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Crash Course in Accounting and Financial Statement Analysis, Second Edition

Book Description

Seamlessly bridging academic accounting with real-life applications, Crash Course in Accounting and Financial Statement Analysis, Second Edition is the perfect guide to a complete understanding of accounting and financial statement analysis for those with no prior accounting background and those who seek a refresher.

Table of Contents

  1. Copyright
  2. About the Authors
  3. Preface
  4. Introduction to Accounting
    1. What Is Accounting?
    2. Why Is Accounting Important?
    3. Who Uses Accounting?
    4. U.S. Accounting Regulations
      1. Generally Accepted Accounting Principles
    5. Overview of the Securities and Exchange Commission
    6. Overview of the Financial Accounting Standards Board
    7. International Accounting Regulations
    8. Convergence of U.S. GAAP and IFRS
    9. Summary
  5. Basic Accounting Principles
    1. Assumptions
      1. Assumption 1: Accounting Entity
      2. Assumption 2: Going Concern
      3. Assumption 3: Measurement and Units of Measure
      4. Assumption 4: Periodicity
    2. Wrap-up: Assumptions
    3. Principles
      1. Principle 1: Historical Cost
      2. Principles 2 and 3: Accrual Basis
      3. Principle 4: Full Disclosure
    4. Wrap-up: Principles
    5. Constraints
      1. Constraint 1: Estimates and Judgments
      2. Constraint 2: Materiality
      3. Constraint 3: Consistency
      4. Constraint 4: Conservatism
    6. Summary
  6. Financial Reporting
    1. Financial Reporting Overview
    2. Finding Financial Reports
    3. Form 10-K (Annual Filing)
    4. Form 10-Q (Quarterly Filing)
    5. Other Important Filings
      1. Form 8-K
      2. Form S-1
      3. Form 14A
      4. Form 20-F
    6. Summary
  7. Reading the Annual Report
    1. Introduction
    2. Letter to Stockholders
    3. Financial Highlights
    4. Management’s Discussion and Analysis
    5. Financial Statements
      1. Income Statement
      2. Balance Sheet
      3. Cash Flow Statement
    6. Notes to Consolidated Statements
    7. Report of Management’s Responsibilities
    8. Certification of Financial Statements
    9. Risk Factors
    10. Legal Proceedings
    11. Report of Independent Auditors
    12. Directors and Officers
    13. Summary
  8. Income Statement
    1. What Is the Income Statement?
    2. Why Is It Important?
    3. Revenues
      1. Not All Income Is Revenue
      2. Bad Debt Expense
      3. What Is Bad Debt Expense?
      4. Revenue Recognition: To Recognize and When?
      5. Revenue Recognition: Long-Term Projects
      6. Expense Recognition and Accrual Basis of Accounting
      7. Basic Principles Revisited: Accrual Basis of Accounting and Matching Principle
      8. Putting It All Together: The Accrual Basis of Accounting
      9. Why Use Accrual Accounting?
      10. Accrual versus Cash Accounting: What’s the Difference?
      11. Revenue Manipulation
    4. Cost of Goods Sold
      1. COGS Do Not Include Administrative Costs
    5. Gross Profit
    6. Selling, General and Administrative
    7. Research and Development
    8. Stock Options Expense
    9. Depreciation Expense
      1. Basic Principles Revisited: The Matching Principle and Depreciation
      2. Depreciation Is a “Phantom” Noncash Expense
      3. Straight-Line Depreciation Method
      4. Accelerated Depreciation Methods
        1. Accelerated Depreciation Method: Sum-of-the-Years’ Digits
        2. Accelerated Depreciation Method: Double-Declining-Balance
      5. Depreciation Methods Compared
    10. Amortization
      1. Amortization Is a “Noncash” Expense (Like Depreciation)
      2. What Is the Difference between Depreciation and Amortization?
      3. Summary
      4. Goodwill
      5. Goodwill Not Amortized after 2001
    11. Interest Expense
    12. Interest Income
    13. Other Nonoperating Income
    14. Income Tax Expense
    15. Equity Income in Affiliates
    16. Minority Interest
    17. Net Income
    18. Shares Outstanding
      1. Representation of Shares Outstanding in the Income Statement
    19. Common Dividends
    20. Preferred Dividends
    21. Earnings per Share
    22. Nonrecurring Items
      1. Unusual or Infrequent Items
      2. Discontinued Operations
      3. Extraordinary Items
      4. Accounting Changes
    23. Earnings before Interest, Taxes, Depreciation, and Amortization
      1. EBITDA: Popular Measure of a Company’s Financial Performance
