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Table of Contents
Part I: Opening the Books on Accounting
Part II: Exploring Financial Statements
Part III: Accounting in Managing a Business
Part IV: Preparing and Using Financial Reports
Part I: Opening the Books on Accounting
Chapter 1: Accounting: The Language of Business, Investing, Finance, and Taxes
Accounting’s Main Jobs: Providing Vital Information to Non-Accountants
Distinguishing among different users of accounting information
Overcoming the stereotypes of accountants
Making good use of accounting in your personal financial life
Recognizing the Broad Sweep of Accounting Everywhere You Look
Taking a Peek Behind the Scenes
Taking the Pulse of a Business: Financial Statements
Meeting the balance sheet and the accounting equation
Reporting profit and loss, and cash flows
Respecting the importance of this troika
Certified public accountant (CPA) and specialties
Introducing a new kid on the block: Chartered Global Management Accountant (CGMA)
The controller: The chief accountant in an organization
A springboard to other careers
Chapter 2: Financial Statements and Accounting Standards
Introducing the Basic Content of Financial Statements
Realizing that form follows function in financial statements
A note about the statement of changes in shareowners’ equity
Contrasting Profit and Cash Flow from Profit
Gleaning Key Information from Financial Statements
Can you trust financial statement numbers?
Why no cash distribution from profit?
Keeping in Step with Accounting and Financial Reporting Standards
Getting to know the U.S. standard setters
Internationalization of accounting standards (maybe, maybe not)
Divorcing public and private companies
Following the rules and bending the rules
Taking a Panoramic View of Bookkeeping and Accounting
Pedaling Through the Bookkeeping Cycle
Managing Your Bookkeeping and Accounting System
Categorize your financial information: The chart of accounts
Standardize source document forms and processing procedures
Enforce strong internal controls
Get involved with end-of-period procedures
Keep alert for unusual events and developments
Design truly useful reports for managers
Double-Entry Accounting for Single-Entry-Minded People
Juggling the Books to Conceal Embezzlement and Fraud
Using Accounting Software in the Cloud and on the Ground
Part II: Exploring Financial Statements
Presenting Typical Income Statements
Taking care of some housekeeping details
Getting Particular about Assets and Operating Liabilities
Making sales on credit → Accounts receivable asset
Selling products → Inventory asset
Prepaying operating costs → Prepaid expense asset
Fixed assets → Depreciation expense
Unpaid expenses → Accounts payable, accrued expenses payable, and income tax payable
Summing Up the Diverse Financial Effects of Making Profit
Reporting Extraordinary Gains and Losses
Correcting Common Misconceptions About Profit
Chapter 5: Reporting Financial Condition
Doing a preliminary read of the balance sheet
Kicking balance sheets out into the real world
Judging Liquidity and Solvency
Current assets and liabilities
Understanding That Transactions Drive the Balance Sheet
Coupling the Income Statement and Balance Sheet
Sizing up assets and liabilities
Sales revenue and accounts receivable
Cost of goods sold expense and inventory
Fixed assets and depreciation expense
Operating expenses and their balance sheet accounts
Intangible assets and amortization expense
Income tax expense and income tax payable
Net income and cash dividends (if any)
Financing a Business: Sources of Cash and Capital
Recognizing the Hodgepodge of Values Reported in a Balance Sheet
Chapter 6: Reporting Cash Flows and Changes in Stockholders’ Equity
Meeting the Statement of Cash Flows
Opting for the indirect method
Dissecting the Divergence Between Cash Flow and Net Income
Depreciation: Real, but noncash expense
Changes in operating liabilities
Putting the cash flow pieces together
Sailing Through the Rest of the Statement of Cash Flows
Recognize Shortcomings of the Depreciation Add-back Shortcut
The Cash Flow Statement in the Real World: A Good Idea Gone Awry?
