ACCOUNTING FOR DUMMIES

Title Page
Copyright Page
Table of Contents
Introduction
	About This Book
	Foolish Assumptions
	Icons Used in This Book
	Beyond the Book
	Where to Go from Here
Part 1 Opening the Books on Accounting
	Chapter 1 Accounting in Today’s New Economy
		Checking Your Preconceptions about Accounting
			Thinking about where assets come from
			Asking about profit
			Sorting out stereotypes of accountants
		Providing Vital Financial Information
			Recognizing users of accounting information
			Using accounting in your personal financial life
			Seeing accounting at work
		Accounting’s Two Primary Roles
		Taking a Peek behind the Scenes
		Focusing on Transactions
			Separating basic types of transactions
			Knowing who’s on the other side of transactions
			Recording events
		Taking the Financial Pulse of a Business
			Meeting the balance sheet (statement of financial condition)
			Reporting profit and loss
			Reporting cash flows and changes in owners’ equity
			Remembering management’s role
		Accounting as a Form of Art
	Chapter 2 Introducing Financial Statements
		Setting the Stage for Financial Statements
			Offering a few preliminary comments about financial statements
			Looking at other aspects of reporting financial statements
		The Income Statement
			Presenting the components of the income statement
			Income statement pointers
		The Balance Sheet
			Presenting the components of the balance sheet
			Balance sheet pointers
		The Statement of Cash Flows
			Presenting the components of the statement of cash flows
			Statement of cash flows pointers
		A Note about the Statement of Changes in Shareowners’ Equity
		Gleaning Important Information from Financial Statements
			How’s profit performance?
			Is there enough cash?
			Can you trust financial statement numbers?
			Why no (or limited) cash distribution from profit?
		Complying with Accounting and Financial Reporting Standards
			Looking at who makes the standards
			Knowing about GAAP
			Divorcing public and private companies
			Following the rules and bending the rules
	Chapter 3 Safeguarding Company Assets
		Separating the Duties of Bookkeepers and Accountants
		Pedaling through the Bookkeeping Cycle
			Getting to the end of the period
			Finishing up for the period
		Managing Accounting Systems
			Categorize financial information: The chart of accounts
			Standardize source documents and data-entry procedures for recording activities
			Hire competent personnel
			Get involved in end-of-period procedures
			Leave good audit trails
			Keep alert for unusual events and developments
			Design truly useful reports for managers
		Enforcing Strong Internal Controls
		Double-Entry Accounting
		Juggling the Books to Conceal Embezzlement and Fraud
	Chapter 4 Accounting in the Digital Age
		Noting a Few Foundational Accounting Concepts Related to Technology
		Using Accounting Software in the Cloud and on the Ground
		Controlling and Protecting Money Flows in the Electronic Age
			Processing payroll
			Controlling bank accounts
			Surveying bank forms of electronic payments
			Checking out non-bank forms of electronic payments
			Using enhanced accounting controls
		Managing the Accounting Function in the On-Demand World
			Source documentation
			Data rooms
			Financial reporting
			Flash reports and KPIs
			Accounting and financial analysis tools
	Chapter 5 Recognizing the Legal and Accounting Entity
		Being Aware of the Legal Roots of Business Entities
			Sole proprietorship
			Partnerships
			S corporations
			Limited liability companies (LLCs)
			C corporations
		Going It Alone: Sole Proprietorships
		Differentiating Partnerships and Limited Liability Companies
			Looking at important features
			Understanding profit allocation
		Incorporating a Business
			Issuing stock shares
			Distinguishing different classes of stock shares
			Determining the market value of stock shares
			Watching out for dilution of share value
			Recognizing conflicts between stockholders and managers
Part 2 Exploring Financial Statements
	Chapter 6 Reporting Profit or Loss in the Income Statement
		Presenting Typical Income Statements
			Looking at businesses that sell products
			Looking at businesses that sell services
			Looking at investment businesses
		Taking Care of Housekeeping Details
		Being an Active Reader
		Deconstructing Profit
			Revenue and expense effects on assets and liabilities
			Comparing three scenarios of profit
			Folding profit into retained earnings
		Pinpointing the Assets and Liabilities Used to Record Revenue and Expenses
			Making sales: Accounts receivable and deferred revenue
			Selling products: Inventory
			Prepaying operating costs: Prepaid expenses
			Understanding fixed assets: Depreciation expense
			Figuring unpaid expenses: Accounts payable, accrued expenses payable, and income tax payable
		Reporting Unusual Gains and Losses
		Watching for Misconceptions and Misleading Reports
	Chapter 7 Reporting Financial Condition in the Balance Sheet
		Expanding the Accounting Equation
		Presenting a Proper Balance Sheet
			Doing an initial reading of the balance sheet
			Kicking balance sheets out into the real world
		Judging Liquidity and Solvency
			Current assets and liabilities
			Current and quick ratios
		Understanding That Transactions Drive the 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
