The accounting game : basic accounting fresh from the lemonade stand

185 Pages·2008·7.67 MB·English

by  Darrell Mullis

The
Accounting
Game
Updated and Revised
Basic Accounting Fresh
from the Lemonade Stand
Darrell Mullis
and Judith Orloff
Copyright © 2008 by Educational Discoveries, Inc.
Cover and internal design © 2008 by Sourcebooks, Inc.
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This publication is designed to provide accurate and authoritative information in
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publisher is not engaged in rendering legal, accounting, or other professional ser-
vice. If legal advice or other expert assistance is required, the services of a compe-
tent professional person should be sought.
From a Declaration of Principles Jointly Adopted by a Committee of the
American Bar Association and a Committee of Publishers and Associations
Published by Sourcebooks, Inc.
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ISBN-13: 978-1-4022-1975-7
Previous edition cataloged as follows:
Mullis, Darrell.
The accounting game: Basic accounting fresh from the lemonade stand
Darrell Mullis, Judith Orloff.
p. cm.
Produced by Educational Discoveries.
1. Accounting. I. Orloff, Judith Handler. II. Educational Discoveries (Firm)
III. Title.
HF5635.M9531998
657—dc21 98-17214
Printed and bound in the United States of America.
HS 10 9 8 7 6 5 4 3 2 1
TABLE OF CONTENTS
Introduction v
Pre-Test ix
Chapter 1 1
Cash, Original Investment, Assets, Liabilities, Notes Payable,
Owner’s Equity, Balance Sheets, Inventory, Earnings, Expenses
Chapter 2 21
Gross Profit, Net Profit, Income Statements, Cash Flow
Chapter 3 33
Retained Earnings, Loans, Credit, Accounts Payable, Notes Payable
Chapter 4 45
Paid Labor, Accounts Receivable, Bad Debt, Interest,
Prepaid Expenses, Accrual Method, Cash Method, Creative Accounting
Chapter 5 71
Service Businesses
Chapter 6 79
FIFO, LIFO
iv THE ACCOUNTING GAME
Chapter 7 97
Cash Statements, Fixed Assets, Capitalization, Depreciation
Chapter 8 121
Profits vs. Cash
Chapter 9 139
Taxes, Liquidation
Chapter 10 147
Final Analysis – Improving Profits
Post-Test 157
Answer Key 159
Glossary 175
Index 178
About the Authors 180
Diploma 181
INTRODUCTION
H
ow do people really learn? The answers and theories are endless. They include
ideas ranging from genetic imprinting to osmosis and modeling and emotional
intelligence. Brain research is voluminous in the 21st century.
For now, though, please ask yourself: How do I learn?
Isn’t that an interesting question? And, what do you learn? Do you learn infor-
mation from reading, watching videos, using computers? Can you learn “people
skills” without interacting with other people? Can you change behavior without a
model of what the ideal behavior should look like? Feel like? Are there people you
meet in your daily travels that you want to emulate? Do you emulate them? How
doesitwork?Canyourememberthewordsofthesongsfromchildhood,butnotthe
onesyoulistenedtolastweekoreventhismorning?Questionsandquestions.More
than any other thought process, questions help us learn.
Remember what we heard about a baby’s first year of life? Babies learn more in
thatyearthaninalltheyearscombinedafterwards.Yet,inthatfirstyear,babiescan-
notposequestionsinthewaytheywilloncetheylearnlanguage.So,howdobabies
learn?Andwhatcanwetakeawayfromthattohelpadultslearnmorequickly,retain
new information longer, and apply it immediately in their lives?
So, what does this have to do with you and this book? Good question.
The Accounting Game is written in a way that creates a specific learning
experience for you as it teaches you the basic skills of accounting. We call the
vi THE ACCOUNTING GAME
learning method accelerative learning. What do you think that means? It is a
learningmethodologythatusesallofyoursensesaswellasyouremotionsandyour
critical thinking skills. If you can remember your kindergarten or elementary school
classrooms, you will see many colored maps, letters and numbers, bold (even raw)
drawings by each child, etc. You learned the alphabet by singing. You learned the
multiplication tables by saying them out loud with each other. You laughed a lot. You
were creative.
Then,howyouweretaughtbegantochangewhenyouenteredmiddleschoolor
high school. Learning became more lecture, more black and white, more rote. You
studied before tests and probably did well or maybe not. Yet, for all the endless
homework and “cramming,” most of the information you learned in high school you
don’t remember now. That’s because it went into your short-term memory so that
you could pass the tests and move on to the next grade.
Yet, look at all the things you remember from early childhood! While in elemen-
tary school, much of the information you learned went directly to your long-term
memory, because it was peppered with music, color, movement, smells, emotional
experiences, and lots of play and fun.
The methodology we use in this book in many ways parallels how you learned in
grade school. We do this by accessing the part of your brain where long-term mem-
ory lives. Now, the way to reach your long-term memory has to include emotion,
because they reside in the same place in your brain—the limbic region.
Thetruthis,becauseofthewaywehumanslearn,wehavetodiscoversomething
ourselves to really learn it. This book is designed so you make dozens of discoveries.
Inshort,youwilllearnacollegesemester’sworthofaccountinginthetimeittakesyou
