DOCUMENT RESUME

ED 098 307 CE 002 371

AUTHOR Gonyea, Adrian C.TITLE Financial Analysis and Mathematics of Business: Part

IV in a Series--Preparation for CertifiedProfessional Secretary Examination. An Instructor'sGuide for an Adult Course.

INSTITUTION New York State Education Dept., Albany. Bureau ofContinuing Education Curriculum Development.

PUB DATE 74NOTE 36p.

EDRS PRICE MF-$0.75 HC-$1.85 PLUS POSTAGEDESCRIPTORS *Accounting; *bookkeeping; *Business Education;

Business Skills; Certification; Course Content;Course Objectives; *Curriculum Guides; MathematicsEducation; *Secretaries; State Curriculum Guides

IDENTIFIERS New York

ABSTRACTThe instructor's guide provides a review for those

preparing to take Part IV of the Certified Professional Secretary(CPS) examination. Course content can also help secretaries updatetheir skills in accounting and business mathematics. Organized intolessons with objectives, content outline, and teaching suggestionsand references, the units cover: the account, posting andsummarization, the bookkeeping cycle and accounting for cash, andaccounting for merchandise and negotiable instruments. Additionaltopics include payroll procedures, special records, analysis andinterpretation of financial statements, cost analysis andforecasting, analyzing and interpreting numerical data, and othertools for presenting and analyzing numerical data. Notes on howsecretaries prepare for the CPS examination and a bibliography areincluded. (NH)

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Um'SENT OFF ,c,AL NATIONAL .NST,TuTE OFEDUCATION POSITION OR POLICY

Part IV in a SeriesPreparation for Certified Professional Secretary Examination

ginancial Analysis andAlathernatics of .6-Business

A Suggested Adult Business EducationCourse

-In 54r fAct-or' Gltia.

The University of the State of New YorkTHE SLATE EDUCATION DEPARTMENT

Bureau of Continuing Education Curriculum DevelopmentAlbany, New York 12224

1974

.a_oetrotd

'ars course described in this booklet, Financial Analysis and theMathemar ,s of Business, is intended as a review for those preparing totake Part IV of the Certified Professional Secretary (CPS) examination.Part IV of this examination, which is given by the National SecretariesAssociation (International), bears the same title as this booklet. Thiscourse can also be the basis of a class for those secretaries wishingto update their skills in accounting and business mathematics.

Information about the CPS examination can be obtained from the head-quarters office of the Institute for Certifying Secretaries, NationalSecretaries Association (International), 2440 Pershing Road, Kansas City,Missouri b4108.

Six courses to cover the six parts of the CPS examination were plannedby a committee consisting of the following: Marian N. Batten, CPS,secretary to the manager of Nonexempt Compensation and Benefits, GeneralElectric Company, Schenectady; Hobart H. Conover, chief of the Bureau ofBusiness Education; Carla V.R. Delray, CPS, manager of Office Services andCorporate Planning Administration, Mohasco Industries, Amsterdam; Adrian C.Gonyea, dean, School of Business, Hudson Valley Community College, Troy;E. Noah Gould, associate, Bureau of Continuing Curriculum; Florence E.Graham, chairman, Business Education Department, Draper High School,Rotterdam; Margaret A. McKenna, associate professor of business education,State University of New York at Albany; B. Bertha Wakin, professor ofbusiness education, State University of New York at Albany; and EugeneWhitney, associate, Bureau of Business Education. Mr. Gould and Mr.Whitney were cochairmen.

This course, Financial Analysis and the Mathematics of Business,was written by Mr. Gonyea. Miss Wakin directly supervised the writingand is coordinating the content among the courses in the series. Mr. Goulddid the final editing of this manuscript awl is in general charge of theseries.

GORDON E. VAN HOOFT, DirectorDivision of Curriculum Development

4

HERBERT BOTHAMLEY, ChiefBureau of Continuing Education.

Curriculum DevelopNent

BEST COPY AVAilliBLETHE UNIVERSITY OF THE STATE OF NEW YORK

Regents of the University (with years when terms expir;