			Debt and interest 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 8 Reporting Cash Sources and Uses in the Statement of Cash Flows
		Meeting the Statement of Cash Flows
			Presenting the direct method
			Opting for the indirect method
		Explaining the Variance between Cash Flow and Net Income
			Accounts receivable change
			Inventory change
			Prepaid expenses change
			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
			Understanding investing activities
			Looking at financing activities
			Reading actively
		Pinning Down “Free Cash Flow”
		Limitations of the Statement of Cash Flows
	Chapter 9 Financial Accounting Issues
		Reporting Changes in Owners’ Equity
		Recognizing Reasons for Accounting Differences
		Looking at a More Conservative Version of the Company’s Income Statement
			Presenting an alternative income statement
			Spotting significant differences
		Explaining 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
			Wrapping things up
		Calculating Cost of Goods Sold Expense and Inventory Cost
			FIFO (first-in, first-out)
			LIFO (last-in, first-out)
		Recording Depreciation Expense
		Scanning the Revenue and Expense Radar Screen
		Using the Statement of Cash Flows as an Audit/Sanity Test
Part 3 Understanding Financial Reports, Financial Statements, and Financial Information
	Chapter 10 Producing Financial Reports
		Quickly Reviewing the Theory of Financial Reporting
			Starting with the financial statements
			Keeping in mind the reasons for financial reports
		Recognizing Top Management’s Role
		Keeping Current with Financial Accounting and 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: Pumping up the ending cash balance and cash flow
			Smoothing the rough edges off year- to-year profit fluctuations
		Comparing Public and Private Companies
			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
	Chapter 11 Deciphering a Financial Report
		Knowing the Rules of the Game
		Making Investment Choices
			Managing investments alone or using a third party
			Finding and understanding information sources
		Contrasting Reading Financial Reports of Private Versus Public Businesses
		Explaining the Role of MDORs and MD&As
		Frolicking through the Footnotes
		Checking Out the Auditor’s Report
			Why audits?
			What’s in an auditor’s report?
			Discovering fraud, or not
	Chapter 12 Analyzing Financial Information with Ratios
		Understanding the Importance of Using Ratios to Digest Financial Statements
		Improving Your Knowledge of Financial Language and Lingo
		Starting with Sample Company Financial Statements
		Benchmark Financial Ratios: Financial Strength and Solvency
			Current ratio
			Net working capital
			Acid test ratio (aka quick ratio)
			Debt-to-equity ratio
			Debt-to-tangible net equity
		Benchmark Financial Ratios: Financial Performance
			Return on sales (ROS)
			Return on equity (ROE)
			Return on assets (ROA)
			Earnings per share (EPS), basic and fully diluted
			Price/earnings (P/E) ratio
			Debt service coverage ratio
		Making Time for Additional Ratios (If Needed)
	Chapter 13 Generating Internal Financial Information for Management Use
		Building on the Foundation of the External Financial Statements
			Seeking out problems and opportunities
			Avoiding information overload
		Distinguishing Internal and External Financial Statements
			Format
			Detail
			Confidentiality
			Timeliness
			Completeness
		Gathering Financial Condition Information
			Cash
			Accounts receivable
			Inventory
			Fixed assets less accumulated depreciation
			Intangible assets
			Accounts payable
			Accrued expenses payable
			Income tax payable
			Interest-bearing debt
			Owners’ equity
		Culling Profit Information
			Presenting an income statement for managers
			Calculating cash flow on the back of an envelope
			Managing operating cash flows
			Scrutinizing sales revenue and expenses
		Avoiding Rookie Mistakes
	Chapter 14 Applying Wall Street’s Tricks and Treats to Engineer Financial Results
		Knowing What Financial Engineering Is Not
		Defining What Financial Engineering Is
		Identifying Commonly Used “Tricks of the Trade”
			Using tricks that fit within GAAP but need more digging
			Understanding commonly used tricks outside the realm of GAAP
		Manufacturing Imaginary Profits (and, Yes, Losses)
			Reviewing examples of “manufacturing” profits
			Keeping critical points in mind
		Looking Out for Particular Trends and Terminology
Part 4 Leveraging Accounting in Managing a Business
	Chapter 15 Analyzing Profit
		Helping Managers: The Fourth Pillar of Accounting
			Branching out in the field of management accounting
			Following the organizational structure
			Centering on profit centers
		Internal Profit Reporting
			Designing internal profit (P&L) reports
			Reporting operating expenses
		Looking at Strategic Profit Analysis
			Presenting a profit analysis template
			Separating variable and fixed expenses
			Stopping at operating earnings
			Focusing on margin — the catalyst of profit
			Using the template to explain profit
		Taking a Closer Look at the Lines in the Profit Template
			Sales revenue
			Cost of goods sold
			Variable operating expenses
			Fixed operating expenses
		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
	Chapter 16 Accounting for Costs
		Looking Down the Road to the Destination of Costs
		Are Costs Really That Important?
