Accounting for Decision Making

Go to Course: https://www.coursera.org/learn/accounting

Introduction

### Course Review: Accounting for Decision Making on Coursera #### Overview Embarking on the journey of understanding accounting might seem daunting for many, but the Coursera course "Accounting for Decision Making" offers a comprehensive guide designed to demystify the subject. The course lays out foundational principles through the lens of two crucial accounting questions: “What do I have?” and “How did I do over time?” By focusing on the balance sheet and income statement, participants will develop a holistic view of financial statements and gain the skills necessary to make informed business decisions. #### Course Structure and Syllabus Breakdown The course is divided into well-structured modules that gradually build your understanding of key accounting concepts. Here’s a look at the syllabus and what you can expect: 1. **Why Do We Have Accounting and How Can You Make it Work for You?** - This introductory module sets the stage by explaining the purpose of accounting in society and introduces core concepts like accrual accounting. The insights gained will serve you well as you navigate through financial statements in later modules. 2. **The Accounting Cycle and Bookkeeping: Foundational Tools for a Deeper Understanding** - Here, you’ll learn to develop a set of accrual accounting financial statements. Although the content is more technical and considered less exciting by many, it’s crucial for mastering more advanced concepts later on. 3. **Revenue, Accounts Receivable, Inventory, and Cost of Goods Sold** - This module dives into essential components of financial statements, focusing on revenue and inventory. You will learn not just the “how,” but also the “why” behind these transactions, enriching your decision-making skills. 4. **Long-Lived Assets** - An exploration of tangible and intangible assets, this module clarifies how they are reflected in financial statements, address how to manage these assets effectively. 5. **Liabilities and Stockholders Equity** - Understanding liabilities and equity is critical for a comprehensive view of a company’s financial health. This module offers insights into the interrelationships between these components on the balance sheet. 6. **Cash Flow Statements** - Often perceived as challenging, this module breaks down the complexities of cash flow statements. Emphasis is placed on understanding cash flow vs. accrual accounting, an essential skill for anyone involved in financial decision-making. 7. **Ratios and Course End Assessment** - The final module encapsulates everything you've learned. You will explore how to build and interpret various financial ratios that will aid in your analytical skills moving forward. The course wraps up with a comprehensive exam to test your knowledge and understanding. #### Learning Experience The course is designed for learners at all levels, making it accessible whether you're a novice or have some experience in accounting. Each module includes lectures, readings, and practice exercises, allowing for self-paced learning. The practical approach ensures that you will not only absorb theoretical knowledge but also apply it to real-world scenarios. You will find numerous resources like videos and reading materials that enhance the learning experience. The instructor also fosters a supportive learning environment, encouraging questions and active engagement throughout the course. #### Recommendation "Accounting for Decision Making" is highly recommended for anyone looking to enhance their understanding of financial principles, whether for personal use, career advancement, or entrepreneurial ventures. The structured approach, combined with practical insights, equips learners with the tools necessary to leverage accounting information effectively for decision-making. For those hesitant about diving into accounting, this course provides a friendly yet thorough introduction that won’t overwhelm you. By the end, you will feel more confident in interpreting financial statements and applying your knowledge to make informed decisions in business contexts. Whether you are a business student, a small business owner, or just someone interested in improving your financial literacy, enrolling in this course could be a transformative step in your education and professional development.

Syllabus

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.

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.

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.

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.

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.

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).

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.