Mastering Financial Accounting Essentials : The Critical Nuts and Bolts

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  • Edition: 1st
  • Format: Hardcover
  • Copyright: 2009-11-02
  • Publisher: Wiley

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The essential guide to financial accountingIn today's financial world, you must know how to read and interpret financial reports/statements in order to effectively serve investors, creditors, and tax authorities. This is especially true in light of recent accounting scandals.Mastering Accounting Essentials is an important guide for those who need to understand the language and law of this discipline in order to talk to accountants and clients in an intellectual manner. Part One of the book uses an extended scenario to present the basics of financial accounting. Along the way, you'll become familiar with inventory valuation methods as well as the timing of erosion of productive assets. Part Two focuses on financial statements and shows you how internal managers calculate ratios and trends to evaluate business efficiency. Here, you'll also discover how bankers review statements to determine solvency. Through theory and real-world examples provides a solid grounding in financial accounting Other titles by McCrary: How to Create and Manage a Hedge Fund and Hedge Fund Course Covers the essential elements of this field, from double-entry book keeping to LIFO, FIFO, and straight line depreciationMastering Accounting Essentials offers a hands-on approach to accounting that will allow you to gain a solid understanding of this discipline.

Author Biography

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.

Table of Contents

Prefacep. xi
Acknowledgmentsp. xiii
Creating Ledger Accountingp. 1
Count Everythingp. 4
The Beginnings of Double-Entry Accountingp. 5
Double-Entry Recording of Business Transactionsp. 7
Handling Debits and Creditsp. 7
Keeping Track of Datap. 9
A Mathematical Description of Double-Entry Conventionsp. 10
Handling Income Itemsp. 11
Determining Profit in the Simple Accounting Modelp. 11
Permanent Accounts Overviewp. 11
Temporary Accounts Overviewp. 12
Conclusionp. 12
Questionsp. 13
Accounting Conventionsp. 15
Reasons Accountants Develop Conventionsp. 15
Accounting Cyclep. 16
Classificationp. 16
Comparabilityp. 16
Conservatismp. 16
Double-Entryp. 17
Full Disclosurep. 17
Focus on Additionp. 18
Generally Accepted Accounting Principles (GAAP)p. 18
Going-Concern Valuep. 19
Journal Entryp. 19
Matchingp. 20
Materialityp. 20
Recognitionp. 20
Understandabilityp. 21
Usefulnessp. 21
Valuationp. 21
Verifiabilityp. 22
Conclusionp. 22
Questionsp. 23
Balance Sheetp. 25
Balance Sheet Contains Permanent Accountsp. 25
Time Line of Cash Flowsp. 25
Types of Balance Sheet Accountsp. 27
Presenting the Classified Balance Sheetp. 35
Conclusionp. 36
Questionp. 37
Adding an Income Statementp. 39
Temporary Accountsp. 39
Using Temporary Accountsp. 40
Types of Transactions Involving Temporary Accountsp. 42
Income Accountsp. 44
Single-Step Income Statementp. 46
Multistep Income Statementp. 46
Conclusionp. 47
Questionsp. 49
Timing and Accrual Accountingp. 51
Journaling Accounting Transactionsp. 51
Cash Basis Accountingp. 51
Accrual Basis Accountingp. 52
Conclusionp. 62
Questionsp. 63
The Statement of Cash Flowsp. 67
Importance of Cashp. 67
An Intuitive Way to Track Cashp. 68
Standard Accounting Categories on the Statement of Cash Flowsp. 68
Using the Indirect Method to Document Changes in the Cash Positionp. 70
Using the Direct Method to Document Changes in the Cash Positionp. 72
Producing a Statement of Cash Flows Using the Indirect Methodp. 76
Producing a Statement of Cash Flows Using the Direct Methodp. 78
Conclusionp. 80
Questionsp. 81
Ensuring Integrityp. 83
Internal Controls and Proceduresp. 83
Independent Auditingp. 84
The Role of the User of Financial Statementsp. 85
Conclusionp. 86
Questionsp. 87
Financial Statement Analysisp. 89
Restating Accounting Resultsp. 89
Ratio Analysisp. 89
Trend Analysisp. 96
Industry Analysisp. 97
Conclusionp. 98
Questionsp. 99
Collected Questionsp. 101
Answersp. 105
About the Authorp. 149
Indexp. 151
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