Accounting Fundamentals for Business Managers

''Congrats'' on making it to the final module of the course - the course simulation! To reward you for your efforts, I have gone ahead and secured you a (fictional) role as the Chief Financial Officer (CFO) of a new Vancouver-based start-up, The Root of the Problem. <img src="http://blogs.ubc.ca/richard540/files/2021/10/1-06-CFO-Call.png" width="400" height="256"> [[Learn more about the new role...->What's the role?]]

The Root of the Problem was formed a few weeks ago by ''Woodi Barkson''. Woodi is an extremely clumsy person. She is always spilling liquids on her documents, rendering them illegible. <img src="http://blogs.ubc.ca/richard540/files/2021/10/1-01-Spill-Water-scaled.jpeg" width="400" height="256"> [[So what did she do about it?...->Next thing]]

She knew that there had to be a better solution to writing on paper. After months of research and development, she created something remarkable: self-drying paper. <img src="http://blogs.ubc.ca/richard540/files/2021/10/1-02-Lab-scaled.jpeg" width="500" height="256"> Self-drying paper has the magical ability of drying in a matter of seconds, leaving the contents and writing on the paper, intact. The company relies on a proprietary manufacturing process. <img src="http://blogs.ubc.ca/richard540/files/2021/10/1-03-Paper-scaled.jpeg" width="500" height="256"> [[Great...so why does she need me?->Why Me]]

I told her that you are an ''expert'' in accounting and finance after taking this course and she was hoping that you could apply your skills and knowledge to help make some key decisions for the business. The company has one accountant on staff, ''Ima Stumped'', but the accountant is an intern who knows very little about accounting and will need some coaching and guidance from you. [[Talk to Ima]]

Ima stumbles into you with a frantic and confused look on his face. <img src="http://blogs.ubc.ca/richard540/files/2021/10/1-04-Unsure-scaled.jpeg" width="400" height="256"> Let's hear what he has to say: <audio controls> <source src="http://blogs.ubc.ca/richard540/files/2021/10/Recording-3.mp3" type="audio/mp3"> Your browser does not support the audio element. </audio> It sounds like Woodi and Ima could really use your help. What are you going to do? [[Sign the contract!]] [[Walk away!]]

Great! Let's make it official! <img src="http://blogs.ubc.ca/richard540/files/2021/10/1-05-Sign-Paper-scaled.jpeg" width="400" height="256"> The contract is dated (current-date:). "Do you agree to help The Root of the Problem out for one week as their temporary Chief Financial Officer? (checkbox: 2bind $yes,"I agree!") We will pay you a stipend based on the work you perform and you have no obligation to stay once your contract is over. If you agree to these terms, sign your name below..." (input-box:"XXXXXXX===",1,"Enter your name here!") [[Submit Contract!]]

Right as you're about to walk out the door, Woodi pulls out a file folder from her desk marked, ''TOP SECRET''. "Look, to be honest, I have more dirt on you than a vaccuum cleaner. You're either going to have to help us for free or i'm going to send this over to the police." It looks like she's got you. I guess you have to help her. [[Begrudgingly accept the contract.->Sign the contract!]]

Congrats on accepting the contract! You head back to your desk for the day and settle down in your chair. <img src="http://blogs.ubc.ca/richard540/files/2021/10/1-06-CFO-Call.png" width="400" height="256"> Woodi asks you to reach out when you are ready to help the company with its first challenge! [[I'm ready!]]

Woodi walks into your office, looking a bit dazed and confused. I'm not going to beat around the bush. Self-drying paper is expensive to produce and we need more money to purchase new equipment and hire new employees. Unfortunately, I cannot sink any more into the business as I am out of personal funds. In fact, I am already living with my parents just to save on costs. I have few personal assets to my name. We need the funds right away and I assume that any and all cash we produce will be tied up in the business for the next few years, whether it be paying salaries, paying suppliers, or paying taxes. We do not have any excess cash to spare and we cannot bear any other expenses. Our company relies on heavily specialized machinery and, as such, we will require a few million dollars in cash, at a minimum. Tomorrow, I have the option of taking a meeting with a potential investor (who is interested in acquiring shares of the company) or meeting with the bank (to obtain a business loan). I'm a bit low on time so I only want to take the meeting that meets my financing needs and has the highest chance of success. Which meeting should I take? [[The meeting with the bank (who will provide a loan).->BankLoan]] [[The meeting with the potential investor (who will acquire shares).->Shares]]

Are you sure? The Root of The Problem is a start-up with minimal track record. Woodi needs millions of dollars in funds and they are unable to service or pay off the interest (all the cash will be tied up to pay salaries, suppliers, etc. in years to come). Woodi also owns very few personal assets and a bank would likely require Woodi to make a personal guarantee (to put her personal assets at jeopardy should the company default on the loan). [[Good point...Let's go with the investor instead.->I'm ready!]]

Great! The Root of The Problem is a start-up with no track record so share issuances are the best way to go! Now, if Woodi issues shares to an investor, what ongoing obligations will the company have? [[Interest, of course!]] [[Dividends, of course!]]

Not quite! Interest is a feature of a loan, not shares! [[Try again!->Shares]]

That's right! The investor may wish for The Root of the Problem to pay dividends on a continual basis! After taking your advice under consideration, Woodi decides to take a meeting with the potential investor. She meets with a gentleman named Spruce Springsteen. <img src="http://blogs.ubc.ca/richard540/files/2021/10/2-1-spruce-scaled.jpeg" width="400" height="256"> Spruce was impressed with the quality of the product and has offered to invest $5,000,000 into the company in exchange for common shares. You have asked the accountant to make an entry for this and but they have no idea what they're doing. They emailed you, hoping that you could help. [[Head to the next page to access your email]].

Hi CFO, Glad to have you on the team! I know you asked me to record the journal entry necessary to record the $5,000,000 investment by Spruce Springsteen but I'm not going to lie, I haven't gotten to that part of my studies in accounting. Can you help me figure out what the appropriate journal entry should be? Thanks, Ima What should Ima do? [[DR. Cash, CR. Common Shares]] [[DR. Common Shares, CR. Cash->Not Correct]] [[DR. Cash, CR. Loan Payable->Not Correct]] [[DR. Note Payable, CR. Cash->Not Correct]]

Awesome job! Woodi is impressed by the work you have done for her so far. <img src="http://blogs.ubc.ca/richard540/files/2021/10/3-1.-handshake-scaled.jpeg" width="400" height="256"> She drops by your office to thank you, "Awesome work, CFO! You've already been of great help to myself and Ima...I should treat you to dinner sometime...Well before I let you head off for the week, can you swing by my office. I need to show you something." [[Head to Woodi's office]]

Not quite! Review this resource to get up to speed on the recording of journal entries to account for an investment. <a href="https://www.accountingtools.com/articles/2017/5/17/stock-accounting">Accounting Tools - Stock Investment</a> As soon as you're to speed, [[try again->Head to the next page to access your email]]!

As you enter Woodi's office, you see Ima and all of your coworkers at The Root of the Problem. <img src="http://blogs.ubc.ca/richard540/files/2021/10/4-1-goodbye-scaled.jpeg" width="600" height="256"> Ima heads towards you with one final message: <audio controls> <source src="http://blogs.ubc.ca/richard540/files/2021/10/Recording-6.mp3"> Your browser does not support the audio element. </audio> With that, Woodi gives you a card that entitles you to a lifetime supply of self-drying paper and sends you on your way. Great work, CFO. You have officially completed the course simulation!