Learning Objectives

By the end of this lesson, the learner should be able to:

Define accounting

Identify and explain the uses of the four financial statements: the income statement, statement of changes in equity, balance sheet, and statement of cash flows.

Given a list of assets, liabilities, and shareholders’ equity, analyze transactions by using the accounting equation

Lesson Topics

Key topics covered in this lesson include:

Definition of Accounting

The Four Financial Statements

• Income Statement
• Statement of Changes in Equity
• Balance Sheet
• Statement of Cash Flows.

Analyzing transactions

• The Accounting Equation

Context Summary

People wanting to start a business need to know more than the trade or skill they'll be providing. They need to know at least the basics of running a business. Accounting is the process of identifying, measuring, recording, and communicating economic activities to users so that they can see where the money is coming from, where it is going, and what decisions they can make about their business.

Relevance to Practice

The goal of accounting is to ensure information provided to decision makers is useful. To be useful, information must be relevant and faithfully represent a business’s economic activities. Accounting practices are guided by Generally Accepted Accounting Principles (GAAP), which are comprised of qualitative characteristics and principles.

Key Terms and Concepts

Generally Accepted Accounting Principles (GAAP) – accounting concepts or principles based on International Financial Reporting Standards (IFRS) for publicly accountable enterprises (PAE). Relevance and faithful representation are the primary qualitative characteristics. Comparability, verifiability, timeliness, and understandability are additional qualitative characteristics.

Financial Statements – Statements used to communicate financial information to external users.

Income Statement – Communicates information about a business’s financial performance by summarizing revenues less expenses over a period of time.

Statement of Changes in Equity – provides information about how the balances in Share capital and Retained earnings changed during a period.

Balance Sheet – shows a business’s assets, liabilities, and equity at a point in time.

Statement of Cash Flows (SCF) – explains how the balance in cash changed over a period of time by detailing the sources (inflows) and uses (outflows) of cash by type of activity

Assets – economic resources that provide future benefits to the business.

Liability – an obligation to pay an asset in the future.

Equity – the net assets owned by the owners (the shareholders).

The Financial Equation – shows that the total assets of a business must always equal the total claims against those assets by creditors and owners. The equation is expressed as: ASSETS = LIABILITIES + EQUITY

Instructional Strategies and Activities

Pre-learning activity (Mobile learning exercise)

Time: 5 minutes

Send an email blast to students welcoming them to the course. Explain that although this is a face-to-face course, they'll attempt a few learning activities using their mobile phone or tablet. Include a link to the Mobile Learning Exercise repository in the email. Ask them to post short introductions of themselves and their personal learning goals by clicking on the "Introduce Yourself" post under the Pre-learning column.  

Warm-Up

Time: 3 minutes

Ask the students to think back to the first time they were paid to do something. Could be when they got an allowance, or babysat, or their first summer job. Then ask them to think of what they were going to do with the money. Finally, ask how they knew they had enough money to do what they wanted. Flash forward today. Now, they want to run their own business. How will they know if they have enough money to expand, or if they should wait?

Introduction

Time: 2 minutes

Explain that this module will demonstrate how they can determine the financial state of their company, and present the objectives.

Presentation / Modeling / Demonstration

Time: 12 minutes

The demonstrations will use a fictitious company (called Big Dog Carworks Corp. in the source material), and give examples of the assets, liabilities, and equity of this company. Further demonstration will show how to use the four financial statements: the income statement, statement of changes in equity, balance sheet, and statement of cash flows.

Reflection activity (Mobile learning exercise)

Time: 5 minutes

Ask participants to open the Mobile Learning repository. Then instruct them to access The four financial statements post under the "Review your learning -1" column.  Instruct them to post their understanding of what they learned about the four financial statements, on that page. You may later comment on their posts to discuss their understanding or gently correct them in case there are errors or gaps in their understanding.    

Guided Practice / Evaluation

Time: 14 minutes

Learners will be given examples of the four financial statements. They will then solve close-to-real-world problems using the appropriate statement.

Reflection activity (Mobile learning exercise)

Time: 5 minutes

Ask participants to open the Mobile Learning repository. Then instruct them to access the Solve accounting problems post under the “Review your learning -2” column. Instruct them to post their key takeaways from their attempt to solve real-world problems using the appropriate financial statement. You may later comment on their posts to discuss their understanding or gently correct them in case there are errors or gaps in their understanding.

 Application

Time: 2 minutes

Reiterate how the lesson covered the objectives. Then, ask the class if the lesson met their personal learning goals, which they recorded before this class began. Discuss their insights. If any student's goals go beyond the scope of this course, guide them to relevant resources, if possible.