3.1 Demonstrate How Trans Affect Acct Equation



Demonstrate How Transactions Affect the Accounting EquationSECTION I. ADMINISTRATIVE DATA[Effective Date]SECTION I.ADMINISTRATIVE DATAAll CoursesCOURSE NUMBER(S)COURSE TITLE(S)Including This Principles of Cost Analysis and ManagementLessonTask(s)TASK NUMBERTASK TITLETaught orAJBPC103Supported??CONDITION:You are a cost advisor technician with access to all regulations/course handouts, and awareness of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors.?STANDARD: ACTIVITY STEPS:Explain accounting terminology Analyze transactions for effects on the accounting equation Record transactions in tabular formatTask(s)TASK NUMBERTASK TITLEReinforced????Academic HoursThe academic hour(s) required to teach this lesson is (are) as follows:?Resident Hrs: Min/MOI0:20 Conference Discussion0:50 Demonstration0:20 Self-Study0:30 Practical Excercises0:20 BreaksTESTTEST REVIEW0:100:10TOTALHOURS 2:40Test Lesson Number [If the test is not included in this lesson, list the test lesson number in which this lesson’s terminal learning objective is tested and the test results are reviewed with the students. Put N/A if not tested in a separate lesson.]?HoursLesson No.Testing,(to include test review) Test Days 1-4Prerequisite Lesson(s)[State if there are none.] ?LESSON NUMBERLESSON TITLEAJBPC102Determine Different Accounting Methods Used by Different Fund TypesAJAPC101AJAPC102Calculate Financial PositionExplain Change in Financial PositionSecurityClearance/AccessForeignDisclosureRestrictions[Apply appropriate FD restriction statement (including number) per Chapter I-1, Training Product Classification, Foreign Disclosure (FD) Restriction Statements, and Copyright/Proprietary Materials.]References?NumberTitleDateAdditional Information????Student StudyAssignmentsAJBPC103 Demonstrate How Transactions Affect the Accounting Equation HandoutInstructorRequirementsOne (1) primary instructor. 1. Must be of the grade authorized by the TDA series.2. Must meet physical qualifications in accordance with AR 600-9.3. Must document successful completion of a TRADOC approved Instructor Training Course within the past within the past five years.4. Must be a graduate of ALC or appropriate functional course.5. Must be appointed on duty assignment orders as an Instructor awarding the Identifier of 8 or 2.AdditionalSupportPersonnelRequirements None. EquipmentRequiredProjector, Computer terminals 1 per student plus instructor.MaterialsRequiredINSTRUCTOR MATERIALS: ?AJBPC103 Demonstrate How Transactions Affect the Accounting Equation Instructor Slides and Notes AJBPC103 Demonstrate How Transactions Affect the Accounting Equation HandoutAJBPC103 Demonstrate How Transactions Affect the Accounting Equation Instructor Practical ExercisesAccounting Cycle Excel?STUDENT MATERIALS: AJBPC103 Demonstrate How Transactions Affect the Accounting Equation HandoutAJBPC103 Demonstrate How Transactions Affect the Accounting Equation Student Practical ExercisesAJBPC103 Demonstrate How Transactions Affect the Accounting Equation Student SlidesAccounting Cycle ExcelClassroom,Training Area, andRangeRequirements General Purpose Classroom.AmmunitionRequirementsNone.InstructionalGuidanceBefore presenting this lesson, instructors must thoroughly prepare by studying this lesson and identified reference material. Throughout this lesson, solicit from students the challenges they experienced in the current contemporary operational environment (COE) and what they did to resolve them. Encourage students to apply at least 1 of the 11 critical variables: physical environment, nature and stability of the state, sociological demographics, regional and global relationships, military capabilities, technology, information, external organizations, national will, time, and economics.NOTE: Students may receive fill-in slides to enhance learning, resulting in slide number variances. When instructors version of slides steps through a process, the Lesson Plan will indicate that students receive blank slides. Fill-in student slides will be identified with a pencil icon. NOTE: Practical exercises (PE’s) intended for manual completions will be identified by a pencil icon. PE’s intended for Excel solutions will be identified by an .EXCL icon. The Instructor version of any PE intended for an Excel solution will contain a screenshot of the suggested solution. In some cases, subjective variance will occur in student’s solutions that may solve the PE adequately (or better than) the suggested solution.BranchSafety MgrApproval?NAMERankPositionDate??