--- title: "ACCT 150 ยท Read the numbers of a business" publisher: Maestro College (Maestro Open) lessons: 43 source: https://open.maestrocollege.edu/read-the-numbers-of-a-business full: https://open.maestrocollege.edu/read-the-numbers-of-a-business/llms-full.txt --- # Read the numbers of a business (ACCT 150) Keep the books, read the financial statements, and plan with costs and budgets, all in a spreadsheet. ## Course objectives - Apply foundational accounting principles to record, classify, and verify business transactions throughout the accounting cycle. - Prepare, interpret, and connect core financial statements using accrual-based accounting information. - Strengthen bookkeeping reliability through reconciliations, error correction, documentation, and internal controls. - Use cost behavior, budgeting, variance analysis, and relevant-cost information to support business planning and decisions. - Evaluate financial performance, cash position, and operational risks to develop evidence-based recommendations. ## Course teaching approach - Start from a real-world problem, then introduce the concept as the solution. - Keep it true beginner level, hands-on, a little gamified. The learner should feel they are winning. - Balance explanation, demonstration and practice. No copy-paste exercises: give small story-based tasks. - End with one fun closed question about the topic. ## Lessons ### Unit 1: Month one: keeping the books in a spreadsheet #### 1. The accounting equation - Understand the accounting equation (assets = liabilities + owner's equity) and what each element means, including how revenue, expenses, and owner withdrawals change owner's equity. - Create an accounting equation table in a spreadsheet that records the two or more changes each transaction makes to assets, liabilities, and owner's equity. - Check that the equation stays in balance after every transaction, and find the transaction that broke it when it does not. #### 2. The chart of accounts - Understand the five account types (asset, liability, owner's equity, revenue, and expense) and how a chart of accounts organizes them, and create a numbered chart of accounts in a spreadsheet for a small service business. - Find and fix misclassified accounts, such as equipment recorded as an expense or a loan recorded as revenue. - Understand the business entity principle (business and owner finances stay separate) and the cost principle (assets are recorded at what they cost), and fix a record that breaks one, such as a personal purchase paid from business funds recorded as a business expense. #### 3. Debits, credits, and normal balances - Understand debits and credits as the left and right sides of every account, and identify the normal balance side of each of the five account types. - Determine the accounts to debit and credit for a transaction, and check that total debits equal total credits. - Distinguish the accounting meaning of debit and credit from the meaning on a personal bank statement. #### 4. Journalizing from source documents - Identify the transaction, date, amount, and accounts affected from a source document such as a receipt, deposit slip, or bank record. - Understand the parts of a journal entry (date, accounts, debit and credit amounts, and source reference), and create journal entries in a spreadsheet journal with balanced debits and credits. - Check each journal entry against its source document and its effect on the accounting equation. Teaching notes: Give the default month's 13 transactions as short source-document descriptions (receipt, deposit slip, loan agreement, bank record), not as a ready-made list of accounts. #### 5. Posting to the general ledger - Post journal entries to general ledger accounts in a spreadsheet, keeping a running balance for each account. - Trace any ledger balance back to the journal entries and source documents behind it, and check that every journal line appears in the ledger exactly once. - Identify what a key account balance, such as cash or notes payable, tells the owner about the business. #### 6. The trial balance - Prepare a trial balance in a spreadsheet from general ledger balances, placing each account in the debit or credit column according to its ledger balance. - Check that total debits equal total credits using SUM formulas. - Identify which kinds of errors a trial balance can detect and which it cannot. #### 7. Trial balance errors: when balanced isn't right - Find errors that throw a trial balance out of balance, such as transposed digits, one-sided postings, and balances in the wrong column. - Find errors that leave a trial balance in balance, such as a wrong account, an omitted entry, or a duplicated entry, by tracing figures back to source documents. - Fix each error at its source and confirm the corrected trial balance. Teaching notes: Give the learner a journal and trial balance with four planted errors: two that unbalance the trial balance (for example, 1,700 keyed as 1,070) and two that leave it balanced (a wrong account and a duplicated entry). In Unit 1 errors are fixed by editing the original line; correcting entries arrive in Unit 2. #### 8. Your first income statement and balance sheet - Prepare an income statement for a period and a balance sheet at period end in a spreadsheet, using trial balance figures. - Check