to interact with this book.
This is quite a reversal, because business people and students have over the
years found the subject of accounting quite difficult to master. Many have simply
given up in frustration, others have decided to leave accounting to the “experts.”
This book is for all of you who have hated accounting, had difficulty learning it, or
ever thought you didn’t really “get it.”
Wethinkthatmostattemptstoteachaccountingfailbecauseoftoomuchattention
to details and a failure to present the big picture framework of how it all works and
fits together. In this book, we promise not to overburden you with details and to
focus on what are really the key concepts of accounting that any businessperson
needs to know.
INTRODUCTION vii
Youwilllearnthestructureandpurposeofthethreeprimaryfinancialstatements—
thebalancesheet,theincomestatement,andthecashflowstatement.Youwilllearn
how these fit together and their interrelationships. You will also learn the basic lan-
guage of business—concepts like cost of goods sold, expenses, bad debts, accru-
alvs.cashmethodsofaccounting,FIFOandLIFO,capitalizingvs.expensing,depre-
ciation, and the difference between cash and profit.
Our promise is that you will get all this information in a fun and easy way that
allowsyoutoparticipate,interact,anddiscoverallthatyouneedtoknow.Manypeo-
ple need to have understanding and confidence in working with financial concepts,
butarenotevergoingtobedoingaccountingdetails.Ifthatisyou,thenthisbookfits
that need, too. It is set up so that you can actually do financial statements as you are
learning them. We invite you to “play the game” as you interact with this book
(answers to the charts can be found in the Answer Key on pg. 159).
Understanding all this information is nice, but what do you do with it? The final
chapter will give you some tools for analyzing financial information and making bet-
ter decisions for your company and your career.
As mentioned, the information in this program was developed by Educational
Discoveries, Inc. in the early 1980s in a one-day seminar, The Accounting Game™.
The program was originally created by Marshall Thurber at the Burklyn Business
School in the late 1970s. Nancy Maresh, a student at Marshall’s school, then took
the program and developed The Accounting Game seminar. We offer our heartfelt
thanks for their original genius and commitment to bringing this extraordinary pro-
gram to life. We also want to thank all of the somewhere between 75,000 and
100,000 people who have attended the public and private seminars for the fun they
have been and for the insights and suggestions that have helped us improve the
teaching of this information.
The Accounting Game is now offered in private seminars by Coastal Training
Technologies Corporation. The Accounting Game continues to be the most successful
financialseminarinthe world.
So, enjoy! Because if you enjoy this book, you’ll learn more in a brief time than
you ever imagined possible.
Judith Orloff and Darrell Mullis
PRE-TEST
1. Which one of the following items is not found on a Balance Sheet?
A. Cash B.Gross Profit
C. Assets D. Liabilities
2. Which accounting system most accurately reflects profitability?
A. Cash Accounting B.Flow of Funds Accounting
C. Accrual Accounting
3. An account receivable is:
A. an Asset B.Owner’s Equity
C. a Liability
4.Whichofthefollowingismostimportanttothedailyoperationsofabusiness?
A. Assets B.Retained Earnings
C. Cash
5. When people speak about the bottom line, they are referring to:
A. Net Profit B.Gross Margin
C. Gross Profit
x THE ACCOUNTING GAME
6. A prepaid expense is:
A. an Asset B. Owner’s Equity
C. a Liability
7. Is LIFO/FIFO a method of:
A. Inventory Evaluation B. Profit Ratio
C. Financing
8. Which would you find on an Income Statement?
A. Expense B. Fixed Asset
C. Liability
9. Which of the following expenses does not affect your cash position in running
a business:
A. Lease Expense B. Advertising Expense
C. Depreciation Expense
10. Which of the following is a basic accounting equation:
A. Net Worth = Assets + Profits
B.Gross Profit - Sales = Gross Profit Margin
C. Assets = Liabilities + Owner’s Equity
CHAPTER 1
R
emember how you learned to make money as a kid?
There was baby-sitting and delivering newspapers. Shoveling snow off the
neighbors’ sidewalk and driveway. Mowing lawns and taking care of other people’s
pets and plants when they went on vacation.
Thereisonebusinesswhich,chancesare,almosteverykidtriesatleastonceinhis
orherlife.Atriedandtrue operation asAmerican asbaseballandMom’s apple pie.
The Lemonade Stand.
It’s this world of childhood, of lemonade stands and sunny days that we use in
The Accounting Game. It’s hand-made signs and scraps of lumber turned into a
humble yet proud establishment. It’s when saving up enough of your own money for
a bike or a piece of sports equipment or horseback-riding lessons seemed the most
important goal in the world. It’s when you had your first inkling about money, and
wished you understood everything you needed to know about it.
Now is your chance to go back, and learn what you need to know about the lan-
guage of business, which goes by the name of Accounting.
So, find a quiet space and relax. Read a paragraph of the italicized passage
below, then close your eyes and visualize what you’ve just read. When you’re ready,
go on to the next section, and the next…