[If not required, put N/A. See Chapter I-2 for requirements. If required and there is no Branch Safety Mgr, obtain signature of functional equivalent.]ProponentLesson PlanApprovals?NAMERankPositionDate?Kelly, TerriGSWriter/Developer?Nelson, MelanieContractorWriter/Developer?SECTION II. INTRODUCTION?Method of instruction: ? Conference Discussion?? Instructor to student ratio is 1:25Time of instruction (minutes): 0:10Media: Instructor Slides and NotesMotivator NOTE: Show Slide # 1: In this lesson we will learn how transactions are the beginning point of accounting data. This data eventually becomes cost information that will be useful to internal users. The degree of usefulness is impacted by our understanding of where the original data came from and what it represents.TerminalLearningObjectiveNOTE: Show Slide # 2: Inform the students of the following terminal learning objective requirements. At the completion of this lesson you (the student) will: ?ACTION:?Demonstrate How Transactions Affect the Accounting EquationCONDITION:You are a cost advisor technician with access to all regulations/course handouts, and awareness of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors.STANDARD:? With at least 80% accuracy: Explain accounting terminologyAnalyze transactions for effects on the accounting equation Enter transactions into the accounting equation SafetyRequirements[State if there are none. See Chapter I-2, Safety and Environment.] RiskAssessmentLevel[See Chapter I-2, Safety and Environment.] EnvironmentalConsiderationsIn a training environment, leaders must perform a risk assessment in accordance with FM 5-19, Composite Risk Management. Leaders will complete a DA Form 7566 COMPOSITE RISK MANAGEMENT WORKSHEET during the planning and completion of each task and sub-task by assessing mission, enemy, terrain and weather, troops and support available-time available and civil considerations, (METT-TC). Note: During MOPP training, leaders must ensure personnel are monitored for potential heat injury. Local policies and procedures must be followed during times of increased heat category in order to avoid heat related injury. Consider the MOPP work/rest cycles and water replacement guidelines IAW FM 3-11.4, NBC Protection, FM 3-11.5, CBRN Decontamination. EvaluationPerformance examination: NoneWritten examination: Students will be given a test to Determine Entitlements to Pay and Allowances. You must score a minimum of 70 % or higher to pass. InstructionalLead-inNOTE: Show Slide # 3: Lacy Simmons receives a $200 transfer from the family to start a lemonade stand. The lemonade stand will run as a revolving fund.User fees must cover costsUses accrual basis of accountingHow will this be recorded in the Family’s financial equation?A transfer will be recorded as transfer out from the family “General Fund”. This will reduce the general fund balance. It will be recorded as a transfer in to the revolving fund. Each fund is a separate accounting entity (self-balancing set of accounts.) The transfer in to Lacy’s revolving fund is considered an “other financing source” on the statement of activities and increases financial position.How does this differ from the appropriation that she received in yesterday’s lesson , Budgetary Accounting? In that lesson, operating as an appropriation-funded entity, Lacy’s revenues were not expected to offset all of her expenditures. In contrast, revolving funds are expected to charge user fees that will cover operating expenses. The transfer is just startup capital. NOTE: Show Slide # 4: As a reminder, revolving funds use the accrual basis of accounting. Accrual accounting records an Asset and a Liability when the goods are received …and an Expense when goods are consumed. We will look at an almost identical set of transactions, but use a different method of measuring the activity.SECTION III. PRESENTATION1.Learning Step/Activity 1 - Explain Accounting Terminology?Method of instruction: Conference Discussion Instructor to student ratio is 1-25 Time of instruction (minutes): Media: Instructor Slides and NotesReferences: Slide # 5-28Security Classification: ____________________________________ NOTE: Show Slide # 6: (Note: Students should be engouraged to enter the transactions on their handouts.)The following equation represents financial position: Assets = Liabilities + Financial Position. NOTE: Show Slide # 7: What is an asset? Something OWNED that represents FUTURE BENEFIT.NOTE: Show Slide # 8: What is a Liability? Something OWED or a CLAIM against assets.Equity represents the claim of OWNERSThe terms Net Assets and Fund Balance recognize that in the case of a governmental entity, there are no owners. No identifiable entities can claim ownership of the excess of assets over liabilities. Any excess belongs to “we the people” but none of us can individually lay claim to any