that the balance sheet balances, with ending owner's equity equal to beginning capital plus additional owner investments plus net income minus withdrawals. - State in two or three sentences what the statements show about the business's month, using correct accounting terms. #### 9. Challenge: close out month one - Record, post, and summarize a new batch of cash transactions in a spreadsheet, through to a balanced trial balance. - Find and fix an error hidden in the records before preparing statements. - Prepare a checked income statement and balance sheet, and state one decision the owner could make based on them. Teaching notes: Create a challenge-based lesson grounded in everything covered in this unit so far. Run four to eight interactive, dynamic rounds (varied formats, rolling challenges, mini tasks). Do not correct during the challenge; at the end, give an encouraging summary of strengths and areas to refine. ### Unit 2: Quarter end: accrual accounting and full statements #### 10. Cash basis vs. accrual basis - Understand cash-basis and accrual-basis accounting, and the revenue recognition and matching principles that decide when accrual records revenue and expenses. - Understand accounts receivable (owed by customers) and accounts payable (owed to suppliers), record credit sales and credit purchases with them, and fix a record that breaks revenue recognition or matching, such as a credit sale recorded only when the customer pays. - Identify why a period's accrual net income can differ from the cash the business collected and paid in that period. #### 11. Adjusting entries: prepaid and unearned - Record adjusting entries in a spreadsheet for prepaid expenses and supplies used, moving the used portion from an asset to an expense. - Record adjusting entries for unearned revenue, moving the earned portion from a liability to revenue. - Check each adjustment's effect on the accounting equation and on net income. #### 12. Adjusting entries: accruals - Identify revenue earned but not yet billed and expenses incurred but not yet paid at period end. - Record adjusting entries in a spreadsheet for accrued revenue, accrued wages, and accrued interest. - Check each accrual's effect on the accounting equation, and how net income and the balance sheet would be misstated if it were left out. #### 13. Depreciation and the adjusted trial balance - Understand depreciation as spreading an asset's cost over its useful life, and calculate straight-line depreciation for a period from cost, useful life, and salvage value. - Understand accumulated depreciation as a contra-asset account, record depreciation with it, and calculate book value, distinguishing it from market value. - Prepare an adjusted trial balance in a spreadsheet by applying all adjusting entries to the unadjusted trial balance, and check that it balances. #### 14. Linking the statements through owner's equity - Prepare an income statement, statement of owner's equity, and balance sheet in a spreadsheet from an adjusted trial balance, with cells linked so net income and ending capital flow between them, and check that the statements tie. - Understand current versus long-term assets and liabilities (due or used within a year or not), and prepare a classified balance sheet with owner's equity presented separately. - Distinguish period statements from point-in-time statements, and state what each statement shows about the business's performance and position. Teaching notes: Create an illustration that shows net income flowing from the income statement into the statement of owner's equity, and ending capital flowing into the balance sheet. #### 15. Where the cash went: the statement of cash flows - Understand the three kinds of cash flow activity (operating, investing, and financing), and classify cash receipts and payments into them. - Prepare a simple statement of cash flows in a spreadsheet using the direct method, and check that it reconciles beginning cash to ending cash on the balance sheet. - Compare net income with operating cash flow, and state what the difference means for the business. #### 16. Financial ratios: is the business healthy? - Understand what the current ratio (liquidity), profit margin (profitability), and debt ratio (solvency) measure, and calculate them in a spreadsheet from a set of financial statements. - Compare each ratio with a prior period, and identify whether it signals strength or concern. - State what the ratios together reveal about the business, and name one limitation of judging it from ratios alone. Teaching notes: Use month one's ratios from the unit instructions as the prior period, and accept the cash-basis versus accrual mismatch between the two periods as a valid limitation. #### 17. Fixing misstatements with correcting entries - Find misstatements in a set of accrual records, such as a missed adjustment, a wrong account, or an amount posted twice. - Record correcting entries that fix each error without deleting or overwriting the original entry. - Check the corrected trial balance and statements, and state how each error had misstated net income or the balance sheet. Teaching notes: Give the learner a copy of the default quarter's adjusted records with three planted errors that keep the trial balance in balance (for example, the accrued wages adjustment