Advanced financial accounting PowerPoint presentation. In this presentation, we’re going to discuss foreign currency exchange rates get ready to account with advanced financial accounting, foreign currency exchange rates, let’s first define foreign currency transactions. So what are from foreign currency transactions? When are we going to need to account for foreign currency transactions. So from our perspective, we’re going to be looking at this from the perspective of a US company US company that is having their books then accounted for or measured in dollars. And when you think about the foreign currency transaction, it’s just like anything else, but it can be a little bit more confusing. So you want to remember, of course, that the dollar is basically the measuring tool.
In this presentation we’re going to talk about valuation of business entities when there’s going to be an external expansion. In other words, a merger or consolidation, get ready to act because it’s time to account with advanced financial accounting. We’re continuing on with our discussion of external expansion. That means we’re have two separate entities that are going to be combining in some way shape or form. The two types that we want to keep in mind at this point is the acquisition of assets and the acquisition of stocks. So if the acquisition of assets we have one company acquired another assets using negotiation with management, so that means you have two separate entities and one entity is basically going to be purchasing the assets of the other entity versus the acquisition of stock, where we have a majority of outstanding voting shares is generally required, unless other factors result in the gaining of control. So in other words, you have two entities, one entity in essence buying a controlling share or controlling ownership over 50% typically 51 and above. Have another entity. So from an accounting perspective, then the question is, well, how are we going to value the assets and liabilities. Now when we think about the assets and liabilities, we may have to use an appraisal oftentimes, in order to do so because remember, if you’re talking about some assets, they might may be on a fair value method, because you might be talking about cash or something like that, or possibly stocks or investments in that way, that may be easy to value with a market method. However, if you’re talking about things like property, plant and equipment, then it’s going to be more difficult to know what the value is. That’s the problem because there hasn’t been a market transaction for that exact same piece of equipment for some time.
This presentation we’re going to talk about forms of business combinations, which is basically external expansion, two types of entities that are going to be related in some way, shape or form, get ready to act because it’s time to account with advanced financial accounting, forms of business combinations. Now remember, we’re talking about expansion. Here, we’re thinking about expansion. We’ve got the two categories, we’ve got the internal expansion and external expansion. We’re considering here, the external expansion, we have an organization that now wants to expand and they’re going to be consolidated in some way or have two separate entities that will be combining. So now we’re talking about two separate legal entities typically separate legal entities that are now going to be combined in some way shape or forms. The forms of business combinations can be the statutory merger, the statutory consolidation, and the stock acquisition. So if you think about, in other words to separate legal entities and say, Alright, well how can these two separate legal entities be combined in some type of way, you can imagine some different Kind of scenarios in which that could take place. So and when you’re imagining those different types of scenarios, you’re going to be thinking about, okay, well, what’s going to be the key factor here, it’s going to be the controlling interest. So what’s going to be a situation where you had two separate legal entities, and now they’re they’re going to be have some controlling relationship, which could be that they’re combined together under one entity at some point or they are having a parent subsidiary type of relationship, in which case the control would be over the 50%. So that control concept is what you want to keep in mind here.
In this presentation, we will take a look at business combination accounting methods, both historic methods and the current methods get ready to act, because it’s time to account with advanced financial accounting. We’re going to start off with business combinations from the past, these are not the current method that we’re going to be using. However, it’s good to have some historical context so that if you hear these methods, you know what you’re talking about. We also want to think about these concepts in terms of just a logistical standpoint. If you were to make these laws, then how would you do it? What are some of the challenges that have happened? And by looking through the historical process, you can kind of think about, okay, these are what were put in place, I see why those were put in place here that changes that are happening, we could see why the changes are happening, therefore have a better understanding of what we are doing, and how the current process is being put in place and why the decisions were made to put it in place. So in the past, we had combinations methods that included the purchase method and the pooling of interest. method. So they then what happened is the pooling of interest method was taken away by faz B. So faz B said, Hey, we’re not going to allow anymore, the pooling of interest method, and then the purchase method has been replaced with the acquisition method. So if you hear the purchase method, that in essence is what we’re currently doing. However, we changed the name from the purchase method to the acquisition method.