      2. EBITDA Has Several Shortcomings
    24. EBIT
    25. Summary
  9. Balance Sheet
    1. Introduction
      1. Basic Principles Revisited: Historical Cost and Conservatism
      2. Assets Represent the Company’s Resources
      3. Liabilities and Shareholders’ Equity Represent the Company’s Sources of Funds (i.e., How It Pays for Assets)
      4. Lemonade Stand and the Accounting Equation
      5. Balance Sheet
    2. Double-Entry Accounting
      1. Why Is Double-Entry Accounting Important?
    3. Income Statement Revisited: Links to Balance Sheet
    4. Retained Earnings: The Link Between Balance Sheet and Income Statement
      1. Impact of Revenues on the Balance Sheet
      2. Impact of COGS on the Balance Sheet
      3. Impact of SG&A on the Balance Sheet
      4. Impact of Depreciation on the Balance Sheet
      5. Impact of Interest Expense on the Balance Sheet
      6. Impact of Tax Expense on the Balance Sheet
      7. Total Impact of the Year on the Balance Sheet
      8. Summary
    5. Order of Liquidity
      1. Current versus Noncurrent Assets
      2. Current versus Long-Term Liabilities
    6. Assets
      1. Cash
      2. Cash equivalents
      3. Marketable securities
      4. Accounts Receivable
      5. Inventories
        1. Inventories Are Linked to the COGS Line of the Income Statement
      6. LIFO Reserve: The Link between FIFO and LIFO Inventory Methods
      7. Writing Down Inventories
      8. Deferred Taxes
      9. PP&E, Net of Depreciation
      10. Reconciliation of PP&E
      11. Fixed Asset Impairments
      12. Fixed Asset Retirement and Disposal
      13. Intercompany Investments
      14. Consolidation
      15. Intangible Assets
      16. Goodwill
      17. Summary: Intangible Assets and Goodwill
    7. Summary: Assets
    8. Liabilities
      1. Accounts Payable
      2. Debt
      3. Short-Term Debt versus Long-Term Debt
      4. Capital Leases
      5. Operating Leases
      6. Deferred Taxes
      7. Summary: Deferred Taxes
      8. Pensions
        1. Defined Contribution Plan
        2. Accounting for Defined Contribution Plans
      9. Defined Benefit Plan
        1. Accounting for Defined Benefit Plans
      10. Minority Interest
      11. Summary: Liabilities
    9. Shareholders’ Equity
      1. Introduction
      2. Common Stock
      3. Additional Paid-In Capital
      4. Preferred Stock
      5. Treasury Stock
      6. Retained Earnings
      7. Summary: Shareholders’ Equity
    10. Summary
  10. Cash Flow Statement
    1. Introduction
      1. Cash Flow Statement to the Rescue!
    2. Cash Flow from Operations
      1. Overview
      2. Indirect Method
      3. Getting from Net Income to Cost from Operations
      4. Depreciation
      5. Working Capital
      6. Changes in Accounts Receivable
      7. Changes in Accounts Receivable and the Lemonade Stand
      8. Changes in Inventories
      9. Changes in Inventories and the Lemonade Stand
      10. Changes in Accounts Payable
      11. Accounts Payable and the Lemonade Stand
      12. Changes in Other Current Assets
      13. Changes in Other Current Liabilities
      14. Increases/Decreases in Deferred Taxes
    3. Summary: Cash Flow from Operations
    4. Cash Flow from Investing Activities
      1. Overview
      2. Components
    5. Cash Flow from Financing Activities
      1. Overview
      2. Components
    6. How the Cash Flow Is Linked to the Balance Sheet
    7. Summary
    8. Online Exercise
    9. Chapter Summary
  11. Financial Ratio Analysis
    1. Introduction
      1. What Is Financial Ratio Analysis?
    2. Liquidity Ratios
      1. Current Ratio
      2. Quick (Acid) Test
      3. Current Cash Debt Coverage Ratio
    3. Profitability Ratios
      1. Gross Profit Margin
      2. Profit Margin on Sales
      3. Return on Assets
      4. Return on Equity
      5. Earnings per Share
      6. Price-to-Earnings Ratio
      7. Payout Ratio
    4. Activity Ratios
      1. Receivables Turnover
      2. Days Sales Outstanding
      3. Inventory Turnover
      4. Days Sales of Inventory
      5. Asset Turnover
    5. Coverage Ratios
      1. Debt to Total Assets
      2. Times Interest Earned
      3. Cash Debt Coverage Ratio
    6. Calculations
  12. Appendix
    1. Stock Options
    2. Stock Options Expensing
      1. Then . . .
      2. . . . and Now
    3. Debt
      1. How Are These Two Forms of Capital Raised?
      2. Who Issues Debt?
      3. Long-Term Debt
    4. Capital versus Operating Leases
    5. Direct Method