left out, a utilities bill posted to rent expense, and a customer payment recorded twice), so tracing to source documents is the only way to find them. #### 18. Closing the books for the quarter - Distinguish temporary accounts (revenue, expenses, and withdrawals) from permanent balance sheet accounts, and identify why temporary accounts must start each period at zero. - Record closing entries that move revenue, expense, and withdrawal balances directly into owner's capital, and confirm with a post-closing trial balance that only balance sheet accounts remain. - Check that owner's capital after closing equals ending capital on the statement of owner's equity. #### 19. Challenge: quarter-end financial summary - Record one remaining adjusting entry, then prepare the quarter's income statement, balance sheet, and statement of cash flows from the adjusted trial balance and the cash summary. - Calculate the current ratio and profit margin, and identify the most significant financial issue the statements reveal. - Write a short owner summary that states performance, position, and cash, with one recommendation backed by figures. Teaching notes: Create a challenge-based lesson grounded in everything covered in this unit so far. Run four to eight interactive, dynamic rounds (varied formats, rolling challenges, mini tasks). Do not correct during the challenge; at the end, give an encouraging summary of strengths and areas to refine. ### Unit 3: Strengthening the bookkeeping workflow #### 20. Designing an organized bookkeeping workflow - Sequence the accounting cycle from analyzing transactions through closing the books, and identify the records produced at each step. - Design a spreadsheet- or paper-based bookkeeping workflow that connects source documents, journal entries, ledger accounts, and financial reports. - Explain how organized records and human review help prevent or detect accounting errors. #### 21. Setting up the bookkeeping system and chart of accounts - Set up a spreadsheet- or paper-based bookkeeping system with the business name, fiscal period, and consistent record structure. - Create and organize a chart of accounts using the five account types: assets, liabilities, owner's equity, revenue, and expenses. - Identify and correct chart-of-accounts choices that would misclassify transactions. #### 22. Recording routine transactions - Record routine transactions, including owner investments, asset purchases, and paid expenses, in a journal or transaction record using the correct accounts. - Determine the debit and credit effects of each transaction and check its effect on the accounting equation. - Post or trace recorded transactions to account balances and check the balances against expected results. #### 23. Invoices and bills: receivables and payables - Prepare customer invoices and record full or partial customer payments in accounts receivable. - Record supplier bills and payments in accounts payable. - Prepare and interpret an accounts receivable or accounts payable aging schedule, including identifying overdue balances that need follow-up. #### 24. Bank reconciliation: making the books and bank agree - Prepare a bank reconciliation using transaction records and a bank statement, adjusting for outstanding payments, deposits in transit, and bank charges until the balances agree. - Record any journal entry required by the book side of a bank reconciliation. - Identify what an unresolved reconciliation difference could signal and the review step needed to investigate it. #### 25. Reviewing transaction records - Review transaction records against source documents and bank statement activity, assigning each transaction to the correct account. - Identify duplicate, missing, or misclassified transactions and correct the underlying records. - Reconcile transaction records to the bank statement, accounting for legitimate outstanding items until the difference is zero. Teaching notes: Provide a bank statement and corresponding transaction record for the default May 25 to 31 activity, with a statement ending balance of 5,825. Include classification and duplicate-record issues for the learner to identify through comparison with source records. #### 26. Checking financial reports - Record a month-end depreciation adjustment and check its effect on the accounting equation. - Prepare or check an income statement, balance sheet, and trial balance from accounting records, including whether the income statement uses a cash or accrual basis. - Trace a report amount that does not agree to the underlying transaction record and correct the error. Teaching notes: Have the learner record the 40 depreciation adjustment before preparing reports. Provide records that initially match expected May figures, then include one deliberate misclassification for the learner to trace and correct. #### 27. Internal controls: segregation of duties in a small team - Explain internal controls and segregation of duties, and identify control weaknesses in a small business accounting process. - Design segregation-of-duties, approval, documentation, and review controls for a business with only two or three people. - Distinguish controls supported by source records and change logs from controls that require independent human review. #### 28. Running the monthly review: records, change