1984 Joseph W. McGovern, A.B., J.D., L.H.D., LL.D., D.C.L.

Chancellor New York

1985 Everett J. Penny, B.C.S., D.C.S., Vice Chancellor - White Plains

1978 Alexander J. Allan, Jr., LL.D., Litt.D. Troy

1987 Carl H. Pforzheimer, Jr., A.B., M.B.A., D.C.S., H.H.D.- - Purchase

1975 Edward M. M. Warburg, B.S., L.H.D. New York

1977 Joseph T. King, LL.B. Queens

1974 Joseph C. Indelicate, M.D. Brooklyn

1976 Mrs. Helen B. Power, A.B., Litt.D., L.H.D., LL.D. - - Rochester

1979 Francis W. McGinley, B.S., J.D., LL.D. Glens Falls

1986 Kenneth B. Clark, A.B., M.S., Ph.D., LL.D., L.H.D.,D.Sc. Hastings on

Hudson

1983 Harold E. Ne4comb, B.A. Owego

1981 Theodore M. Black, A.B., Litt.D.- Sands Point

1988 Willard A. Genrich, LL.B., L.H.D. Buffalo

1982 Emlyn I. Griffith, A.B., J.D. Rome

Pres,:dent of the University and Commissioner of Education

Ewald B. Nyquist

Executive Deputy Commissioner of EducationGordon M. Ambach

Deputy Commissioner for Elementary, Secondary, and Continuing Education

Thomas D. Sheldon

Associate Commissioner for Instructional ServicesWilliam L. Bitner III

Assistant Commissioner for General Education and Curricular Services

Vivienne N. Anderson

Director, Division of Curriculum DevelopmentGordon E. Van Hoof t

Chief, Bureau of Continuing Education Curriculum Development

Herbert Bothamley

, Assistant Commissioner for Occupational Education

Robert S. Seckendorf

Director, Division of Occupational Education Instruction

Robert H. Bielefeld

Chief, Bureau of Business EducationHobart H. Conover

Stiessage to the cf tishucto1

This instructor's guide is intended as an aid in the presentation ofa well-organized course. Since it is a review course, :lose entering itare expected to have a good background in the subject content. Uponcompletion of the course the students will, we hope, have imp-,7k.ed andrefined their knowledge of bookkeeping accounts, the bookkeep-i'z cycle,accounting procedures, analysis and interpretation of financial. .tatements,

analysis and interpretatioa of numerical data, and some of the ,ements

of cost analysis and forecasting. They should also be better qualifiedto take Part IV of the CPS examination.

The content of this booklet is suitable for use in the adulteducation programs of school districts and of Boards of CooperativeEducational Services (BOCES), and in the instructional programs of thesecondary schools and community colleges of New York State. Specific

references to pertinent readings and problems are included at tl-e end

of each lesson. The instructor may use additional problems, if he Wshes.The instructor should be a person with experience in accounting workand in teaching accounting or other business subjects. Well-trained,

experienced Certified Professional Secretaries are another possible sourceof instructors.

The content of this course can generally be covered in 10 sessionsof 3 hours each, but this pattern is by no means universal, nor is itmandatory in any sense. For those students who wish to cover some topics

in greater depth, the instructor may wish to suggest materials for

independent study.

An instructor or administrator who needs help in planning or conducting

a course using this publication may contact the Bureau of Business Education.

HOBART H. CONOVER, ChiefBureau of Business Education

ROBERT H. BIELEFELD, Direct)rDivision of Occupational Education Instruction

5

Contents

Page

Foreword 4

Message to the Instructor

Lesson 1 The Account 7

Lesson 2 Posting and Summarization 12

Lesson 3 The Bookkeeping Cycle and Accounting for Cash 14

Lesson 4 Accounting for Merchandise and Negotiable Instruments. . . 16

Lesson 5 Payroll Procedures 18

Lesson 6 Special Records 20

Lesson 7 Analysis and Interpretation of Financial Statements 22

Lesson S Cost Analysis and Forecasting 25

Lesson 9 Analyzing and Interpreting Numerical Data 29

Lesson 10 Other Tools for Presenting and Analyzing Numerical Data. . 31

How Secretaries Prepare for the CC'S Examination 33

Bibliography 35

6

Lessons 1

'Ow (Account

OBJECTIVESAfter completing this lesson the student should able to explain:

How the various types of accounts are classified ,nd the kind of

information they contain,The theory of debits and credits, andHow this theory is used in the day-to-day entering of business

transactions in the journals.

CONTENT OUTLINE TEACHING SUGGESTIONS AND REFERENCES

I. Introduction to the Course

A. Purpose of the course

Introduce yourself to the group andhave the students introduce themselves.Suggest that each student give hisname, employment information, andreason for taking the course.

Explain that the purpose of the courseis to help students improve and updatetheir accounting skills by providinga review of accounts and the basicaccounting functions. This is to

include: accounting for merchandise,negotiable instruments, payrollprocedures, special reports, inter-pretation of financial statements, costanalysis and forecasting, andnumerical data.

7

B. Textbook and references

11. The Account

Students should have at least onebasic accounting text. Several arelisted in the bibliography. In

addition, urge the students topurchase the Keeling and Penderybook fo "se with Lesson S andfor fl reference.

Also point out that it is importantfor the students to keep up withcurrent information by reading themonthly survey of Current Business.

A. Classification of accounts The instructor should make certain thatthe student understands Cie followingterminology. It is basic to furtherstudy.

1. Assets

2. Liabilities

3. Prcyrietorship(Owner's Equity)

An asset is something you own. Eachtype of asset has an account of itsown in which you record the value ofthat asset. For example: The cashthat a business owns is an asset tothe business and the amount ownedis recorded in an account entitledCash. Other examples of assetaccounts are Accounts Receivable,and Merchandise Inventory. Alsoconsider Equipment.

A liability is something you owe.Each type of liability has an accountof its own it which you record thevalue of the liability. For example:Accounts Payable is an account inwhich you record the amount of moneyyou owe others because you purchasedsomething from them.

These are accounts in which you keeptrack of the net worth of the business.When all transactions are recorded atthe end of an accounting period, thetotal of the Asset accounts minusthe total of the Liability accountsshould equal the total of theProprietorship accounts.

a. Capital account For a sole proprietorship or apartnership there are two types of

proprietorship accounts. One is theCapital account. The word Capitalis usually preceded by the owner'sname. for example: Richard Smith,Capital. This account shows thenet worth of the business less theamount the owner has drawn out duringthe period.

b. Drawing account The other proprietorship accountis the Drawing account, for example:Richard Smith, Drawing. It chows

the amount of cash or other assetswithdrawn against anticipated profits.

c. Stock accounts For a corporation, where the owner-ship is recorded in terms of stocks,the proprietorship accounts areentitled Common Stock or PreferredStock. Earnings of the corporationthat have not been paid out tostockholders are recorded inRetained Earnings.

d. Permanent and So far we have talked only about

temporary accounts permanent or real accounts. They

are called permanent oecause they

always have a balance, under normalcircumstances. There are othertype: of accounts called temporaryzcccunts, which are summarized and:lased out at the end of each accountingperiod.

e. Types of temporary There are basically two types of

accounts temporary accounts, known as Expenseaccounts and Income accounts. Examples

of Expense accounts are Rent Expenseand Salaries. Examples of Incomeaccounts are Sales and Income from

Fees. When the temporary proprietor-ship accounts are summarized, theresult is either added to or subtracted

from the permanent proprietorshipaccounts.