Looking Quickly at the Statement of Changes in Stockholders Equity
Chapter 7: Accounting Alternatives
Taking Financial Statements with a Grain of Salt
Taking an alternative look at the company’s financial statements
Spotting significant differences
Accounts receivable and sales revenue
Inventory and cost of goods sold expense
Fixed assets and depreciation expense
Accrued expenses payable, income tax payable, and expenses
Calculating Cost of Goods Sold Expense and Inventory Cost
Recording Depreciation Expense
Scanning Revenue and Expense Horizons
Part III: Accounting in Managing a Business
Chapter 8: Deciding the Legal Structure for a Business
Securing Capital: Starting With Owners
Contrasting two sources of owners’ equity
Leveraging equity capital with debt
Recognizing the Legal Roots of Business Entities
Offering different classes of stock shares
Determining the market value of stock shares
Keeping alert for dilution of share value
Recognizing conflicts between stockholders and managers
Differentiating Partnerships and Limited Liability Companies
Going It Alone: Sole Proprietorships
Choosing the Right Legal Structure for Income Tax
Chapter 9: Accounting in Managing Profit
Helping Managers: The Fourth Vital Task of Accounting
Following the organizational structure
Designing internal profit (P&L) reports
Presenting a Profit Analysis Template
Separating variable and fixed expenses
Stopping at operating earnings
Focusing on margin — the catalyst of profit
Answering Critical Profit Questions
Taking a Closer Look at the Lines in the Profit Template
Using the Profit Template for Decision-Making Analysis
Tucking Away Some Valuable Lessons
Recognize the leverage effect caused by fixed operating expenses
Don’t underestimate the impact of small changes in sales price
Know your options for improving profit
Exploring the Reasons for Budgeting
Modeling reasons for budgeting
Planning reasons for budgeting
Additional Benefits of Budgeting
Realizing That Not Everyone Budgets
Relying on internal accounting reports
Developing your profit improvement strategy and profit budget
Budgeting cash flow for the coming year
Considering Capital Expenditures and Other Cash Needs
Looking down the Road to the Destination of Costs
Are Costs Really That Important?
Becoming More Familiar with Costs
Relevant versus irrelevant costs
Actual, budgeted, and standard costs
Assembling the Product Cost of Manufacturers
Examining fixed manufacturing costs and production capacity
Puffing Profit by Excessive Production
Shifting fixed manufacturing costs to the future
Being careful when production output is out of kilter with sales volume
Part IV: Preparing and Using Financial Reports
Chapter 12: Getting a Financial Report Ready
Recognizing Top Management’s Role
Reviewing the Purposes of Financial Reporting
Keeping Current with Accounting and Financial Reporting Standards
Making Sure Disclosure Is Adequate
Footnotes: Nettlesome but needed
Other disclosures in financial reports
Putting a Spin on the Numbers (Short of Cooking the Books)
Window dressing for fluffing up the cash balance and cash flow
Sanding the rough edges off the year-to-year profit numbers
Going Public or Keeping Things Private
Reports from publicly owned companies
Reports from private businesses
Dealing with Information Overload
Browsing based on your interests
Recognizing condensed versions
Using other sources of business information
Statement of Changes in Owners’ Equity
Chapter 13: How Lenders and Investors Read a Financial Report
Checking Out the Auditor’s Report
Considering the trustworthiness of financial reports
Massaging the numbers and auditors
Becoming a More Savvy Investor
Once Again: Contrasting Financial Reports of Private and Public Businesses
“Reading” Financial Statements with Ratios
Earnings per share (EPS), basic and diluted
Book value, market value, and book value per share
Return on assets (ROA) ratio and financial leverage gain
Frolicking Through the Footnotes
Chapter 14: Filling Out the Financial Statements for Business Managers
Building on the Foundation of the External Financial Statements
Seeking out problems and opportunities
Gathering Financial Condition Information
Fixed assets less accumulated depreciation
Digging deeper into the return on equity (ROE) measure of profit
Margin: The catalyst of profit
Digging into Cash Flow Information
Distinguishing investing and financing cash flows from operating cash flows
Chapter 15: Ten Accounting Tips for Managers
Reach Break-Even, and Then Rake in Profit
Don’t Confuse Profit and Cash Flow
Call the Shots on Accounting Policies
Be Sure to Get the Key Accounting Information You Need
Critically Review Your Controls Over Employee Dishonesty and Fraud
Lend a Hand in Preparing Your Financial Reports
Sound Like a Pro in Talking Your Financial Statements
Chapter 16: Ten Tips for Reading a Financial Report
Get in the Right Frame of Mind
Test Earnings Per Share (EPS) Against Change in Bottom Line
Tackle Extraordinary Gains and Losses
Look for Signs of Financial Distress
Recognize the Risks of Restatement and Fraud
Remember the Limits of Financial Reports
Appendix: Glossary: Slashing Through the Accounting Jargon Jungle