Financial Connection: Double-Entry and

Railroads

Francisco Bandera
Gordon Cacioppo
Korbin Cowger
Barbara Kusper

Tonights Agenda
Member topics:
Gordon

Korbin

Barbara

Francisco

Estimates
Three concepts: recognition, valuation, classification
Future cash flows
Unexpired and expired costs

Railroad industry: contributions to financial accounting

The role of rating agencies

The significance of depreciation accounting

Depreciation methods: the defects on cash flow and net
income

Estimates
Do they make financial statements inherently inaccurate?
Depreciation

Warranty claims

Bad debts

Defining estimates

Purpose - improves the accuracy of the financial statements

Basis - reliable information, documentation, and calculation

Changes - self correction or prior period adjustments

Future Cash Flows

Interests

Creditors

Want their money

back

Investors

Want their dividends

Accruals

Used to align efforts

and
accomplishments
over and
accounting period

What makes accounting principles turn?

Three concepts

Recognition - when to be
recorded on the books

Recognition

Valuation - dollar
measurement

Accounting
Principles
Valuation

Classification - geography
of the balance sheet

Classification

Business Costs
Why do businesses incur costs?

Obtain Assets

Pay Employees

Generate Revenues

Expenses

Maintain Operations

Types of Costs
Generate profits and increase retained earnings

UNEXPIRED

All costs related to future

benefits

revenues can only be

generated by the use of
resources
cause an increase in
retained earnings

EXPIRED

Costs that have been

recognized as an expense

use of resources
cause a reduction in
retained earnings

Railroad Industry Characterizations

What do you call a train that eats toffee?
-A chew, chew train
First

capital intensive
business

Consumption

of
unprecedented amounts
of money

Engineering

triumph

Why Financial Accounting?

Contributions

Needs

Opportunities

long term financing

Investments

Disclosures

Tools

Lack of

Communications

Rating Agencies
Its founders
Henry Poor - editor of the American
Railroad Journal

John Moody - initiated corporate

bond ratings

Roles
What they do
Value

securities

Informational

source

Assess

Add analytical information

Depreciation
Importance and significance

FASB

360-10-35

Depreciation expense in financial statements for an asset

shall be determined based on the asset's useful life

Accounting

Railroads

principles & Cash Flow

employ longer lived assets

Accounting

convection

Taking it into account

Corporate

Income Tax law

1909

1887

Interstate

Commerce Commission
1906

Hepburn

Act

Scenario

quanto

alor debito e anche credito whenever

there is a debit entry there is also a credit entry
-Luca Pacioli (father of accounting)