B. Basic accounting equation We can express all the previous textin a simple equation, called thebasic accounting equation, as follows:

Assets - Liabilities = Proprietorship(Owner's Equity)

9

This basic equation could be expandedto show the effects of the temporaryaccounts mentioned above and expressedac follows:

Assets - Liabilities . Proprietorship Assets - Liabilities = Proprietorship4- Income - Expense

1

Expense

III. Analysis of TransactionsA. Debit and credit entries

1. Transactions

Income

Business transactions that result inentries are:

1. Receipt or payment of cash,checks, or notes

2. Purchases3. Sales4. Issuing or receiving credit

memorandums

2. 1-Accounts Introduce the 1-Account to illustratewhat to do when a transaction resultsin an increase or decrease in anaccount. For example:

a. Asset Asset AccountsDr 1 Cr

Increases 1 Decreases

b. Liability Liability AccountsDr Cr

Decreases Increases

c. Proprietorship Proprietorship AccountsDr Cr

Decreases Increases

d. Expense Expense AccountsDr 1 Cr

Increases 1 Decreases

e. Income Income AccountsDr Cr

Decreases Increases

3. Recording of CashSales

Once the above diagrams are cs,ittedto memory, drill the class on recordingtransactions as follows:

Transaction 1. Record cash sales of$1.000.

10

a. Debit and credit Cash is an asset. When an assetincreases, we debit the asset account.Cash has increased, so we debit theCash account. Sales is an incomeaccount. When income increases, wecredit the income account. Sales

income has increased so we creditthe Sales account.

4. Recording of rentpaida. Debit

b. Credit

B. Journalizing; GeneralJournal

1. A prototype entry

Transaction 2. Paid rent of $90

Rent is an Expense. When an expenseincreases, we debit the expense account.Rent expense has increased, so wedebit Rent Expense.

Cash is an Asset. When an assetdecreases, we credit the asset account.Cash has decreased, so we credit theCash account.

Journalizing is the day-to-dayrecording of the transactions of abusiness. For instructional purposes,we often employ the simple General

Journal form. Record the day's cash

sales as follows:

Apr1) 8 Cash 100

Sales 100

Impress upon the students that thisis only a prototype of the moresophisticated methods of journalizingin use today. It is still used in

a few simple bookkeeping systems.But generally speaking, it has beenreplaced by specialized journals oreven computerized.

ReWEence,6:*Gentry, Chaps. 1, 2, 3, and 4.Meigs, Chaps. 1, 2, and 3.Niswonger, Chaps. 1 and 2. Prob.

1-3A, p. 26, Instructions (1) and(2); Exer. 2-1, p. 51

Pyle, Chaps. 1 and 2. Prob. 1-2A,

p. 24; Exer. 2-1, p. 47.

*Full reference citations are given in the bibliography.

11

lesson 2...Toeing and Summatization

OBJECTIVESAfter completing this lesson the student should be able to:Explain the use and purpose of the ledgers,Explain how the information in the ledgers is summarized and adjusted

by means of a worksheet, andPerceive the cyclical nature of bookkeeping.

CONTENT OUTLINE TEACHING SUGGESTIONS AND REFERENCES

I. General LedgerA. Expansion of I-Accounts

II. PostingA. From Journal to Ledger

12

The T-Account was introduced in theprevious lesson. Now expand on thiswith an illustration of an actualGeneral Ledger type of account withcolumns for date, item, post reference,and amount. Emphasize that thejournals are the books of originalentry and the ledgers are the booksof final entry.

This is the practice of transferringthe information from the journals tothe ledgers. Explain the cross-referencing system used in.posting,that is, the number of the ledgerpage to which information isposted from a journal is noted onthe page of the journal from whichthe information is taken, and viceversa.

III. Trial Balance Explain that taking a trial balance

A. List debit and credit requires that a list be made of the

balances. debit or credit balance of each accountfrom the General Ledger. Then thetotal of the debit balances must equalthe total of the credit balances.

B. Explain principles ofdouble-entry system.

Tv. Work SheetsA. Adjusting entries

B. Computing Cost of GoodsSold

This is the ideal place to explain theprinciples of the double-entryaccounting system. Although thestudents have already made doubleentries, it is at this point thatthe reason for two entries can best

be understood. You should knowwhat procedures to follow to ascertainwhy a trial balance fails to balance.Then show the students how to makesimple correcting entries before thebooks are closed.

Limit the adjustment entries introduced

to simple types such as ,1;Treciation,

merchandise inventories, and supplies

inventories. Tell the studentsthe amount of annual depreciation totake. You will be teaching the methods

of computing depreciation in Lesson 6.

You should e 'plain how to compute the

Cost of Goods Sold now. Also present

the entries for closing Expense andRevenue accounts and the Drawing account.

In addition, this is a good time to

discuss accounting periods such ascalendar year, fiscal year, andfiscal period.

