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Financial Connection: Double-Entry and Railroads
Francisco Bandera Gordon Cacioppo
Korbin CowgerBarbara Kusper
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Tonights AgendaMember topics:
Estimates Three concepts: recognition, valuation,
classification
Future cash flows Unexpired and expired costs
The significance of depreciation accounting Depreciation
methods: the defects on cash flow and net
income
Railroad industry: contributions to financial accounting The
role of rating agencies
Gordon
Korbin
Barbara
Francisco
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Defining estimates
Purpose - improves the accuracy of the financial statements
Basis - reliable information, documentation, and calculation
Changes - self correction or prior period adjustments
Verdict - NO
Do they make financial statements inherently
inaccurate?Estimates
Depreciation Warranty claims Bad debts
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Creditors
Want their money back
Investors
Want their dividends
Accruals
Used to align efforts and accomplishments over and accounting
period
Future Cash FlowsInterests
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Accounting Principles
Recognition
Valuation
Classification
Recognition - when to be recorded on the books
Valuation - dollar measurement
Classification - geography of the balance sheet
What makes accounting principles turn?Three concepts
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Obtain Assets
Pay Employees
Generate Revenues
Expenses
Maintain Operations
Business CostsWhy do businesses incur costs?
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UNEXPIRED
All costs related to future benefits
revenues can only be generated by the use of resources
cause an increase in retained earnings
Costs that have been recognized as an expense
use of resources cause a reduction in
retained earnings
EXPIRED
Types of Costs Generate profits and increase retained
earnings
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First capital intensive business
Consumption of unprecedented amounts of money
Engineering triumph
Railroad Industry CharacterizationsWhat do you call a train that
eats toffee?
-A chew, chew train
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Why Financial Accounting?Contributions
Needs long term financing
OpportunitiesInvestments
DisclosuresLack of
ToolsCommunications
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Henry Poor - editor of the American Railroad Journal
John Moody - initiated corporate bond ratings
Rating AgenciesIts founders
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Value securities
Informational source
Assess Add analytical information
RolesWhat they do
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FASB 360-10-35 Depreciation expense in financial statements for
an asset
shall be determined based on the asset's useful lifeAccounting
principles & Cash Flow
Railroads employ longer lived assets
Accounting convection
DepreciationImportance and significance
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Corporate Income Tax law
Interstate Commerce Commission
Hepburn Act
Taking it into account
1909
1887
1906
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Scenario
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quanto alor debito e anche credito whenever there is a debit
entry there is also a credit entry
-Luca Pacioli (father of accounting)