share of it. NOTE: Show Slide # 9: Review Financial ActivityNOTE: Show Slide # 10: The following equation represents financial activity: Revenue – Cost = Change in Financial PositionNOTE: Show Slide # 11: What is a Revenue? Represent earnings received in cash.Increase assets and increase financial position.So far we have only considered revenues received in cash. We will learn a different measurement criteria under accrual accounting.NOTE: Show Slide # 12: What is a Cost?Represent cash payments for goods and services received.Decrease assets and decrease financial position.So far we have measured costs under the cash basis, and expenditures under the budgetary basis. Now we will look at the accrual basis.NOTE: Show Slide # 13: Review Three Ways to Measure:Under the cash basis of accounting, costs are counted when they are paid in cash.NOTE: Show Slide # 14: Under the budgetary basis of accounting, the expenditure is counted when the goods or services are received. At this time a liability is recorded in the proprietary accounts of the fund. NOTE: Show Slide # 15: Under the accrual basis of accounting, the expense is counted when the goods or services are consumed, or some benefit is received.NOTE: Show Slide # 16: Introduce the Accrual Basis of Accounting:The accrual basis of accounting focuses on the exchange of economic resources. If resources have been exchanged – that is, value given for value received – activity will be recorded. This records revenues in the period in which they are EARNED.Providing a service.Selling a product.The sequence might go like this:The organization PLANS for revenues – this includes hiring employees and acquiring the resources necessary to produce the products or services they will sell.Then, the organization may TAKE ORDERS for goods or services. Next, the services are completed or the products are shipped.Then, they would receive payment. Under the accrual basis of accounting, the revenues are counted at the time they are earned, when the service is completed or the product is shipped.NOTE: Show Slide # 17: Compare the characteristics of revenue:Under the cash basis, revenue is counted when the cash is collected. Under the budgetary basis (not pictured here) the spending authority is increased when cash is collected. The timing is the same. Under the accrual basis, it is counted when the service is completed or the product is shipped.NOTE: Show Slide # 18: The Accrual Basis of Accounting: Matches Revenues with Expenses You’ve heard the expression “It takes money to make money”. Expenses represent the money that you spend to make money. For example, you can’t sell products if you don’t first either buy or manufacture products to sell. You can’t provide services if you don’t have facilities, employees, or the necessary supplies and equipment. In order to give a true picture of the organization’s financial activities, these costs must be recorded in the same period as the revenues they helped to generate. This is known as “matching” expenses and revenue. Records Expenses in period INCURRED at the point which resources are consumed.NOTE: Show Slide # 19: TerminologyHow do expenses differ from costs?Costs can be measured in various ways, according to management’s use of the information. In day 4 we will begin looking at some of the different ways of measuring costs. Expenses are measured according to Generally Accepted Accounting Principles. NOTE: Show Slide # 20: Terminology (con’t)Expenses may be recorded before cash is paid, when cash is paid, or after cash is paid.Expense before cash: Employees work two weeks at the end of September but will be paid in October. Under accrual accounting, the expense will be recorded in the period in which the employees worked, NOT when they are paid. Expense after cash: Insurance premium for one year is paid 30-Sept and benefits the next fiscal year. Under accrual accounting, the payment of the insurance premium will be recorded when the insurance is actually used up. NOTE: Show Slide # 21: Terminology (con’t) How do expenses differ from expenditures?Expenditures represent the using up of an appropriation, and are recorded in the period goods or services are received. Expenses are recorded in the period resources are consumed.NOTE: Show Slide # 22: Demonstrate how expenses differ from expenditures Under budgetary accounting, the supplies are counted as anexpenditure when they are received. Even if they are ordered and received at the very end of the year, they are recorded as an expenditure in the year they are received.Under accrual accounting, supplies are not recorded as an expense until they are used up. NOTE: Show Slide # 23: Discuss “free goods”.Everyone is familiar with the