Rektencez:*Gentry, Chaps. 4 and S.Meigs, Chaps. 3 and 4.Niswonger, Chaps. 2 and 3. Prob. 2-4A,

p. 56; Prob. 3-3A except Instruction

(2), p. 84.Pyle, Chaps. 2, 3, and 4. Prob. 2-4A,

p. 55; Prob. 3-3A except Instruction(3), p. 82; Prob. 4-1A exceptInstruction (2), p. 110.

*Full reference citations are given in the bibliography.

13

lesson94e glookkeeping Cycle and

Accounting lot Cash

(TJETTVE,f_'

After completing this lesson the student should be able to:List and explain the steps in the bookkeeping cycle,Operate Cash Receipts and Cash Disbursements journals,Manage all cash accounts, andReconcile bank statements.

CONTENT OUTLINE

I. Financial StatementsA. Accounts under Assets,

Liabilities, etc.

II. The Bookkeeping CycleA. Trial Balance, opening of

new accounts, etc.

TEACHING SUGGESTIONS AND REFERENCES

Introduce the various subclasses ofAssets, Liabilities, and Proprietorshipaccounts at this point. So far, allAssets have been lumped into one group.But now as the accounts are takenoff the Worksheet and placed intoBalance Sheets, and Income Statements,you should teach the subclasses suchas Current Assets, Fixed Assets, andDeferred Charges.

You should then cover the Post-ClosingTrial Balance, the ruling of accounts,and the opening of accounts for thenext fiscal period. Now review thebookkeeping cycle with the studentsto help them grasp the overallpicture of the cycle.

14

III. Cash ReceiptsA. Operation of Journal

B. Internal control of cash

The important things to explain hereare the opening of a bank account,the making of deposits, and theoperation of a Cash Receipts Journal.Also discuss methods of internalcontrol of cash with emphasis on the

following three procedures:

1. All cash received should bedeposited promptly.

2. At the end of each day thetotal of all cash sales slipsor cash register tapes shouldbe matched with the cashreceived that day.

3. The responsibility for controlof cash should be assigned toa person other than the oneresponsible for keeping trackof sales.

IV. Cash Disbursements Now explain the operation of a Cash

A. Journal, Check Register, Disbursements Journal and a Check

etc. Register. Also introduce theCombined Cash Journal. Then coverthe procedures and journal entriesfor establishing, replenishing, andreconciling a Petty Cash Fund.

B. Reconciling Bank Statement Teach the students how to reconcile aBank Statement and how to makecorrecting entries in the books.

Reieunces:Gentry, Chaps, 5Meigs, Chaps. 3,Niswonger, Chaps

Prob. 3-4A, p.p. 288; Exer.

Pyle, Chaps. 4,Prob. 4-2, p.8-3, p. 246.

1$

, 6, and 7.4, 5, and 9.

, 3, 4, 5, and 11.84; Exer. 11-111-6, p. 289.5, 6, 7, and 8.111; Exers. 8-1, 8-2,

Xesson 4Accounting fcn cc-Altqchandise and

Jlcgotiab1e Snsituments

OBJECTIVESAfter completing this lesson the student should be able to:Explain how to operate Sales and Purchases Journals and how to gather

and organize the information in them,Compute interest on negotiable instruments, andRecord both interest and negotiable instruments in th.: proper accounts.

CONTENT OUTLINE

I. Sales JournalA. Structure of Journal

II. Purchases Journal

A. Steps in a purchase

TEACHING SUGGESTIONS AND REFERENCES

Explain the various ways a SalesJournal may be structured and howcharge sales are recorded in them.Conduct a drill on computing salesdiscounts and on entering them in theCash Receipts Journal. At this point,explain that a firm having few salesreturns and allowances would recordthem in the General Journal, but afirm having a lot of them, might keep aseparate Sales Returns and AllowancesJournal.

Present the steps in making a purchase.These include filling out a PurchaseRequisition, W-dch generates aPurchase Order, and finally, checkingthe Purchase Invoice when it isreceived.

16

B. Structure of Journal,invoices, trade discounts,etc.

C. Fast review

III. Negotiable InstrumentsA. Computing interest

B. Borrowing vs. discounting

C. Entries for borrowing, etc.

D. Notes Receivable Register,etc.

.17

Explain the different Lays a PurchasesJournal can be structured and how thePurchase Invoices are recorded inthem. Now have some drill on computingtrade discounts and entering thesediscounts in the Cash Disb,msementsJournal. Then explain the entry forrecording purchase returns andallowances in the General Journal.

Review both Sales and PurchasesJournals as rapidly as possible, sothere will be enough time during thesession to cover the rest of thelesson adequately.

Explain how to compute interest on apromissory note. Review both methodsof computation but let the studentsuse either the 60-aay, 6% method orthe cancellation method, whicheverthey like. Be sure the studentsunderstand the difference betweenborrowing on a note (where the borrowerreceives the full principal of thenote) and discounting a note (wherethe interest is taken out in advance).

Now demonstrate entries for borrowingon a note, discounting a note, acceptinga note in payment of a debt, andgiving a note in payment of a debt.

Explain the structure and use of aNotes Receivable Register and a NotesPayable Register. Also give briefexplanations of cashier's checks,bank drafts, certified checks, traveler'schecks, and trade acceptances.

Re6etenceA:Gentry, Chaps. 6, 8. and 11.Meigs, Chaps. 5, 10, and 12.Niswonger, Chaps. 4, 5, and 7. Prob.