		Becoming More Familiar with Costs
			Direct versus indirect costs
			Fixed versus variable costs
			Relevant versus irrelevant costs
			Actual, projected, and standard costs
			Product versus period costs
		Assembling the Product Cost of Manufacturers
			Minding manufacturing costs
			Classifying costs properly
			Calculating product cost
			Examining fixed manufacturing costs and production capacity
		Puffing Profit by Excessive Production
			Shifting fixed manufacturing costs to the future
			Cranking up production output
			Being careful when production output is out of kilter with sales volume
	Chapter 17 Preparing Best-in-Class Forecasts, Projections, and Budgets
		Focusing on Key Forecasting Concepts
		Putting Forecasting in Its Place
			Planning reasons for forecasting
			Control reasons for preparing forecasts
		Exploring Forecasting
			The living and breathing business forecast
			Projections as financial models
		Increasing the Power of Your Forecasts
			The SWOT
			Top down or bottom up
			What if?
			Rolling forecasts
		Seeing a Financial Forecast in Action
			The income statement
			The balance sheet
			The statement of cash flows
		Rehashing the Value of Forecasts
	Chapter 18 Capitalizing a Business: How, When, Why, and What
		Identifying the Elements of a Business Plan
			Capturing the most critical material
			Providing a few examples
		Valuing Businesses: A Crash Course in the Basics
			Why businesses are valued
			How businesses are valued
		Surveying Commonly Used Business Valuation Techniques
			Cash flow multiple method
			Price earnings multiple method
		Summarizing the Two Basic Types of Available Capital
			Realizing when to raise equity
			Knowing when debt is the best source of capital
		Taking a Deeper Dive into Raising Debt Capital
			Maturity and security
			Debt sources (loans)
			Debt underwriting and costs
			Debt structure
			Debt covenants
		Digging Further into the World of Equity Capital
			Disguising equity as debt
			Structuring equity with preferences
			Reaching the end of the line with equity capital
		Raising Capital: Tips, Tidbits, and Traps
Part 5 The Part of Tens
	Chapter 19 Ten Tips for Managers
		Reach Breakeven and Then Rake in Profit
		Set Sales Prices Right
		Don’t Confuse Profit and Cash Flow
		Call the Shots on Accounting Policies
		Prepare Accurate Forecasts and Projections
		Demand the Accounting Information You Want
		Tap into Your CPA’s Expertise
		Critically Review Your Controls over Employee Dishonesty and Fraud
		Lend a Hand in Preparing Your Financial Reports
		Speak about Your Financial Statements as a Pro
	Chapter 20 Ten Tips for Reading a Financial Report
		Get in the Right Frame of Mind
		Decide What to Read
		Improve Your Accounting Savvy
		Judge Profit Performance
		Test Earnings Per Share (EPS) against Change in Bottom Line
		Tackle Unusual Gains and Losses
		Check Cash Flow from Profit
		Look for Signs of Financial Distress
		Recognize the Possibility of Restatement and Fraud
		Remember the Limits of Financial Reports
Index
EULA