NORTHEASTERN UNIVERSITY

GRADUATE SCHOOL OF BUSINESS ADMINISTRATION

Financial Accounting - ACC 3601 Class of 2002

Professor Sharon (Shay) McKinnon Bruns Term 1 - Winter, 2001

Office: 404 Hayden Hall Home: 46 Garden Road

617-373-4648 Wellesley 02481

Fax: 617-373-8814 781-237-0696

Email: s.bruns@nunet.neu.edu Email: sbruns@mediaone.net

TEXT: Financial Accounting, Libby, Libby, & Short, Irwin Publishers, 2000. (LLS)

"The enormous growth of trade and travel in the past quarter century has convincingly demonstrated to Americans that all the world does not speak English. The result has been a boom in modern language instruction. All over the country, men and women spend their evenings boning up on Swahili or wrestling with Russian declensions.

But the man who would not think of leaving for Paris without a French phrase book in his flight bag usually is perfectly confident that he can sight-read corporate income statements or balance sheets and understand exactly what they are saying. This illusion has cost overconfident investors a great deal of money. It has been equally damaging to corporations, which have fallen steadily in public esteem in recent years. If the typical American today suspects that management speaks with forked tongue, it is at least partly because he has read false meanings into the accounting reports of US business.

Accounting is a language both figuratively and literally. It is a set of recognized symbols, arranged according to established rules and principles in such a way that they convey meaning. It has its own vocabulary and syntax. And like any language, it has certain ambiguities. Anyone who wants to read accounting statements must study both its basic concepts and its eccentricities.

...Accounting, as distinct from bookkeeping, is not an easy subject. It is a rigorous discipline that deals with complex problems, many of which have never been solved in the sense that the problems of Euclidean geometry have been solved. Any student of philosophy will tell you that value theory is one of the stickiest subjects in this field. And any student of economics will say that forecasting is at the same time the weakest area of his performance and the ultimate test of his theories. An accounting statement is both an evaluation and a forecast." (John L. Cobbs, editor of Business Week, 1975.)

The objective of this introduction to financial accounting is to familiarize the student with accounting terminology and methods so that he or she is able to interpret, analyze, and evaluate the financial statements currently published in corporate annual reports. We will examine the basic concepts underlying financial statements and the accounting principles followed in the preparation of the Statement of Financial Position (balance sheet), the Income Statement, and the Statement of Cash Flows. We will examine certain current accounting topics that have the potential to affect materially both users and preparers of financial statements.

GRADING BASIS: Quiz 20 %

Second test 30

Journal 15

Participation 20

Annual Report Paper 15

The Libby, Libby, & Short textbook (LLS) includes case problems and numerical problems which we will discuss in class. Students should be prepared to be called on to provide answers or insights in the problems, even though the solutions to LLS traditional numerical problems are included in your materials packet.

An understanding of the structure underlying financial statements is vital to being able to analyze the effects of events on the income and financial position of a firm. The first three to four classes will concentrate on achieving a mastery of the basic systems, along with gaining an understanding of the assumptions, principles, and goals of financial accounting. Subsequent material will focus more on current accounting issues and analysis of financial statements.

Participation is a major portion of the grading in this class, and is primarily concerned with assignment preparation and discussion. Individuals will be called on in class to address questions in the discussion materials, and I will record class contributions after each class. Group preparation is encouraged for all cases and problems assigned for class discussion. You should be prepared to make some positive contribution to every class.

There will be two in-class exams. The first will be a short quiz on accounting basics; the second a more comprehensive exam. The format of the two in-class tests will be discussed in class. You will be told what material to prepare for the exams. They will be basically numerical in nature. While those with prior accounting expertise may have an initial advantage, no prior knowledge will be assumed. We will start from "ground zero" but move fairly rapidly.

You are requested to make the acquaintance of a senior financial manager in your company in the first week of classes. This person should be your contact point for your personal analysis of your firm, done in the form of a journal to be turned in the second to last class. The journal should be kept up-to-date each week. Specific assignments for the journal are included in each daily assignment. Answers should be brief and to the point.

There is a separate handout on the group annual report paper.