5-4A, p. 135; Exers. 7-2, 7-3, 7-6,p, 179.

Pyle, Chaps. 6 and 9. Prob. 6-1, p.175; Exers. 9-1, 9-20 9-3, p. 277.

lesson CTaytoil PiWcedu7es

OBJECTIVESUpon completing this lesson the student should be able to:Compute gross pay and all payroll taxes, andRecord these and other payroll deductions in the payroll records.

CONTENT OUTLINE TEACHING SUGGESTIONS AND REFERENCES

I. Calculating Gross PayA. Weekly and biweekly

B. Hourly and overtime

II. Payroll TaxesA. FICA

Explain how to calculate gross payfor both hourly and salaried employees.Explain that salaried employees maybe paid weekly, bi-weekly, semi-monthly, or even monthly. Their grosspay for a period is determined bydividing their annual salary by 52(for weekly pay), or by 26 for bi-weekly.

Hourly employees are usually paidweekly; their gross pay is computedby multiplying their hourly rate ofpay by the number of hours shown ontheir time cards. Devote some timeto the computation of overtime pay.

For ease of calculating the FederalInsurance Contributions Act (FICA)tax, you may want to round off therate to 6% instead of the 5.85% actuallyin use today. Use the current maximum

18

B. Withholding taxes

of $13,200 of salary against which thetax is levied.

For teaching State and Federalwithholding taxes, provide the studentswith copies of withholding tablesshowing how much to withhold basedupon amount of gross pay and numberof exemptions claimed. You could useW-2 and W-4 forms here as part of aclassroom exercise.

C. Unemployment and disability Explain and demonstrate how State andFederal unemployment taxes anddisability benefits taxes are computed.

0. Remitting tax money

III. Payroll RecordsA. Payroll Summary

B. Individual Earnings Record

NOTE: Although each ofthe teacher mightforms, and chartspractice. Also,

use on the job.

Explain remittance of payroll taxes,including place to submit to and theproper time. Use official forms forthis instruction.

Explain the use of the Payroll Summary.It has columns for deductions ofpayroll taxes paid by the employee,and other employee deductions, such as:health insurance premiums, union dues,payroll savings, and retirement andlife insurance plans.

Describe the Individual EarningsRecord with emphasis on the assistanceit provides in keeping track of theamounts accumulated for each type ofdeduction. Also explain the entriesfor recording the items from thepayroll', mentioned above.

Re6mences:Gentry, Chap. 8 and AppendixKeeling, Units 2, 3, 4, 5, 6

Prob. 4, p. 19; Prob. 5, pProb. 5, p. 53; Prob. 4, pProb. 2, p. 152.

Meigs, Chaps. 12 and 17.Niswonger, Chap. 12. Prob.

p. 316.Pyle, Chap. 13. Pro). 13-3A, p. 388.

3.

, 9, and 10.. 20;

. 132;

12-1A,

the above publications is adequate for this subject,prefer to use Keeling. It contains all the tables,needed, together with blank forms for studentit is an invaluable reference for future study and

19

iessonSpecial Necords

OBJECTIVESAfter completing this lesson the student should be able to:Keep special registers to safeguard noncash assets such as insurance

policies and notes receivable,Enter information on Employee Expense Reporting Sheets in account books,Maintain inventory records, andManage stockholders records and fixed asset records.

CONTENT OUTLINE TEACHING SUGGESTIONS AND REFERENCES

I. Insurance Register

Notes Receivable Register

III. Employee Expense ReportingSheets

IV. Inventory Records

20

Explain the structure and use of theInsurance Register and its importancein protecting the assets of the firm.

Point out that the purpose of thisregister is to keep track of all thedetails of a note, from the date ofacquisition to the date it is paid bythe maker. A register should also bekept for Notes Payable, if volumewarrants.

Mention the entries for recordingexpenses employees incur on behalf of

the company. Discuss reimbursing theemployees and the recording of thereimbursement details.

Explain the difference between aphysical inventory and a perpetualinventory, give examples of each,andtell when each is used. In covering

costing of inventory, limit the dis-cussion to a review of LIFO, FIFO,and average cost.

V. Stockholders Records State that when a firm sells its own

A. Sale of stock through under- stock, the sale is usually made on awriter subscription basis. If the sale is

made through an underwriter, the record-keeping is simply a matter of record-ing the receipt of the money from theunderwriter and who owns the stock.

B. Sales of stock by companyitself

If, however, the company chooses tomarket its own stock, it must keepadditional records. When anyone sub-scribes for the stock his name isentered in a Subscribers Ledger or aSubscribers List. When the companyreceives full payment for the stock,it issues stock certificates to evidencethe purchaser's ownership. The stockcertificates are then sent to thepurchaser and recorded in a StockholdersLedger.

VI. Fixed Asset Records A firm holding many fixed assets couldA. Original cost and lose track of their worth if the firm

depreciation did not keep up-to-date records ofthe original cost and the amount ofdepreciation accrued each year. Theoriginal cost of an asset, less thetotal amount of depreciation accruedover the years,is called the book value.

B. Computing depreciation

C. Disposal of fixed assets

Explain the straight line, decliningbalance, sum-of-the-years-digits, andunit output methods of computingdepreciation.

Introduce fixed asset records last inthis session. Then, if time permits,review the entries for sale anddisposal of fixed assets.