This presentation we’re going to take a closer look at external business expansion, which includes things like mergers and business combinations, get ready to act, because it’s time to account with advanced financial accounting. Before we move into the external expansion, you want to give a review and keep your mind on what our focus is we’re talking about a business that is expanding. When we think of it about expansion, we can break that expansion into internal and external expansion. So we have a business expanding into new areas do segments, we can think of it as an internal or external expansion. In a prior presentation, we talked a little bit more on the internal expansion, in which case you might have a situation where a parent creates a subsidiary or a parent basically just creates another division possibly, and expands in that format. Now we’re going to be going to the external expansion, in which case we’re talking about two entities. So we have two separate legal entities that in some or two separate entities in some case in some way, shape reform are coming together. So now we’re going to have an expansion where we have an external expansion. So if we’re thinking of thinking about this, from the from the standpoint of one company, we’re thinking about ourselves as one company and we are expanding, then we’re thinking about the expansion externally, that we are going to be combining in some way shape or form with another company. Now, the format and form in which that combination can take place can be various we can have various forms of that combination, it could result in a parent subsidiary type of relationship, or it could result in the parent basically consuming that another company and bringing them into the overarching parent company.
In this presentation, we’ll take a closer look at internal business expansion, get ready to act because it’s time to account with advanced financial accounting. In our previous presentation, we talked about the types of expansion that a company can take. And we broke those out into the general categories of internal expansion and external expansion. The internal expansion, meaning we have a corporation or a company that needs to expand wants to do so internally might result in other divisions or might result in a creation of a subsidiary, the external expansion meaning we have two entities that are separate and somehow come together, which still could result in something like a parent subsidiary type relationship, or some type of division. So we’re going to be considered here the internal ideas the internal concept or internal expansion. So we have one organization, the organization wants to grow and expand possibly into a different sections or segments are different industry, and therefore they’re going to expand in some way shape. shape or form. Typically, we’re thinking of the creation in this case of a subsidiary type of relationship, in which case, they might create a separate legal entity. And that would be the giving of the assets and possibly liabilities to a separate legal entity that would be created. In other words, the parents company, setting up a subsidiary in some way, shape or form. And then given the subsidiary some assets and the liabilities that were formerly the parents organization, and then having a parent subsidiary type relationship with that subsidiary unit, us from an accounting standpoint, then having to think about how are we going to account for that with regards to financial accounting with that parent subsidiary type of relationships. So types of business entities that could be involved with this, we could have a subsidiary company and that’s the one you’d probably most be considering.
In this presentation, we’re going to discuss an Introduction to Business acquisition and expansion, get ready to act, because it’s time to account with business, Advanced Accounting, advanced financial accounting will have to do with the concept of expansion and the accounting related to it. So first we need to know well, what is expansion? What are the types of expansion that can take place? What are the problems with regards to the accounting for it? And then what type of accounting principles can we apply in order to deal with the accounting related to those problems? So when we think about expansion in general of a business, we’re thinking about the growth of a business, typically, you have either internal expansion or external expansion. So those are two categories of expansion. We want to start to visualize in our mind and we got our mind our mind is visualizing a business that is trying to expand how are they going to do that? Are they going to do it with some type of internal growth or some type of external growth? Then we want to think about the legal structure of the of the expansion for example, an expansion often results in a parent subsidiary type of relationship. So, we have different legal entities that are associated in some way shape or form.
In this presentation, we will discuss measurement period and contingent considerations within an acquisition process, get ready to account with advanced financial accounting. At this point with the discussion of the acquisition process, you’re probably thinking, Okay, I kind of see how this fits together. I’ve see how this works. But logistically, it could still be a little bit tough. If you were to apply this in practice, you’re probably saying, Hey, there could be some problems. In practice. If we were to apply this out. For example, if we’re saying, okay, we’re going to revalue the assets and the liabilities. And we’re going to value the consideration we’re going to make a comparison of the value of the assets and liabilities to the consideration that’s being given for the company that in essence is being acquired in the acquisition process. Well, then what about that valuation process? That’s going to be difficult because how do we revalue the assets and liabilities because normally, when you value something, you value it from a market perspective, which means there’s actually a transaction a sale that’s taking place. So note obviously that valuation process is going to be somewhat of a tedious process for us to go through and revalue. And how long do we have for that to take? I mean, if this isn’t happening basically instantly with regards to this process, this is going to be taking some time.
