Module Code and Title:            ACT101 Financial Accounting

Programme:                            Bachelor of Commerce

Credit Value:                           12

Module Tutor:                         Madhav Verma,Arindam Ghosh,Laxmi kanth Dhakal,

                                               Dilli Ram Sharma,Ritu Barna Adhikari , Tshering Pemo

Module Coordinator:               Madhav Verma

General Objective: This module aims at helping student understand the process of collecting, measuring and recording a business entity’s transactions, and summarizing and communicating the results of these transactions to users to facilitate making economic decisions. The student relates this function of financial accounting with the information needs of the internal and external users under the accrual system of accounting. In the process they acquire both conceptual and technical skills of double entry systems of book keeping and preparation of financial statements in accordance with the existing financial reporting requirements, and perform basic analysis of those financial statements. 

Learning Outcomes - On completion of the module, students should be able to:

1. Explain the relationship between accounting and other key functions within the business
2. Explain the contribution of the accounting functions to the formulation, implementation, and control of organization’s policies, procedures, and performance
3. Describe the main financial accounting functions in business: i) recording financial information ii) codifying and processing financial information iii) preparing financial statements
4. Explain the various purposes of financial information of the statement of profit or loss, the statement of financial position, and the statement of cash flows
5. Record business transactions of varying complexities and account those in the financial accounting system
6. Prepare financial statements of an incorporated entity and interpret those financial statements using financial ratios
7. Collect and construct financial statements from incomplete records of business entities
8. Communicate effectively the financial and business decisions to the stakeholders
9. Use computing skills for financial data analysis and presentation of that information to the users

Teaching and Learning Approach:

Assessment Approach:

A. Written Assignments: Portion of Final Marks-20%

Each student will complete 2 written assignments of 4-6 problems each, each being worth 5%, on topics related with managerial decision making on different hypothetical practical problem on accounting. The exact topics will be informed during the session.

4%       content, identifying the problems areas

4%       analysis of problems and suggesting solutions using appropriate accounting tools and techniques

2%       presentation, writing style- use of proper academic style

B. Case Study & Presentation: Portion of Final Marks-20%

Students will be assigned one topic in a group of 4. They will collect secondary data on the given topic and analyse, conclude and make their recommendation in a paper of 1000 words (10%). This will be followed by a presentation (10%) of 15 minutes, with 5 min Q&A.

2%       group mark: coordination of presentation and distribution of work among the group members.

2%       collection of relevant data

2%       analysis and interpretation of data

2%       conclusion and recommendation

1%       logical presentation, writing style

1%       bibliography and citation (for correct citation as per APA format)

4%       presentation Group mark: coordination and distribution of work among the group member.

6%       presentation Individual mark will be assessed on following criteria:

2%       subject knowledge and ability to answer Q&A

2%       smartness, body language, pronunciation, audibility

2%       organization of presentation

C. Problem Solving tests based on business situations and application: Portion of Final Marks-15%

Students will be required to solve situation based business related problems in-class using accounting techniques and tools covered in class. There will be 2 problem solving tests each of 1hour duration. Each problem solving test is worth 7.5% and will be assessed on the following criteria.

5%       identifying the appropriate accounting technique to solve the problem

2.5%    correct solution of the problem

D. Class Participation and Preparedness: Portion of Final Marks-5%

Each student will be assessed based on their active participation and preparedness in the class by contributing to the class discussions by answering questions, stating their opinions, and solving in class exercises during the sessions. This will be assessed based on the following criteria:

5%       contribution to the class discussion and listening to and responding logically to the viewpoints of others

E. Midterm Examination: Portion of Final Marks-15%

Students will take a written exam of 2-hour duration covering topics up to the mid-point of the semester.

F. Semester-end Examination: Portion of Final Marks-25%

The module will have a semester-end exam for 2 hours covering the entire syllabus. The question will be divided into two parts – Part A (carrying 40% of the exam weightage) will be mostly of short answer including objective questions. Part-B (carrying almost 60% of the exam weightage) will be mostly of essay type or an extended response to the given question. This part of the question requires students to apply, analyse, and evaluate or construct knowledge and skills. Cases will also be used to test the levels of knowledge.

Pre-requisites: None

Subject Matter:

1. The Context and Purpose of Financial Accounting
   • The role of accounting in business and society
   • Nature, principles and scope of financial accounting
   • Ownership structure of business and financial reporting requirements
   • Relationship between accounting and other key functions within the business
   • Internal and external users of accounting information
   • Elements of financial statements
   • Definition and recognition of assets, liabilities, equity, revenue and expenses
   • Accounting concepts and assumptions
   • Accrual vs cash accounting
   • Fundamental and enhancing qualitative characteristics of accounting information

2. Principles of Double Entry and Accounting Systems
   • Concept of double entry booking keeping (=debit and credit) and accounting system
   • Function of the main data sources in an accounting system, contents and purpose of different types of business documentation, including: quotation, sales order, purchase order, goods received note, goods dispatched note, invoice, statement, credit note, debit note, remittance advice, receipt
   • Accounting equation and effects of transactions on accounting equation
   • Accounting system and information, complies with organizational policies and deadlines
   • Main types of business transactions viz. sales, purchases, payments, receipts
   • Meaning and purposes of journals (books of prime entry) and Ledger accounts
   • Types of ledger accounts and books of prime entry
   • Recording transactions and events on the double entry system (authorisation of journal entries)
   • Balancing ledger accounts