Reietences:Anthony, Chaps. 6, 8, and 9.Gentry, Chaps. 9, 10, and 12.Horngren, Chaps. 2 and S.Meigs, Chaps. 10,Moore, Chaps. 1,Niswonger, Chaps.

11, 12, and 13.2, and 9.8, 10, 11, and 16. Prob. 8-1A, p. 204;

Exer. 16-4, p. 143. Read pp. 248, 249, 283, 284, and 285.Pyle, Chaps. 10, 11, 12, and 16. Exer. 10-1, p. 300;

Prob. 16-1, p. 462. Read pp. 323 and 324.

21

Xesson 7

Analysis and tgniopletation of ginancial Statements

OBJECTIVESAfter completing this lesson the student should be able to:Analyze and interpret Financial Statements,Compare statements and compute ratios,Know what the statements and ratios mean, what causes changes in them,

and wiLat future actions the changes indicate should be taken.

CONTENT OUTLINE

I. Balance Sheets

A. Emphasize effect onWorking Capital

B. Analyze AccountsReceivable

TEACHING SUGGESTIONS AND REFERENCES

Explain how to compare the currentBalance Sheet with the one of theprevious month or the previous year toshow growth or shrinkage in theaccounts. The Current Assets andCurrent Liabilities accounts shouldbe analyzed to show the changes inWorking Capital.

It is not necessary to make a formalStatement of Source and Applicationof Funds, but be sure the studentsare aware of the effect of changesin noncurrent assets on WorkingCapital.

Go through an analysis of AccountsReceivable to show how much money ispast due and how long it is past due.

Then have a discussion of causes.

22

II. Income Statements Explain how to compare the currentIncome Statement with the one of theprevious month or the previous yearto show vowth or shrinkage in theaccounts.

A. Analysis of Sources of Prepare an analysis of t',e Sources ofIncome Income broken down into Rents,

Investments, Interest, and Sales.

B. Analysis o: Sales

C. Analysis of Expenses

III. Ratios

A. Current Ratio

B. Acid-Test Ratio

C. Ratio of Net Incometo Investment Capital

Although the information isn't shownin the Financial Statements, you maywant to make an analysis of sales byregion, or product, or socioeconomicgroup.

Analyze expenses to show increasesand decreases. Follow this up witha discussion of the reasons forincreases and decreases. Are theywarranted? How can we adjust then?

As you explain how to compute eachratio, conduct a brief discussion onthe purpose of each. This discussionshould include at least the informationbelow.

The Current Ratio, which is the ratioof Current Assets to Current Liabilities,measures the ability of a firm to meetits current obligations.

The Acid-Test Ratio, which is theratio of Quick Assets to CurrentLiabilities, measures the immediateability of a firm to meet its currentobligations, (Define Quick Assets.)

The ratio of Net Income to InvestmentCapital tells us what percentage ofprofit the owner is realizing on hisinvestment. Does it compare favorablyto other types of investments withequal risk?

D. Ratio of Net Income to The ratio of Net Income to Sales tellsSales us the percentage of net profit a

company is realizing on sales. Doesit compare favorably to other firmsin the trade? Should we cut expensesor raise prices?

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E. Ratio of Receivables to The ratio of Receivables to Sales

sales measures the turnover of AccountsReceivable. Does it compare favorablyto prior years? Should our collectionprocedures be accelerated? Are weperhaps losing sales because they aretoo stringent?

F. Merchandise Turnoverrate

G. Other ratios

The Merchandise Turnover rate tellsus the number of times our MerchandiseInventory is turned over or boughtand sold each year. Is it too low

or about the same as in other similar

firms? What risks are we incurringand what opportunities are we missingif it is too low?

There are, of course, many more ratiosthat could be taught if time permits.Emphasize that these ratios are forstockholders, prospective stockholders,creditors, and governmental agencies,as well as tools for top management.

Re4tence4:Anthony, Chaps 6, 10,Gentry, Chap. 28.Horngren, Chaps. 2, 3Meigs, Chap. 16.Moore, Chaps 1, 2, 3,Niswonger, Chap. 28.

28-2, p. 745; Exer.Pyle, Chap. 26. Prob

Prob. 26-2, p. 760.

11, and 12.

, and 4.

4, 5, and 6.Exers. 28-1,28-3, p. 746.

. 26-1, p. 759,

lesson 8Cost (Analysis and 9 o2ecasfing

OBJECTIVESAfter completing this lesson the student should understand how to:Accumulate and compute unit costs,Construct a Breakeven Chart,Make a Master Budget, andDraft Forecast Income Statements and Forecast Balance Sheets.

CONTENT OUTLINE TEACHING SUGGESTIUNS AND REFERENCES

I. Cost Analysis

A. Definitions of costelements

B. Unit cost

Although cost accounting techniquesare applied to all types of businessendeavor, they are most meaningfulin a manufacturing concern. For thisreason you should center yourpresentation on such a concern.

Give a brief definition of the threeelements of cost: direct materials,direct labor, and factory overheadexpense. Discuss methods of accumu-lating these costs in the accounts.

Stress the fact that there is nosuch thing as a unit cost becauseunit costs depend upon volume. Giveexamples of variable costs and fixedcosts. Explain that fixed cost remainsthe same, per unit, regardless of thenumber of units produced, whilevariable cost decreases, per unit, asoutput increases.

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C. Breakeven point

D. Breakeven Chart

II. Forecasting

A. Master Budget

Cash orFinancial Budget

ISalesBudget

When the students grasp the conceptof unit cost, the computation of abreakeven point will become meaningfulto them.

