Mastering Financial Accounting Essentials

An indispensable hands-on guide to financial accounting

In light of recent accounting scandals, it is critical that all financial practitioners understand and play by the rules of the accounting field. Starting from the assumption that the reader is not familiar with any accounting jargon, Mastering Financial Accounting Essentials presents material in a way that explains the key features of modern accounting step by step and helps you develop an intuitive understanding of accounting. Each chapter presents important accounting concepts, from inventory valuation methods and the timing of erosion of productive assets to how internal managers calculate ratios and trends to evaluate business efficiency.

For those who need to understand the language and law of this discipline in order to communicate effectively with accountants and clients, Mastering Financial Accounting Essentials will be an indispensable guide.

Preface.

Acknowledgments.

CHAPTER 1 Creating Ledger Accounting.

Count Everything.

The Beginnings of Double-Entry Accounting.

Double-Entry Recording of Business Transactions.

Handling Debits and Credits.

Keeping Track of Data.

A Mathematical Description of Double-Entry Conventions.

Handling Income Items.

Determining Profit in the Simple Accounting Model.

Permanent Accounts Overview.

Temporary Accounts Overview.

Conclusion.

Questions.

CHAPTER 2 Accounting Conventions.

Reasons Accountants Develop Conventions.

Accounting Cycle.

Classification.

Comparability.

Conservatism.

Double-Entry.

Full Disclosure.

Focus on Addition.

Generally Accepted Accounting Principles (GAAP).

Going-Concern Value.

Journal Entry.

Matching.

Materiality.

Recognition.

Understandability.

Usefulness.

Valuation.

Verifiability.

Conclusion.

Questions.

CHAPTER 3 Balance Sheet.

Balance Sheet Contains Permanent Accounts.

Time Line of Cash Flows.

Types of Balance Sheet Accounts.

Presenting the Classified Balance Sheet.

Conclusion.

Question.

CHAPTER 4 Adding an Income Statement.

Temporary Accounts.

Using Temporary Accounts.

Types of Transactions Involving Temporary Accounts.

Income Accounts.

Single-Step Income Statement.

Multistep Income Statement.

Conclusion.

Questions.

CHAPTER 5 Timing and Accrual Accounting.

Journaling Accounting Transactions.

Cash Basis Accounting.

Accrual Basis Accounting.

Conclusion.

Questions.

CHAPTER 6 The Statement of Cash Flows.

Importance of Cash.

An Intuitive Way to Track Cash.

Standard Accounting Categories on the Statement of Cash Flows.

Using the Indirect Method to Document Changes in the Cash Position.

Using the Direct Method to Document Changes in the Cash Position.

Producing a Statement of Cash Flows Using the Indirect Method.

Producing a Statement of Cash Flows Using the Direct Method.

Conclusion.

Questions.

CHAPTER 7 Ensuring Integrity.

Internal Controls and Procedures.

Independent Auditing.

The Role of the User of Financial Statements.

Conclusion.

Questions.

CHAPTER 8 Financial Statement Analysis.

Restating Accounting Results.

Ratio Analysis.

Trend Analysis.

Industry Analysis.

Conclusion.

Questions.

Collected Questions.

Answers.

About the Author.

Index.

Stuart A. McCrary is a Principal at Chicago Partners, a division of Navigant Consulting, Inc. He is a trader and portfolio manager who specializes in traditional and alternative investments, quantitative valuation, risk management, and financial software. Prior to joining Chicago Partners, McCrary was president of Frontier Asset Management, managing a market-neural hedge fund. He also held positions with Fenchurch Capital Management as a senior option trader and CS First Boston as vice president and market maker of over-the-counter options. Prior to that, McCrary was a vice president with the Securities Groups and a portfolio manager with Comerica Bank. McCrary has published two previous books with Wiley: How to Creat and Manage a Hedge Fund and Hedge Fund Course. Whether you ate a manager who relies on accounting information, a regulator, or an investor, in today’s financial world you must know how to read and interpret financial reports and statements in order to make sound financial decisions and effectively serve investors, creditors and tax authorities.

Emphasizing a general understanding of the process and reports associated with this discipline, Mastering Financial Accounting Essentials shows you how to understand accounting records, use accounting information intelligently, and reduce the opportunity for fraud. This book does not focus on accounting and auditing rules and is not intended to teach accounting to future accountants—nor does it assume any prior knowledge of accounting jargon or double-entry accounting. Instead, it focuses on a intuitive understanding of the accounting process and standard accounting reports through an extended example of a new company being created.

As the example company is built and grows, new kinds of activities require accountants to record a widening variety of business transactions. It starts with a limited accounting system that does not include many key features of modern accounting, and then features—such as accrual accounting, which can make accounting numbers more useful for business decisions—are successively added, so that you can gain an understanding of how they work and why they are used.

All accounting concepts are introduced along with the language accountants use to describe the process. The name of a particular account is written in upper case (such as ASSETS or CASH) to make it clear when the text describes that account. The book reinforces the new language by gradually adopting accounting vocabulary. In this way, you will learn about accounting without having to have a grounding in the topic—and will then get to rehearse the language used by accountants. Questions at the end of each chapter revisit key concepts by reviewing how accountants handle common business transactions.

For all non-accountants who need to master the fundamentals of accounting language and concepts, Mastering Financial Accounting Essentials will prove to be a vital hands-on guide.

An indispensable hands-on guide to financial accounting

In light of recent accounting scandals, it is critical that all financial practitioners understand and play by the rules of the accounting field. Starting from the assumption that the reader is not familiar with any accounting jargon, Mastering Financial Accounting Essentials presents material in a way that explains the key features of modern accounting step by step and helps you develop an intuitive understanding of accounting. Each chapter presents important accounting concepts, from inventory valuation methods and the timing of erosion of productive assets to how internal managers calculate ratios and trends to evaluate business efficiency.

For those who need to understand the language and law of this discipline in order to communicate effectively with accountants and clients, Mastering Financial Accounting Essentials will be an indispensable guide.