Lecture 3 | BU127 | September 20, 2023

- there are many office hours available and you can do your connect exercises there

- if you missed the first class, you should watch the orientation video

-taking up the accounting exercises:

Hello
- We did not pay dividends otherwise that would have been under retained earnings.
In the statement of financial position

- In assets, we put the most liquid assets at the top, which would be cash first, then accounts
receivable because we will receive them in a short period of time, then inventory make take
longer but it is still liquifiable
- What if you put them in the wrong order? He wouldn't take marks off however it is important
that cash is put first in the list
- This question is very important, and could possibly be on the midterm
o Note: the midterm is on paper
The shareholders are the residual owners of the firm.

If the company goes bankrupt, we must pay liabilities first, then the residue if given to shareholders.
Also, if there is a increase in profits, then the shareholders’ equity also goes up.
- In Case D, because the shareholders’ equity is in negative, the company is actually bankrupt.

Once again in the last case, the shareholders do not get anything, and the bank gets a loss of $10K,
which is once again a reason why banks are very careful when giving loans to companies

Going over the chapter 1 exercises

Note: the exercise solutions indocument can be found on learn

- It is important that the expenses recorded happened in that period of time

- In the revenue from services, this person worked in this period and is collecting the $6000 in the
next fiscal period, however, we are writing the $6000 in this period of time because we earned it
now so we recognize the $6000 as revenue for this period.
- Notice if we put the full amount that we paid for the truck and tools, it would cause a distortion
in the financial statements. So, we are going to write the truck and tools in the assets, but we
are also going to add a depreciation of the assets in the expenses.
Statement of financial position:

- They calculated the cash balance in a different way, they used a short cut but there is also
another way

- There are a number of ways that they calculated this $7000.

- Liquidation cost and replacement cost could be different when inflation is considered
- The same goes for $68000, as a banker you should ask, is that the real cost, has inflation been
taken considered, what is the replacement costs
- There is also some personal property, you might want to ask if that property is personal or can it
be used as a payment during bankruptcy.
 - In the first obligation, the company doesn’t seem in the good position, considering the amount
of cash they have left is less than the wages that need to be paid
- There are also unpaid taxes, and accounts payable
- There is also a loan from organizer, and it should be questioned when it is due considering their
current financial position

Explaining an overview of ledger

- Put all the accounts as columns and transactions as rows

- Ultimately, we are going to use journal entries and ledgers/t-accounts to calculate the balances
for the financial statements
o We record transactions but also update other accounts that are being affected