Construct a simple Breakeven Chartwith dollars of sales income on thevertical axis :nd volume of productionon the horizontal axis. Then plotcurves to show how additional profitcould be realized first, by increasingthe selling price of a unit, andsecond, by decreasing the fixed orvariable cost of a unit.

The cost analysis techniques discussedso far can be used for analyzing pastperformance and for projectingfuture performance. Now turn yourattention to other devices forpredicting the future.

The best available tool for forecastingis the Master Budget. Explain thatthis is a plan for the activitiesof the business over the next year.Although a Master Budget can bestructured in an infinite varietyof ways, for this course it is bestto concentrate on one type of structure,such as that given below. Explain the

purpose of each kind of budget.

Master Budget

I

Operating Budget

B. Steps in making MasterBudget

1. Establish committee.

1 ProductionBudget

Capital ExpendituresBudget

Make sure that the students understandeach of the steps in preparing aMaster Budget. Typical steps include

the following:Establish a Budget Committeecomposed of the top executivesin each function of the firm,for example, production and

finance. The company president

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2. Establish time table.

3. Collect expense andincome estimates.

4. Analyze estimates.

S. Correct the estimates.

6. Assemble data intoMaster Budget.

7. Revise, if necessary.

III. Administering Master Budget

A. Other factors

IV. Other forecasts

A. Forecast IncomeStatement

usually scrves on this committee.The Comptroller or a BudgetDirector could chair thecommittee.Establish a timetable forcompleting each step in thebudget process.The Budget Director and thecommittee receive the expense andincome estimates from thedepartment heads.The Budget Director and thecommittee analyze the estimates(of Step 3) and return them,with suggested revisions.The department heads make thecorrections they believe theycan operate with and return theestimates to the Budget Director.The Budget Director assemblesall the data in a budget andsubmits it to the committee,together with his comments andsuggestions.If the committee fails to acceptthe budget, the steps must berepeated and revisions made.But if the budget is acceptedit becomes,a set of guidelinesfor the next year's activiti..s.

Now begins the day-to-day administra-tion of the budget with the BudgetDirector constantly on guard to seethat the estimates are being realized.If it becomes apparent that anestimate is unrealistic, the budgetcan be amended by action of theBudget Committee.

It must be understood that this isjust ohe way a budget can be prepared.Frequently, the budget of a businessfirm must be approved by the boardof directors. In a governmentalunit, it must always be approved bythe legislative body.

After covering the budget show how toprepare a Forecast (or Estimated)Ilicome Statement from the budget data.

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P. Forecast Balance Sheet

Explain that this is a summary of theresults expected.

Also make a Forecast (or Estimated)Balance Sheet showing the net worthof the company at the end of thebudget period.

Reietenees:Anthony, Chaps. 13,

Gentry, Chaps. 18, 23Horngren, Chaps. 6, 7Moore, Chaps. 10, 15,Niswonger, Chaps. 21,

Exer. 21-4, p. 553;22-2, 22-3, p. 582;25-5, p. 663.

Pyle, Chaps. 22, 23,Exer. 22-4, p. 636;24-2, p. 701; Exersp. 729.

28

15, and 16., 27, and 28., and 17.16, and 17.22, 25, and 28.

Exers. 22-1,Exers. .5-4,

24, 25, and 26.Exer!-:. 24-1,

. 25-4, 25-5,

Lesson 9Analyzing and me pr glumetical Oata

OBJECTIVESAfter completing this lesson the student should know:How to gather and organize numerical data for analysis,How to compute measures of central tendency and dispersion,What an analysis means, andHow to draw conclusions from an analysis.

CONTENT OUTLINE TEACHING SUGGESTIONS AND REFERENCES

I. Gathering Numerical Data

A. Sources of data

B. Comparability of data

29

Before you can begin teaching theanalysis and transformation ofnumerical data, you muss. first teachthe students how to examine and definethe problem, and how to select sourcesof data.

These sources could include publica-tions of the Federal Government and ofprivate organizations, and possiblyan original survey made by the student.

Devote time to determining whether thevarious elements are comparable as tocontent and definitions. Also,watchout for errors due to such things asmisleading statements in a question-naire or the personal bias of aninterviewer. Caution the studentsto examine data for reasonablenessbefore beginning an analysis.

II. Organizing Numerical Data Explain that even the most carefullygathered data must be organized beforeit can be analyzed. At this point,introduce frequency distributionsof data, the range of thesedistributions, and whether the datawill be grouped or ungrouped.

III. Analyzing Numerical Data In an earlier lesson we analyzed databy using ratios and percentages.Now, we will use averages, deviations,and time series analysis.

A. Mean, mode, median To start with, present only the threemost frequently used measures ofcentral tendency: the mean, the mode,and the median. Define them andexplain how to compute them.

B. Other terms Also define percentile, decile, andquartile. Then present the formulasfor computing standard deviationand the average (or mean) deviation.

C. Meaning of terms After each presentation of a measureof central tendency or dispersion,discuss the meaning of the measure.Then give an actual example of eachand discuss the conclusions that canbe drawn from it.

Re4etence6:McElroy, Chaps. 1, 2, 4, and S.

Question 11, p. 82; Question 22,p. 84; Question 22, p. 110.

Smith, Chaps. 1, 2, 3, 4, and S.Exer. 1, p. 17; Exers. 1, 2, 3, 4-6,(sic), p. 32; Exers. 1, 2, 3,4, 5, and 6, p. 49.

