Framing Record Keeping and Reporting

Framing Record Keeping and Reporting

Learning Objectives

  1. Identify the key elements behind balance sheets: accounts, entries, and judgments. 
  2. Connect balance sheets to the balance-sheet equation (BSE) matrix.
  3. Infer insiders’ and outsiders’ perspectives using the record-keeping and reporting map.

Express Video:

 Click here for the Express Route video [12 minutes]

  

 

Take-aways:
  • Before going behind the numbers, you only saw the surface as you looked at the primary classes, major categories, and line items when analyzing balance sheets. Now you know three more levels of analysis: accounts, entries, and judgments. Here, we briefly introduce some of these concepts to give you an appreciation for how fascinating and challenging accounting can become.

  • Learning how to record entries is critical to analyzing balance sheets and other financial statements. For instance, the Financial Times and Wall Street Journal had many articles on the billions of dollars in write-downs from the credit crisis during 2008—most of which focused on the effects to companies’ assets. But what was the other side of the entry? Analysts had to anticipate the other effects using their understanding of accounting and recording entries.

  • The balance-sheet-equation matrix concept is fully scalable to help you envision hundreds of columns of accounts and thousands of rows for entries for a real company. Like real companies’ accounting systems, accounts' ending balances are determined by adding the net effects of entries recorded during the period to their beginning balances.

  • Navigating Accounting’s Record-Keeping and Reporting (R&R) Map is a visual aid to help you see the connection between accounts, entries and numbers on balance sheets. This map will evolve in future modules to help you see connections to other financial statements. The R&R Map helps you infer insiders’ and outsiders’ perspectives.

Key terms:

  • Account- Storage area used to store and aggregate accounting measures recorded during reporting periods.

  • Balance-sheet-equation model- Record-keeping approach using a matrix to aggregate the effects of accounting entries where columns are accounts organized by the balance sheet equation (A=L+OE) and rows are entries or balances. Also referred to as BSE model.

  • Entry- To record financial measures associated with events or circumstances into accounts.

  • Event- Something that occurs. Events may be internal (within the company), external with another party (a transaction), or a combination thereof.

  • Measure- Quantitative value or amount assigned to an asset or other financial statement element.

 

 

 

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