Accounting Online Business Administration free course

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Study Guide	This is a Study Guide. As the name implies, it guides the student in the reading of the textbook, The Virtual MBA. The textbook is divided into 12 Chapters and each chapter into several Sections. Sections are numbered consecutively from the beginning to the end of the textbook. We will refer you to the textbook by citing the Section number. This Subject is based on Chapter VI of the textbook.
The purpose of Accounting	The two basic purposes of Accounting Reports are: 1- To report performance during a period 2- To report the status at a specific moment For the first purpose we use the Income Statement, for the second we use the Balance Sheet. Now please read Sections 70. to 72. of the textbook and return to this point of the Guide. Please answer the questions
Self- evaluation questions	Question 1 The Income Statement shown in Section 71. includes the dollar amount of merchandise that has been resold. Under which of the items is this amount reported? See Model Answer A1
	Question 2 Many people are surprised that in a Balance Sheet the Total Assets (TA) amount always checks with the Total Liabilities and Equity (LI + EQ) amount. What is the reason that both figures are always equal? See Model Answer A2
More on Balance Sheet	The same Balance Sheet of the previous Section is now shown in greater detail. Obviously, no firm will make a new Balance Sheet (BS) after every individual transaction. But for educational purposes John Smith Inc.will show us a new BS to show the changes a single cash purchase would produce. Immediately afterwards the firms makes a cash sales, and a new BS is made to reflect the changes. Now please read Sections 73. to 75. of the textbook and return to this point of the Guide. Please answer the questions
Self- evaluation questions	Question 3 Compute the amount of Undistributed Profit if TA = $5,000, LI = $3,000 and Shareholders Capital (SC) = $1,850. See Model Answer A3
	Question 4 When a firm makes a purchase of goods for sale, be it cash or on credit, will the amount of undistributed profit change just by reason of that transaction? If not, why? See Model Answer A4
How the Income Statement reflects the transactions. Depreciation	The textbook shows an Income Statement reflecting the two transactions explained before, a cash purchase and a cash sale. The concept of depreciation (also called amortization) of durable goods is explained. Now please read Sections 76 and 77. of the textbook and return to this point of the Guide Please answer the questions
Self- evaluation questions	Question 5 Oily Inc. purchases 100 tons of raw sunflower oil for a total amount of $50,000 and pays cash. The company refines the oil at their own premises at an expense of $15,000; these expenses include an outlay of $5,000 in cash, the rest being depreciation of the installations. Oily Inc. subsequently sells the full quantity to a bottling business for $80,000 cash. The cash position of Oily Inc. before these two transactions was $100,000. What would be the cash position after the transactions, assuming no other cash transaction took place? See Model Answer A5
	Question 6 After the transactions described in Question 5 took place, the cash position of Oily Inc. increased by a certain amount. Does this amount equal the profit made from the transactions? If not, why? And what was the amount of the profit made? See Model Answer A6
Cash Flow	Cash is crucial for a business. Of course, "cash" here means not only bills but any money that can be used immediately when necessary (checking, savings and money market accounts). It is very important to forecast the flow of cash accurately. The worst that can happen to a firm is to be caught by surprise by an unforeseen lack of cash. Advance knowledge will give time to obtain cash from loans or liquidation of relatively liquid assets such as bonds or time deposits in banks. Now please read Section78. of the textbook and return to this point of the Guide. Please continue
Summary	To make sure that all concepts explained have been clearly grasped, the textbook offers a summary review of the Balance Sheet and the Income Statement. Now please read Sections 79. and 80. of the textbook and return to this point of the Guide. Please answer the questions
Self- evaluation questions	Question 7 - Let's have a look a the position after the first of the transactions (Question 5) made by Oily Inc. took place (paying for and receiving the oil) . Obviously, the cash position was reduced by $50,000. Which is the other account (item) affected by the transaction? How does the amount (balance) of this account change? See Model Answer A7
	Question 8 - We mentioned that Oily Inc. has facilities for refining edible oil. The original cost of the refinery was $100 million. It is being depreciated over 10 years in equal amounts. The first year depreciation was charged was 1997. What would be the value (book value) of the refinery on the Balance sheet made at the end of 1999? See Model Answer A8
	Question 9 - Going back to Question 5, now let's assume that instead of paying cash for the oil, Oily Inc. receives it today and payment is due 30 days from today. The dollar amount of the purchase is the same, $50,000. Which items (accounts) of the Balance Sheet would change, and how? See Model Answer A9
Here we say: So long!	This is the End of the Study Guide for the Subject Accounting.

A2 - By definition EQ = TA - LI. Thus, TA = EQ + LI Back
A1 Cost of good sold. Back
A4 - No. If the purchase is a cash transaction, Inventory will go up and Cash down for the same amount, leaving Total Assets (TA) unchanged. If the transaction is on credit, Inventory will go up and TA up for the same amount. But on the other side Liabilities (LI) will also go up for the same amount. Thus undistributed profits stays at the same figure. Back
A3 - Since UP = TA - (LI + SC) the calculation is: $5,000 - ($3,000 + $1,850) = $150 Undistributed Profit) Back
A6 - The cash position increased by $25,000. However, this amount does not equal profit, because there was a "non-cash" expense ($10,000 for depreciation). The profit from these transactions was $15,000.
A5 - Starting with cash $100,000, less purchase of $50,000, less cash outlay for expenses of $5,000; plus cash inflow of $80,000 when sale is made. New cash position is $125,000 Back
A8 - Each year the refinery is depreciated by 10% of the original cost; that would be $10 million a year. This was done in 1997, 98 and 99. The book value of the refinery at the closing of 1999 would be 70% of the original value, that is $70 million. Back
A7 - The value of the Inventory account increased by the amount of the purchase, $50,000. Back
A9 - Accounts Payable: increase by $50,000. Inventory: increase by $50,000. Cash position is unchanged.. Back

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This Study Guide is to be used in combination with the eBook "The Virtual MBA"