30

lesson 10ahet gods flo7 T7esenting and Analyzing

Tainoical Diata

OBJECTIVESAfter completing this lesson the student should be able to:Analyze numerical data by the use of index numbers,Use time series analysis, andConstruct simple charts and graphs to present the results of his

analyses.

CONTENT OUTLINE TEACHING SUGGESTIONS AND REFERENCES

I. Index Numbers

A. Price indexes

B. Physical volume or quantityindexes

C. Dollar value indexes

II. Time Series Analysis

31

Index numbers are important tools forbusiness and economic analysis.Explain the three main types of indexes.

Explain the two most common priceindexes, the Consumer Price Index andthe Wholesale Price Index.

Here present the Index of IndustrialProduction and the Index of FreightCar Loadings, both published by theFederal Reserve Board.

As examples of dollar value indexes,explain the Index of Department StoreSales and the Restaurant Sales Index.

Present time series last. You willnot have time to do an indepth presen-tation, but you should explain briefly

A. Charts, etc.

the procedure for analyzing seculartrends, seasonal variation and cyclicalvariation. Then make it clear thatthere are some variations known asirregular variations that cannot be

analyzed.

Finally, explain how to presentstatistical analyses by the use ofline charts (or graphs), bar charts,pie charts,and pictographs.

ReieAeneez:McElroy, Chaps. 3, 10, 11, 12, and 13.

Question 11, p. 239; Question 15,p. 240; Question 21, p. 242.

Federal Reserve Bulletin.Survey of Current Business.

32

Mow Sec7eia7ies TtepaTe l07 the MS examination

An informal survey was made several years ago by Dr. Donald Mulkerne,Professor of Business Education at the State University of New York atAlbany, to learn how secretaries prepared for the CPS examination. Dr.

Mulkerne made a one-page questionnaire and sent it to a number of peoplewho had successfully completed the examination.

The study shows that all of those surveyed, regardless of educationallevel, felt that some kind of review is necessary. Most of them statedthat a concentrated review with others preparing to take the examinationwas most beneficial. Most also agreed that there is no substitute for on-the-job experience in administrative secretarial work, but that study ofsubject content and related information is also very helpful.

Many who had completed the CPS examination successfully felt that theattitude and mind set of a person taking the examination were important inpreparing for it. They held the opinion that more secretaries should takeit with a positive attitude with the idea of passing all parts the firsttime. While some fail one or more parts, this happens in all professionalexaminatio.es and is no reason for discouragement. The wide range ofknowledge and the broad competences covered in the examination show clearlythat it is a professional examination. Even the best professionals havesome area of weakness which they can improve upon when preparing for theexam the second time.

Many of those surveyed stated that a relaxed attitude and a calm out-look are very helpful. They suggested that the examinee should read eachquestion carefully, determine exactly what is being asked for, andconcentrate on the answer. They agreed also that common sense must beapplied in reading and answering the questions.

Many of those surveyed found that it was best to set aside a definitetime for study and to use it. Also, that they could study best early inthe morning when it was quiet. The candidate should be aware, they pointedout, that those who have been away from studying for a few years will verylikely have to relearn the discipline and technique of studying.

33

Many successful candidates followed the CPS bibliography and theStudy Guide in deciding what to study. They also found that reading The

Secretor and at least one book on each subject was good preparation.They agreed on the importance of reading current news, including businessnews, and reading it systematically.

Many kept a CPS notebook in which they recorded information for theexamination, with a separate section for each part so the information wouldbe classified and in a good order for quick review.

Many agreed that preparing for the examination was a real challengefor them. They also agreed that it was a very stimulating experience andhelped them on the job whether they passed it or not.

34

catliogtaphy

BOOKS

1. Anthony, Robert N. Management accounting principles. Homewood, Ill.

Vow Jones-Irwin. 1970.

BEST COPY AVAILABLE

2. Gentry, James A.of account/ng,Prentice-Hall.

and Johnson, Glenn L. Finney and Miller's principles

intrcauc:cry; 7th ed. Englewood Cliffs, N.J.

1970.

3. Horngren, Charles T. Accounting for management control; 2d ed.

Englewood Cliffs, N.J. Prentice-Hall. 1970.

4. Kceling, B. Lewis and Pendery, John A. Payroll records and accounting.

Cincinnati, Ohio. South-Western Publishing Co. 1972.

S. McElroy, Elam E. Applied business statistics: An elementary approach.

San Francisco, Calif. Holden-Day. 1971.

6. Meigs, W. and others. Financial accounting. New York, N.Y. McGraw.

Hill. 1970.

7. Moore, Carl L. and Jaedicke, Robert J. Managerial accounting.

Cincinnati, Ohio. South-Western Publishing Co. 1972.

8. Niswonger, C. Rollin, and Fess, Philip E. Accounting principles;

11th ed. Cincinnati, Ohio. South-Western Publishing Co. 1973.

9. Pyle, William W. and White, John A.6th ed. Homewood, Ill. Richard

10. Smith, M.G. A simplified guide topsychology; 4th ed. New York, N

1970. Paper.

PERIODICALS

Fundamental accounting principles;D. Irwin Co. 1972.

statistics for education and.Y. Holt, Rinehart, and Winston.

1. Federal Reserve Bulletin. (Monthly)

2. Survey of Current Business. (Monthly)

3. The [7ecretary. Published monthly, except in July and August, by the

National Secretaries Association(International), 2440 Pershing Road,

Kansas City, Mo. 64108.

3S