end of year process of using up the part of the budget that you’ve been saving all year in case of an emergency. The goods purchased at the end of the year will undoubtedly be used in the next. However, they may be seen as “free goods” because they don’t have any impact on the budget of the current year. NOTE: Show Slide # 24: Terminology.NOTE: Show Slide # 25: An account is a record of the changes in a particular Asset, Liability, Revenue, Expense or element of Financial Position. The accounting system should have only as many accounts as are necessary to give users the information they need to make decisions. NOTE: Show Slide # 26: A transaction represents an exchange of resources that affects two or more Accounts. This is where we get the term “Double Entry Accounting”. Every transaction must be recorded in two different places.NOTE: Show Slide # 27: External transactions involve exchanging resources with parties outside the organization.Examples of external transactions are: purchasing supplies from a vendor or transferring funds to another governmental entity. Internal transactions involve exchanges within the organization.An example of an internal transaction is when raw materials are moved from the warehouse to the production floor. They are no longer “raw materials” but are now “work in process”, and the exchange will be recorded in the accounting system. (5) NOTE: Show Slide # 28: Conduct a Check on Learning: Q. When is revenue recorded? A. When it is EARNED – when service is completed or product is sold.Q. Where does the term “Double Entry Accounting” originate? A. From the concept that a transaction is an exchange that affects two or more accounts.2.Learning Step/Activity - Analyze transactions for effects on the accounting equation?Method of instruction: Conference Discussion Instructor to student ratio is 1-25 Time of instruction (minutes):Media: Instructor Slides and NotesReferences: Slide #s 29-31Security Classification: ____________________________________ NOTE: Show Slide # 29: Expand the Accounting Equation by introducing theory:Here’s some theory that will help us to understand how transactions are recorded. Everything is based on the original accounting equation from lesson AJAPC101 Calculate Financial Position. Assets = Liabilities and Financial PositionFinancial position will increase or decrease with changes. So, the equation could be stated as:Assets = Liabilities + Financial Position ± Net ChangeNet change is stated as:Net Change = Revenue – Expense Therefore:Assets = Liabilities + Financial Position + Rev – ExpenseAssets may be Cash or Other Assets, so:Cash + Other Assets = Liabilities + Financial Position + Rev – ExpenseNOTE: Show Slide # 30: Illustrate the balance concept.This picture illustrates how the scale or the equation must always be kept in balance. If there is an increase in the total assets on the left side, there must be a corresponding increase on the right side of the scale. When revenue is earned, assets increase and revenue increases. When liabilities are repaid, assets decrease on the left side and liabilities decrease on the right side. Or, exchanges can be made on only one side of the scale. For example, paying cash to purchase supplies or equipment would decrease cash but increase other assets. NOTE: Show Slide # 31: Conduct a Check on Learning:Q. What activity causes assets and financial position to increase? A. RevenuesQ. What is the effect on the accounting equation when the rent for the month is paid in cash? A. Cash decreases and financial position decreases.3.Learning Step/Activity 3 – Enter Transactions into the Accounting Equation ?Method of instruction: Conference Discussion Instructor to student ratio is 1-25 Time of instruction (minutes): Media: Instructor Slides and NotesReferences: Slide #’s 32-57Security Classification: ____________________________________ NOTE: Show Slide # 32: (Note: Students should be engouraged to enter the transactions on their handouts. The instructor should feel free to work through the transactions on the board rather than using the slides).Demonstrate how to enter transactions into the Accounting Equation. Lacy receives $200 equity transfer.NOTE: Show Slide # 33: Lacy’s business starts with zero balances in every column. When she receives the transfer from the family’s general fund, it increases her cash balance and her financial position.As a result, the ending equation is in balance: Cash 200 + other assets 0 = Liabilities 0 + Financial position 200 + Revenue 0 – Expenses 0 NOTE: Show Slide # 34: Lacy buys a pitcher, a juicer, and a table at a yard sale for $20Beginning balance: Cash 200 + other assets 0 = Liabilities 0 + Financial position 200 + Revenue 0 – Expenses 0NOTE: Show Slide # 35: When Lacy purchases the pitcher, juicer and table, Cash decreases and other assets increase. Why aren’t the pitcher, juicer and table considered to be expenses?They were considered expenditures under budgetary accounting criteria (goods received).They are considered assets because they have FUTURE BENEFIT and that benefit has yet to be received. The benefit will be received as Lacy uses these items in her lemonade stand business. This is an example of exchanging asset for asset. Notice that the total assets are still 200, they have just been re-arranged between cash and other assets. There has been no change on the right side of the equation.New balance: Cash 180 + other assets 20 = Liabilities 0 + Financial position 200 + Revenue 0 – Expenses 0 NOTE: Show Slide # 36: She has flyers printed for $10.NOTE: Show Slide # 36: Balance forward: Cash 180 + other assets 20 = Liabilities 0 + Financial position 200 + Revenue 0 – Expenses 0The flyers are an expense (they will be used right away.) So, cash decreases and expenses increase. New balance:Cash 170 + other assets 20 = Liabilities 0 + Financial position 200 + Revenue 0 – Expenses 10 NOTE: Show Slide # 38: Note that even while expenses INCREASE, since they represent a decrease in financial position the scale still remains in balance. Both sides equal 190.NOTE: Show Slide # 39: Pays Bert $5 to pass out flyers.Balance forward:Cash 170 + other assets 20 = Liabilities 0 + Financial position 200 + Revenue 0 – Expenses 10 NOTE: Show Slide # 40: Passes out flyers.The resource is consumed immediately and the payment is recorded as an expense.New balance:Cash 165 + other assets 20 = Liabilities 0 + Financial position 200 + Revenue 0 – Expenses 15 NOTE: Show Slide # 41: Purchases supplies: cups, $15; napkins $5; lemons, $25; sugar, $10 and ice, $10 .NOTE: Show Slide # 42: Cash 165 + other assets 20 = Liabilities 0 + Financial position 200 + Revenue 0 – Expenses 15The supplies are assets because they have future benefit. They will be converted to lemonade at some point and sold.Cash decreases. This is another example of exchanging asset for asset. There was no change on the right side of the equation.Cash 100 + other assets 85 = Liabilities 0 + Financial position 200 + Revenue 0 – Expenses 15NOTE: Show Slide # 43: First day’s sales are $15 in cash and $20 in IOUs.NOTE: Show Slide # 44: Cash 100 + other assets 85 = Liabilities 0 + Financial position 200 + Revenue 0 – Expenses 15The revenue is counted even though cash is not received, because Lacy sold the product. The measurement criteria for revenues, under the accrual basis of accounting, is when revenues are EARNED by selling a product or providing a service. Revenues increase on the right side of the equation, and total assets increase on the left side. The IOUs are considered an asset becase they have future benefit to Lacy: she has the right to collect from the individuals who gave them. Cash 115 + other assets 105 = Liabilities 0 + Financial position 200 + Revenue 35 – Expenses 15NOTE: Show Slide # 45: In business terminology IOUs are known as Accounts Receivable. They represent a right to collect cash from the customer at some point in the future.NOTE: Show Slide # 46: Emphasize Key PointsEach transaction must keep the equation in balanceEach transaction affects at least two accountsStudents should ask themselves:Which accounts are being affected? What type of accounts are they? (Asset, Liability, Financial position, Revenue, Expense)Are the accounts increasing or decreasing?NOTE: Show Slide # 47: Lacy receives $5 cash toward the IOUs. Demonstrate how to enter transactions into the Accounting Equation. (Note: Students should be engouraged to enter the transactions on their handouts. The instructor should feel free to work through the transactions on the board rather than using the slides.).Cash 115 + other assets 105 = Liabilities 0 + Financial position 200 + Revenue 35 – Expenses 15. NOTE: Show Slide # 48: When Lacy receives the cash payment toward the IOUs, notice that there is NO INCREASE in revenues, because Lacy didn’t sell any more lemonade. She is just being paid for what she already did in the past. Instead, cash increases and other assets decrease. Cash 120+ other assets 100 = Liabilities 0 + Financial position 200 + Revenue 35 – Expenses 15NOTE: Show Slide # 49: Lacy opens a charge at the grocery store with a $50 limit. This has no effect on the equation because no exchange of resources has yet taken place. NOTE: Show Slide # 50: Purchases $40 in supplies on account at the grocery store.NOTE: Show Slide # 51: Cash 120 + other assets 100 = Liabilities 0 + Financial position 200 + Revenue 35 – Expenses 15Supplies (Other assets) increase. Liabilities also increase since Lacy used her line of credit at the grocery store. Cash 120+ other assets 140 = Liabilities 40 + Financial position 200 + Revenue 35 – Expenses 15NOTE: Show Slide # 52: Makes cash sales of $50.NOTE: Show Slide # 53: Cash 120+ other assets 140 = Liabilities 40 + Financial position 200 + Revenue 35 – Expenses 15Product has been sold, so revenue is earned. Revenue increases. Assets, in this case cash, also increase. Cash 170+ other assets 140 = Liabilities 40 + Financial position 200 + Revenue 85 – Expenses 15NOTE: Show Slide # 54: Pays the grocery bill in full.NOTE: Show Slide # 55: Cash 170+ other assets 140 = Liabilities 40 + Financial position 200 + Revenue 85 – Expenses 15Cash decreases and so does the liability.Cash 130+ other assets 140 = Liabilities 0 + Financial; NOTE: Show Slide # 56: Notice that the equation is still in balance after all of the activity.NOTE: Show Slide # 57: ConductCheck on Learning: Q. How does borrowing money from the bank to purchase equipment affect the accounting equation? A. Increases other assets, increases liabilities.Q. How does providing services on account affect the accounting equation? A. Increases revenues, increases other assets (IOUs, otherwise known as accounts receivable).4.Learning Step/Activity 4 – Practical Exercise Excel Practice?Note: ?The learning step/activity is a one-sentence statement describing the training activity, preferably in student action terms. See Chapter VI-6, Training Course Design. ?Method of instruction: Practical Excercise Instructor to student ratio is 1-25 Time of instruction (minutes): Media: Instructor Slides and Notes, 3.0 Excel The Accounting CycleReferences: SLIDE #A 58-61Security Classification: ____________________________________ Instruct students to open the 3.0 Excel Accounting Cycle spreadsheet and read the introduction tab.NOTE: Show Slide # 59: Point out how the tabs will step them through Lessons AJBPC103-AJCPC102 as they work across the tabs. When Lesson AJBPC102 is complete, they will be expected to be able to output Closing Statements for a complete Accounting Cycle.NOTE: Show Slide # 60: Show students how to enter data into the Record Transactions tab of the Excel.Instruct Students to open AJBPC103 Demonstrate How Transactions Affect the Accounting Equation readings. (2) Have students complete pencil PE AJBPC103.1 (3) Conduct learning check to determine if students are ready to input data. They may need time to read through the material and reinforce the concepts presented in PPT.(4) When satisfied, direct students to begin entering data from PE AJBPC103.2into the spreadsheet.SECTION IV. SUMMARY?Method of instruction: Practical ExcerciseInstructor to student ratio is 1 : 25Time of instruction (minutes): _______Media: Instructor Slides and Notes, Readings, 3.0 Excel The Accounting CycleCheck onLearningDetermine if students have learned the material presented by ---Method of instruction: Practical Excercise Instructor to student ratio is 1-25 Time of instruction (minutes): Conduct learning check to determine if students have successfully entered transactions and understand how transactions affect the accounting equation.[Note: Conduct a check on learning and summarize the learning activity.]?a. Soliciting student questions and explanations.b. Asking questions and getting answers from the students.c. Providing immediate feedback in context to the material presented and correcting student misunderstandings.Review/SummarizeLessonExpanding the accounting equation will help us to understand how transactions are recorded. Everything is based on the original accounting equation: Assets = Liabilities and Financial positionFinancial position will increase or decrease with changes. So, the equation could be stated as: Assets = Liabilities + Financial Position ± Net ChangeNet change is stated as: Net Change = Revenue – ExpenseTherefore: Assets = Liabilities + Financial Position + Rev – ExpenseAssets may be cash or other assets, so:Cash + Other Assets = Liabilities + Financial Position + Rev – ExpenseTransitionTo NextLessonHave students look at the next tab on the spreadsheet. They will be completing steps 1-3 in the Accounting Cycle in the next lesson.SECTION V. STUDENT EVALUATION?[See Chapter VI-7, Student Performance Measurement/Testing.]TestingRequirementsDescribe how the student must demonstrate accomplishment of the TLO. ?Note: ?Refer student to the Student Evaluation Plan.Feedbacka. Schedule and provide feedback in context to the material presented; correct student misunderstandings.Requirementb. Provide remedial training as needed. ................
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