Accounting For Dummies, 7th Edition
- Length: 448 pages
- Edition: 7
- Language: English
- Publisher: For Dummies
- Publication Date: 2022-01-19
- ISBN-10: 1119837529
- ISBN-13: 9781119837527
- Sales Rank: #817076 (See Top 100 Books)
Demystify your financial statements and figure out what your accountant is talking about with this straightforward roadmap to the world of accounting
Few skills are as useful as a basic understanding of accounting language. And with the right resources, learning the language of business can be intuitive, empowering, and fun.
Accounting For Dummies is the perfect place to start, whether you’re operating a small business, just need help managing the family budget, or you’re a rising star in corporate America. It’s a financial blueprint for the everyday person, easy-to-understand, and full of practical advice.
You’ll learn the basic ABC’s of accounting, how to read and understand financial statements, create best in class budgets & forecasts, craft profitable business plans, take control of your own finances, gain insight on how companies get money from investors and banks, and avoid common money mistakes that trip up even the best of us. You’ll also find out how to:
- Diagnose the financial health of your business and make a realistic plan to grow your company
- Improve your own or your family’s money situation with sound financial planning and understanding
- Understand each of the three basic financial statements and what they say about a company’s past, present, and future
- Enhance your knowledge of how accounting functions and operates in today’s digital age and cloud-based world
As a useful tool for business or as a guide to your personal finances, nothing compares to accounting ma
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
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