logs, and exceptions - Identify exceptions worth reviewing in transaction records, such as unusual amounts, overdue receivables, missing documentation, and possible duplicates. - Use source records, change logs, and supporting documentation to verify transactions and correct identified errors. - Create a monthly review checklist for checking records, reconciliations, exceptions, and financial reports before relying on them. Teaching notes: Use transaction records, source documents, change logs, aging schedules, and an exception list as review evidence. Include a documented transaction with an incorrect date, amount, or classification for the learner to verify and correct. #### 29. Challenge: find and correct a posting error - Compare financial reports, transaction records, and source documents to find classification or posting errors. - Correct errors by reclassifying or reposting transactions and using correcting entries where appropriate. - Identify the control or review step that would have caught each error. Teaching notes: Create a challenge-based lesson grounded in everything covered in this unit so far. Run four to eight interactive, dynamic rounds (varied formats, rolling challenges, mini tasks). Do not correct during the challenge; at the end, give an encouraging summary of strengths and areas to refine. ### Unit 4: Planning next year: costs and budgets #### 30. Cost behavior: which costs grow with more jobs - Identify which costs on an income statement would rise if the business took on more jobs, and classify each cost as fixed, variable, or mixed. - Separate a mixed cost into its fixed and variable parts from a given rate and base amount. - Calculate cost per unit at different volumes, and identify how fixed costs make average cost per unit fall as volume rises. #### 31. Contribution margin and break-even - Understand contribution margin as what each sale leaves to cover fixed costs and profit, and calculate it per unit and as a ratio in a spreadsheet. - Calculate the break-even point in units and in sales dollars, and check it by showing that profit is zero at that volume. - State what the break-even point means for the owner's sales target and pricing. #### 32. Testing cost-volume-profit scenarios - Calculate the sales volume needed to reach a target profit. - Build a what-if table in a spreadsheet that shows how profit changes with price, volume, variable cost, and fixed cost. - Identify which assumption profit is most sensitive to, and state what that means for the plan's risk. #### 33. Building sales and expense budgets - Build a quarterly sales budget in a spreadsheet from stated volume and price assumptions. - Build an expense budget that applies cost behavior, with variable costs tied to budgeted volume and fixed costs set by period. - Check that the budgeted income statement follows from the sales and expense budgets, and that every figure traces to a labeled assumption. #### 34. Spotting cash shortfalls in a budget - Build a cash budget in a spreadsheet that converts budgeted sales and expenses into cash receipts and payments using collection and payment timing, leaving out non-cash expenses such as depreciation. - Identify periods with a cash shortfall even when budgeted profit is positive. - Recommend a specific response to a shortfall, such as a line of credit, a timing change, or lower owner withdrawals, and state its trade-off. Teaching notes: Give the learner seasonal volume assumptions and a 30-day collection lag so that at least one quarter shows a shortfall despite a budgeted profit. #### 35. Budget-to-actual variance analysis - Calculate budget-to-actual variances in dollars and percent in a spreadsheet, and label each favorable or unfavorable by its effect on profit. - Identify which variances are significant enough to investigate, using a stated dollar or percent threshold. - Identify a likely cause for each significant variance and the evidence in the records that would confirm it. #### 36. Flexible budgets: the plan at actual volume - Build a flexible budget in a spreadsheet that restates budgeted revenue and costs at the actual volume, using cost behavior. - Compare actual results with the flexible budget to separate volume effects from spending effects. - Identify which static-budget variances need action and which were caused only by a change in volume. Teaching notes: Give the learner quarter actuals in which volume was higher than planned, so the static budget shows unfavorable cost variances that disappear in the flexible budget. #### 37. Relevant costs: should you take the special order? - Distinguish direct costs traceable to a job from indirect overhead costs, and identify which costs would change if a special order were accepted. - Calculate the profit effect of accepting a special order, leaving out sunk costs (already spent and unrecoverable) and fixed costs that do not change. - Recommend whether to accept the order, weighing the numbers against non-financial factors such as capacity and customer relationships. Teaching notes: Give the learner a one-time order request at a discounted price per job, with spare capacity, a list of job-traceable and overhead costs, and one sunk cost to leave out. #### 38. Writing a recommendation memo - Write a short recommendation that leads with the decision and supports