3. Accounting for Transactions
   • Credit purchases and sales
     • Meaning of credit transactions
     • Benefits and costs of offering credit facilities
     • Purpose of credit limits
     • Aged receivables analysis
     • Recording credit sales and sales returns
     • Recording credit purchases and purchases returns
     • Trade discount
     • Accounting for sales tax
     • Drawings by the owners of a business
     • Bad debts and allowances for bad debts
     • Impact of bad debts on the statement of profit or loss and on the statement of financial position
   • Cash and Bank Accounts
     • Cash controls and cash account
     • Risk of misappropriation of cash
     • Bank accounts –saving, current and term loan accounts (focus on business current account)
     • Use of cheques, bank notes, bills and cash warrants
     • Recording transactions in cash and bank accounts (focus on triple column cash book)
     • Cash discounts
     • Need for a petty cash system
     • Bank reconciliation statement and controls
   • Inventories and cost of goods sold
     • Definition of inventory
     • Cost flow assumptions of inventory
     • Reporting inventories as an asset
     • Treatment of goods lost or disposed other than by sale
     • Accounting for opening and closing inventories
     • Expenses to be included in the cost of sales
     • Methods of valuing inventory
     • Costs included in valuing inventories
     • Perpetual and periodic use of inventory records
     • Impact of inventory valuation methods on profit and on assets

4. Accruals, Prepayments and Depreciation
   • The accrual concept
   • Application of matching concept to accruals and prepayments
   • Accounting for accrued expenses
   • Accounting for prepaid expenses
   • Accounting for deferred income
   • Adjustments needed for accruals and prepayments in preparing financial statements
   • Depreciation on tangible non-current assets-meaning and causes of depreciation
   • Methods of calculation of depreciation (SLM and WDV)
   • Accounting for depreciation
   • Changes in depreciation policy and its impact on the financial statements

5. Accounting for Liability, Provisions and Contingencies
   • Definitions of ‘liability’, ‘provision’, ‘contingent liability’ and ‘contingent asset’.
   • Accounting for liabilities and provisions
   • Accounting for contingent liabilities and contingent assets
   • Demarcating liabilities, provisions, contingent liabilities
   • Thresholds on whether occurrence is probable, possible or remote
   • Calculate provisions and changes in provisions
   • Account for the movement in provisions
   • Reporting provisions in the financial statements

6. Preparing Trial Balance and Financial Statements
   • Purpose of a trial balance
   • Prepare extracts of an opening trial balance
   • Correction of errors and adjustment entries (BAS 8/IAS 8)
   • Errors which would be highlighted by the extraction of a trial balance
   • Impact of errors on the statement comprehensive income and statement of financial position
   • Errors leading to the creation of a suspense account
   • Suspense accounts
   • Preparing financial statements without clearing suspense accounts
   • Recalculation of profits after correcting errors
   • Limitations of a trial balance
   • The elements of financial statements –
     • Statement of Profit or loss and other comprehensive income
     • Statement of financial position
     • Statement of cash flows
     • Statement of changes in equity

7. Incomplete Records
   • Meaning of incomplete records
   • Situations where incomplete records arise
   • Where information is insufficient to prepare Statement of Profit or Loss and Comprehensive Income
   • Where information is sufficient to prepare Statement of Financial Position
   • Practical approach to deal with incomplete records

8. Interpretations of Financial Statements
   • Purpose of financial statement analysis
   • Construction of accounting ratios and application on financial statement interpretations (Types of ratios: ROE, ROA, Gross Margin, Net Margin, Receivables Turnover/Days’ Receivables, Payable Turnover/ Days’ Payables, Inventory Turnover, Current/Quick ratios, operating cash flow ratio, Debt/Equity)
   • Interrelationships between ratios

Reading Lists:

1. Essential Readings
   • Weil, R.L., Schipper, K.,& Francis, J. (2017). Financial accounting: An introduction to concepts, methods and uses (14th e). London, UK: South-Western Cengage Learning.
   • David, A.,& Christopher, N. (2016). Financial accounting - An international introduction (6th e). London, UK: Pearson Education.
   • Gupta, V. (2017). Comdex business accounting with MS Excel and Tally ERP 9 course kit. Wiley
2. Additional Readings
   • Charles, H., Gary, S., John, E.,&Donna, P. (2016). Introduction to financial accounting (11th e). New Delhi, India: Pearson Education.
   • Husin, M. A., & Ibrahim, M. D. (2013). The role of accounting services and impact on small medium enterprises (SMEs) performance in manufacturing sector from east coast region of Malaysia: A conceptual paper, Indonesia, 2013. Elsevier Ltd. http://www.sciencedirect.com/science/article/pii/S1877042814019636
   • Stickney, C., & Weil, R. (2000). Financial accounting: An introduction to concepts, methods, and uses (9th ed.). Fort Worth: Dryden Press.
   • Collier, P.M. (2017). Accounting for managers: Interpreting accounting information for decision making(5th ed.). Wiley India.
   • Ingram, R. (1994). Financial accounting: Information for decisions. Cincinnati, Ohio: College Division, South-Western Pub.
   • , Jensen., & Carroll. (2015). Fundamental accounting principles, Vol. I, Vol. II and Vol.III. New Delhi, India, McGraw-Hill.
   • Weygant, K.,& Kimmer. (2016). Financial accounting. New Delhi: Wiley. 

Date: July, 2017