Financial Accounting Essentials You Always Wanted To Know

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Financial Accounting Essentials You Always Wanted To Know covers Financial Accounting concepts in concise and easy-to-understand manner for business professionals and non-finance graduates. This book includes Financial Accounting FUNDAMENTALS, SOLVED Examples, Important CONCEPTS & PRINCIPLES and Ample PRACTICE Exercises.
The topics covered are:
a) Understanding of Financial Accounting Terms
b) Need, nature and purpose of Financial Statements
c) Audience of Financial Statements
d) Balance Sheet
e) Income Statement
f) Statement of Cash Flows
The book is divided into separate chapters, each dedicated to a single concept in Financial Accounting. The flow is such that it builds the reader’s understanding in stages. At the end of each chapter there are ample solved examples that help apply the concepts learnt in the chapter. This is followed by Practice Exercises that give an opportunity to the reader to apply the learnings from the chapter.
The reader gains the following competence after reading this book:
a) Understanding of individual items in Financial Statements
b) Reading and understanding Balance Sheet, Income Statement and Statement of Cash Flows
c) Preparing Balance Sheet, Income Statement and Statement of Cash Flows
Table of Contents
Chapter 1. Accounting Systems
Financial Accounting Systems
Need for Financial Accounting Systems
Financial Statements
Purpose of Financial Statements
Financial Accounting Standards
Solved Examples
Practice Exercises
Chapter 2. Overview of Financial Statements
Balance Sheet
Income Statement
Statement of Cash Flows
Notes to the Financial Statements
Miscellaneous Accounting Concepts and Conventions
Solved Examples
Practice Exercises
Chapter 3. The Balance Sheet
Current Assets
Long-term Assets
Current Liabilities
Long-term Liabilities
Stockholders’ Equity
Transaction Analysis & Balance Sheet Creation
Solved Examples
Practice Exercises
Chapter 4. The Income Statement
Measures of Income
Types of Revenues
Types of Expenses
Earnings per Share (EPS) & Diluted EPS
Revenue Recognition
Expense Recognition
Expanded Accounting Equation
Transaction Analysis & Income Statement Creation
Solved Examples
Practice Exercises
Chapter 5. The Statement of Cash Flows
Categories of Cash Flow Activities
Cash Flow Pattern
Cash Flow Statement Preparation
Solved Examples
Practice Exercises
Current Liabilities
All such liabilities that need to be paid within one year are termed as current liabilities. Below is a description of the most common current liabilities.
Accounts Payable
This is the amount that the company has to pay to its suppliers for credit granted by them. Credit period depends on the industry and company’s relative power over its suppliers. In most cases the credit period is within one year and hence this is shown under current liabilities.
Accrued Liabilities
Salary to employees is generally paid at the end of the month or twice a month. Similarly, interest on loans is payable once a month or once a quarter. Even though these have not yet been paid they will have to be in the short-term as they have been accrued. Such accrued expenses are captured under accrued liabilities.
Short-term Loans Payable
Companies wanting money for less than one year may decide to take a short-term loan of a few days up to a year. Since these loans would need to be returned within 1 year they are included under current liabilities.
Current portion of Long-term Debt
Even long-term debt, like mortgage has monthly payments. All such payments due within one year are classified under current liabilities.
Long-term Liabilities
All other liabilities that are not maturing within one year are called long-term liabilities. Below is a description of the most common ones.
Long-term Debt
All companies take long-term loans to finance their long-term investments in property, plant and equipment. These can be in the form of bank loans, long-term bonds, debentures or any other form where a fixed or variable interest is to be paid.
Deferred Income Tax Liability
Due to government taxation rules, several companies are able to prevent payment of tax immediately. The rules allow them to defer the payment of taxes to a later time. For example, any gain on investment securities is not taxed until the securities are sold even though they have increased in value. Such tax liability is included under long-term liabilities.
Stockholders’ Equity
This is the investment put by the company owners, including stockholders. It also contains the accumulated profits made by the company that belongs to the stockholders. Below are the most common items under this head.
Preferred Stock
Companies can sell preferred stock that gives fixed returns to stockholders. Hence, it is similar to debt. The only difference between preferred stock and debt is that the prior will not lead the company to bankruptcy if the company is unable to pay the fixed dividend. Preferred stock is different than common stock as the preferred stockholders don’t have voting rights. Few companies now issue preferred stocks.
Common Stock, par value & Additional paid-in Capital
All common stocks have a par value, which is the face value of the stock. Most companies have it as $1 per stock. Hence, if you pay $20 for a stock, you are actually paying $1 for the par value and $19 for additional paid-up capital. When the company issues common stocks for the first time, it may offer them at $10. It will be reflected as below in the Balance Sheet of the company.
About the Series
This Self Learning Management Series intends to give a jump start to working professionals, whose job roles demand to have the knowledge imparted in a B-school but haven’t got a chance to visit one. This series is designed to address every aspect of business from HR to Finance to Marketing to Operations, be it any industry. Each book includes basic fundamentals, important concepts, standard and well-known principles as well as practical ways of application of the subject matter. The distinctiveness of the series lies in that all the relevant information is bundled in a compact form that is very easy to interpret.
About the Author
Kalpesh Ashar, a management consultant and corporate trainer holds an M.B.A. (Dean's Award Winner) from S.P. Jain Institute of Management & Research,one of Asia’s top B-Schools, and an Engineering degree with Honours in Electronics. He has over 13 years of experience in large corporations and start-ups in Asia, U.S.A and Europe.
Kalpesh has worked in the capacity of Senior Manager and Program Manager and is passionate about writing on management subjects. While mentoring managers and management students, he realized the need for a series of management books based on quick self-learning. He has authored 10 titles in this series that gives a jump start to managers in understanding all aspects of a business. His technology background gives him a good understanding of the management learning needs of non-M.B.A. graduates. Accordingly, he has authored the titles in this series in a simple to understand manner.
Kalpesh conducts corporate trainings in management subjects and also works as a management consultant for growing companies. He is also affiliated with top business schools in India as a visiting faculty. He is well known as a great mentor in the companies he has worked in and has also received "Best Manager" award.