income and net cash provided by (used for) operating activities.
• Understand why we add depreciation to net income when using the indirect method for computing cash flows from operating activities.

• Show how the balance sheet equation provides a conceptual framework for the statement of cash flows.
• Identify free cash flow and interpret information in the statement of cash flows.

Key Learning Points*

• Recognize revenue items at the proper time on the income statement.
• Account for sales, including sales returns and allowances, sales discounts, and bank credit card sales.
• Estimate and interpret uncollectible accounts receivable balances.
• Assess the level of accounts receivable.
• Manage cash and explain its importance to the company.
• Develop and explain internal control procedures.
• Prepare a bank reconciliation (see the appendix entitled “Bank Reconciliations”).

Key Learning Points*

• Link inventory valuation to gross profit.
• Use both perpetual and periodic inventory systems.
• Calculate the cost of merchandise acquired.
• Compute income and inventory values using the three principal inventory valuation methods allowed under both U.S. GAAP and IFRS and the one method allowed only by U.S. GAAP.

• Use the lower-of-cost-or-market method to value inventories under both U.S. GAAP and IFRS.
• Show the effects of inventory errors on financial statements.
• Evaluate the gross profit percentage and inventory turnover.
• Describe characteristics of LIFO and how they affect the measurement of income (Appendix: Characteristics and Consequences of LIFO).
• Determine inventory costs for a manufacturing company (Appendix: Inventory in a Manufacturing Environment).

Key Learning Points*

• Distinguish a company’s expenses from expenditures that it should capitalize.
• Measure the acquisition cost of tangible assets such as land, buildings, and equipment.
• Compute depreciation for buildings and equipment using various depreciation methods.
• Recalculate depreciation in response to a change in estimated useful life or residual value.
• Differentiate financial statement depreciation from income tax depreciation.
• Explain the effect of depreciation on cash flow.
• Account for expenditures after acquisition.
• Compute gains and losses on the disposal of fixed assets and consider the impact of these gains and losses on the statement of cash flows.
• Determine the balance sheet valuation of tangible assets for companies who use the revaluation method allowed under IFRS.
• Account for the impairment of tangible assets.
• Account for intangible assets, including impairment.
• Explain the reporting for goodwill.
• Interpret the depletion of natural resources.

Key Learning Points*

• Account for current liabilities.
• Measure and account for long-term liabilities.
• Account for bond issues over their entire life.
• Value and account for long-term lease obligations.
• Evaluate pensions and other postretirement benefits.
• Interpret deferred tax assets and liabilities and restructuring and contingent liabilities.
• Use ratio analysis to assess a company’s debt levels.
• Compute and interpret present and future values (Appendix: Compound Interest, Future Value, and Present Value).

Key Learning Points*

• Describe the rights of common shareholders.
• Account for common stock, including payment of cash dividends.
• Contrast bonds, preferred stock, and common stock.
• Explain the characteristics and use of stock option and restricted stock plans.
• Identify the economic characteristics of and account for stock splits.
• Account for both large-and small-percentage stock dividends.
• Explain and report stock repurchases and other treasury stock transactions.
• Record issuance of stock for noncash consideration and conversions of debt into equity or of preferred stock into common stock.

• Understand restrictions on retained earnings and interpret other components of stockholders’ equity.
• Use the rate of return on common equity and book value per share.