This presentation we will take a look at the tools needed in order to complete a statement of cash flows. to complete a statement of cash flows, we are typically going to need a comparative balance sheet that’s going to include a balance sheet from the prior period, whether that be the prior month or the prior year and a balance sheet from the current period, then we’re going to have to have an income statement. And then we’ll need some additional information in a book problem, it’ll typically give us some additional additional information often having to do with things like worth an equipment purchases, whether equipment purchases or equipment sales, were their investments in the company where their sales of stocks, what were the dividends within the company. In practice, of course, we would have to just know and recognize those types of areas where we might need more detail. And we would get that additional information with General Ledger we’d go into the general ledger, look at that added information. Now once we have this information, our major component we’re going to use is going to be the comparative balance sheet. That’s where we will start. So that comparative balance sheet is going to be used to make a worksheet such as this.
In this presentation, we will think about the thought process to know which category a cash flow should be entered into whether it should be operating, investing or financing activity. When putting together the statement of cash flows, we’re usually going to have a worksheet, which will typically have a comparison of balance sheet accounts. And we also might just have test questions that will ask us, where should this cash flow go? And that’s going to be a common kind of question that we’re going to have whether we build the entire cash flow statement from scratch, or whether we’re just asking test test questions and trying to know what types of Cash Flows we’re talking about. It’s also important for practice as well so that we can understand when we’re thinking about cash flows, where do they belong? What are these cash flows mean? What are they doing for us? What are they doing for the company? Are they part of the operations? Are they part of investing? Are they part of financing? If we look at a worksheet like this to build the statement of cash flow, typically we’re going to look at a balance sheet for two periods. So here our balance sheet for these two periods. And we’ll have the difference between the two periods in terms of the balance for these balance sheet accounts. So we’ve got cash, accounts receivable, inventory, prepaid expenses.
Now what we’re going to do is we’re going to take the change in cash, that’s going to be the end result on our statement of cash flows. And we’re going to kind of back in to that end result by looking at the change in the other balance sheet accounts and tried to figure out what’s causing this change. So we’re going to go through all the other balance sheet accounts, look through these changes. And we know that if we look if we add them all up, they add up to zero. Why? Because the debits and credits for one year, add up to zero the debits and credits for the other year add up to zero. In other words, the debits minus the credits equals zero. And therefore the difference between the two years debits and credits the change will add up to zero. So we know that’s the case and we know that if we add up then everything except cash Then the result will be the difference in cash. So that’s how we’re going to kind of work and put together our statement of cash flows. So what we need to do then is we’re going to take a look at these changes in receivables, changes in inventory changes in prepaid expenses, and then try to determine where does that change belong? Before we get into any other question is, is the change of inventory and operating, investing or financing activity? And is the change in long term notes payable? Is that going to be an operating investing or financing activity? Our goal here is to go through a thought process to see if we can think through more clearly which category these these should be belong to. So what’s the most common journal entry in this account? It’s going to be our first question.