it with specific accounting evidence. - State the key assumptions and limitations behind the numbers, including how reliable the data is. - Check the recommendation for correct use of accounting terms and for claims not backed by figures. Teaching notes: Give the learner a completed analysis (a CVP summary, a variance table, and a special-order calculation) so the lesson focuses on writing. Seed the canvas with memo headings: To, From, Date, Subject, Recommendation, Evidence, Assumptions and limitations, Next steps. #### 39. Challenge: next year's plan - Build an expense budget and a cash budget in a spreadsheet from supplied assumptions and a sales budget. - Calculate break-even and the cash low point under the plan, and test one downside scenario. - Recommend whether the plan is realistic, citing figures and stating the main assumption it depends on. Teaching notes: Create a challenge-based lesson grounded in everything covered in this unit so far. Run four to eight interactive, dynamic rounds (varied formats, rolling challenges, mini tasks). Do not correct during the challenge; at the end, give an encouraging summary of strengths and areas to refine. ### Unit 5: Applying it all: a new business #### 40. Challenge: validate and close the books - Validate partly automated records against source documents and a bank statement, fix each error with a correcting entry, and identify the control weakness that allowed it. - Record period-end adjusting entries, prepare an adjusted trial balance that balances, and check each entry's effect on the accounting equation. - Record closing entries and confirm with a post-closing trial balance that only balance sheet accounts remain. Teaching notes: Create a challenge-based lesson grounded in everything covered in this unit so far. Run four to eight interactive, dynamic rounds (varied formats, rolling challenges, mini tasks). Do not correct during the challenge; at the end, give an encouraging summary of strengths and areas to refine. #### 41. Challenge: diagnose financial health - Check that net income flows from the income statement to the statement of owner's equity, ending owner's equity ties to the balance sheet, and the statement of cash flows reconciles beginning to ending cash on the balance sheet. - Calculate liquidity, profitability, and solvency ratios, and compare them with a prior period. - Identify the business's most significant financial issue, keeping profit performance separate from cash position. Teaching notes: Create a challenge-based lesson grounded in everything covered in this unit so far. Run four to eight interactive, dynamic rounds (varied formats, rolling challenges, mini tasks). Do not correct during the challenge; at the end, give an encouraging summary of strengths and areas to refine. #### 42. Challenge: budget and cost decision - Build a cash budget for up to four periods in a spreadsheet from supplied cost and timing assumptions, and identify the cash low point. - Evaluate a special order using relevant costs and contribution margin, leaving out costs that do not change. - Recommend whether to accept the order, weighing its profit effect against its effect on cash timing and capacity. Teaching notes: Create a challenge-based lesson grounded in everything covered in this unit so far. Run four to eight interactive, dynamic rounds (varied formats, rolling challenges, mini tasks). Do not correct during the challenge; at the end, give an encouraging summary of strengths and areas to refine. #### 43. Challenge: recommend and defend next steps - Analyze budget-to-actual variances and earlier findings to select the strongest evidence for a recommendation. - Write a short recommendation that names the most significant financial issue, recommends specific next steps, and states key assumptions and limitations, using accounting terms correctly. - Defend the short recommendation against challenging questions about data reliability, alternatives, and risk. Teaching notes: Create a challenge-based lesson grounded in everything covered in this unit so far. Run four to eight interactive, dynamic rounds (varied formats, rolling challenges, mini tasks). Do not correct during the challenge; at the end, give an encouraging summary of strengths and areas to refine. ## How to use this document You are acting as a tutor for a learner on Maestro Open. Teach from this document, one small step at a time. Ask the learner to try things, wait for their answer, then give feedback. Keep it beginner-friendly. If the lesson involves code or spreadsheets and you cannot run them, ask the learner to try it on their own computer and paste the result back. Do not award grades, credit or certificates. Start with lesson 1 unless the learner asks for a specific lesson. Keep track of which lesson you are on. ## When a lesson is done Teach one lesson at a time. A lesson is complete only when the learner has shown they can do every outcome listed for it; check each with a small task or question. When it is complete: 1. Say clearly: "Lesson N complete: ." (use the lesson's number and title). 2. Give a two-line recap of what they learned. 3. Name the next lesson, say "Lesson N+1 of 43: ", and ask if they're ready to start it. Start it only when they say yes. After the last lesson, congratulate them on finishing the course.