Whatever account they’re given us here, we’re going to say it let’s think about the most common journal entry that’s related to this account, there’s typically going to be one or two journal entries that are going to be very common and we want just right down first, once we know the most common journal entry, then we’re going to ask is an income statement account involved? So when we think about whatever account we’re dealing with, we’d write down the journal entry and say, Okay, is there an income statement account involved? Is there a revenue account or an expense account involved? If the answer is yes, then it’s probably the change that we’re dealing with is probably something that should be in the operating activities. Because remember, the operating activities is kind of like the income statement on a cash basis. So if we’re dealing with something that’s this change has something to do with the income statement, then it’s going to be something on the operating activities. Typically, if the journal entry has nothing to do with the income statement, there’s no revenue or expense accounts involved in the normal journal entries related to these accounts, then we’re going to ask the question, are we purchasing or selling an asset? Because it’s so if it’s not operating, this means that it’s not operating therefore, We’re trying to see if it’s going to be investing activity. And that typically means we’re purchasing or selling an asset. If it has to do with, for example, property, plant and equipment, or some other type of investment, then it’s going to be an investing activity. And then if it’s not, then it’s going to be financing. And of course, financing is going to be dealing with notes, something that we’re dealing with that doesn’t deal with operating activities in terms of the income statement, no revenue and expenses, and typically doesn’t have assets involved either, because what we’re doing is funding the company. So that’s typically going to be something that deals with cash and subtype of liability or the equity section. So this is going to be our thought process if we go through each of those line items, and think about each account on the balance sheet.
And then try to go through this thought process and think okay, which category are we going to be putting this change to? Now, this looks a little less intuitive than we might think at first glance here because no one We’re doing we’re looking at the balance sheet accounts. And we’re trying to see what category these things are going to fit into. And remember that the operating activities I’m keep on comparing that to the income statement. And you might be thinking, well, these are all balance sheet accounts. Why do you keep mentioning the income statement. And note, what we’re doing here is we’re really kind of backing into the activity is happening by looking at the change in two points in time. So we’re kind of still looking at the income statement activity type of accounts, we’re looking at change, we’re looking at activity, even though we’re doing that by looking at the change in two points in time to balance sheet accounts, which are points in time. So when we look at the change in accounts receivable for example, if we go through our thought process, we’re going to say okay, accounts receivable was at 80,007 50. In the prior year, end of the current year, it’s at 77,100.
That means it went down by 3650. So our goal here is just to determine which category That change belongs to it’s an operating, investing or financing. And if we think about that, then we could think Well, what’s the normal journal entry related to accounts receivable? We’re going to have a debit to accounts receivable and a credit to sales. That’s going to be our normal journal entry that we’ll have related to accounts receivable. And we can see there that sales is an income statement account. So we know that it is an income statement account involved, we’re going to say yes, therefore, it’s an operating activity. So note what we’re doing here, we’re looking at the change in a balance sheet account. We’re looking at the change in the balance sheet account, then ask yourself, what’s the normal journal entry related to this account? And if we think about the normal journal entry related to accounts receivable, that’s a sale of something on account. So accounts receivable goes up when we make a sale on account, and we credit revenue and revenue is clearly an income statement account. So this Change, then that’s what we’re going to think through, we’re going to say that change looks like it belongs somewhere in the operating activities. Because we’re dealing, we’re really kind of backing into sales. That’s what we’re really looking at. And we’re going to do that by writing down the journal entry. Let’s look at another account. We’re going to pick equipment now. So we’re just going to go through all these changes. And we just got to find a home for all these changes.
When we when we make the statement of cash flows. We got to find a home for them in either operating, investing or financing. And we’ll end up with the change in cash, which is kind of like the bottom line. The bottom line will be cashed at the end of the day. So we’re going to find a home for the equipment. Where’s that going to go that change? Well, if we think about the journal entry for equipment, then if we buy equipment, we’re going to debit equipment, and credit cash and possibly credit like a note payable, some type of financing. But if we pay cash for it, this would be the most simplified journal entry. Even if we had a note there’d be no Part of it that would be on the income statement, one asset went up, the other asset is going down. So therefore, is the is an income statement account involved? No. So we’re purchasing or weren’t, so it’s not going to be an operating activity. And then the next question is, are we purchasing or selling an asset? In this case, yeah, we’re purchasing an asset. And that means that it’s going to be an investing activity. So and this was the confusing thing for me when I first started learning this thing, because investing activities, I had a different conception of what investing is to invest in something like any asset any anything we purchase in the business that we’re not consuming now is an investment to the future. In terms of the cash flow statement, we’re trying to spend our cash in order to put our money somewhere that’s going to help us make money in the future. That’s going to be some type of investment. So in this case, it’s going to be an investing activity.