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Index
Table of ContentsIntroductionAbout This BookConventions Used in Financial ReportsSome AssumptionsHow This Book Is OrganisedPart I: Accounting BasicsPart II: Getting a Grip on Financial StatementsPart III: Accounting in Managing a BusinessPart IV: Financial Reports in the Outside WorldPart V: The Part of TensPart VI: AppendixesIcons Used in This BookWhere to Go from HerePart IChapter 1: Introducing Accounting to Non-AccountantsAccounting Everywhere You LookThe Basic Elements of AccountingAccounting and Financial Reporting StandardsThe importance of GAAP and evolving accounting standardsWhy the GAAP rules are importantIncome tax and accounting rulesFlexibility in accounting standardsEnforcing Accounting RulesProtecting investors: Sarbanes-Oxley and beyondThe Accounting Department: What Goes On in the Back OfficeFocusing on Business Transactions and Other Financial EventsTaking a Closer Look at Financial StatementsThe balance sheetThe profit and loss accountThe cash flow statementAccounting as a CareerChartered Accountant (CA)The Financial Controller: The chief accountant in an organisationChapter 2: Bookkeeping 101: From Shoe Boxes to ComputersBookkeeping versus AccountingPedalling through the Bookkeeping CycleManaging the Bookkeeping and Accounting SystemCategorise your financial information: The chart of accountsStandardise source document forms and proceduresDon't be penny-wise and pound-foolish: The need for competent, trained personnelProtect the family jewels: Internal controlsKeep the scale in balance with double-entry accountingCheck your figures: End-of-period procedures checklistKeep good records: Happy audit trails to you!Look out for unusual events and developmentsDesign truly useful accounting reports for managersDouble-Entry Accounting for Non-AccountantsThe two-sided nature of a business entity and its activitiesRecording transactions using debits and creditsJuggling the Books to Conceal Embezzlement and FraudChapter 3: Taxes, Taxes, and More TaxesTaxing Wages and PropertyPutting the government on the payroll: Employer taxesTaxing everything you can put your hands on: Property taxes'Cause I'm the Tax Man: Value Added TaxTaxing Your Bottom Line: Company TaxesDifferent tax rates on different levels of business taxable incomeProfit accounting and taxable income accountingDeductible expensesNon-deductible expensesEquity capital disguised as debtChapter 4: Accounting and Your Personal FinancesThe Accounting Vice You Can't EscapeThe Ins and Outs of Figuring Interest and Return on Investment (ROI)Individuals as borrowersIndividuals as saversIndividuals as investorsAn Accounting Template for Retirement PlanningPart IIChapter 5: Profit MechanicsSwooping Profit into One Basic EquationMeasuring the Financial Effects of Profit-Making ActivitiesPreparing the balance sheet equationExploring the Profit-Making Process One Step at a TimeMaking sales on creditDepreciation expenseUnpaid expensesPrepaid expensesStock (or Inventory) and cost of goods sold expenseSo Where's Your Hard-Earned Profit?Reporting Profit to Managers and Investors: The Profit and Loss AccountReporting normal, ongoing profit-making operationsReporting unusual gains and lossesPutting the profit and loss account in perspectiveChapter 6: The Balance Sheet from the Profit and Loss Account ViewpointCoupling the Profit and Loss Account with the Balance SheetSizing Up Assets and LiabilitiesSales revenue and debtorsCost of goods sold expense and stockSA&G expenses and the four balance sheet accounts that are connected with the expensesFixed assets and depreciation expenseDebt and interest expenseIncome tax expenseThe bottom line: net profit (net income) and cash dividends (if any)Financing a Business: Owners' Equity and DebtReporting Financial Condition: The Classified Balance SheetCurrent (short-term) assetsCurrent (short-term) liabilitiesCosts and Other Balance Sheet ValuesGrowing UpChapter 7: Cash Flows and the Cash Flow StatementThe Three Types of Cash FlowSetting the Stage: Changes in Balance Sheet AccountsGetting at the Cash Increase from ProfitComputing cash flow from profitGetting specific about changes in assets and liabilitiesPresenting the Cash Flow StatementA better alternative for reporting cash flow from profit?Sailing through the Rest of the Cash Flow StatementInvesting activitiesFinancing activitiesFree Cash Flow: What on Earth Does That Mean?Scrutinising the Cash Flow StatementChapter 8: Getting a Financial Report Ready for Prime TimeReviewing Vital ConnectionsStatement of Changes in Owners' Equity and Comprehensive IncomeMaking Sure that Disclosure Is AdequateTypes of disclosures in financial reportsFootnotes: Nettlesome but neededOther disclosures in financial reportsKeeping It Private versus Going PublicNudging the NumbersFluffing up the cash balance by ‘window dressing'Smoothing the rough edges off profitBrowsing versus Reading Financial ReportsPart IIIChapter 9: Managing Profit PerformanceRedesigning the External Profit and Loss AccountBasic Model for Management Profit and Loss AccountVariable versus fixed operating expensesFrom operating profit (EBIT) to the bottom lineTravelling Two Trails to ProfitFirst path to profit: Contribution margin minus fixed expensesSecond path to profit: Excess over break-even volume contribution margin per unitCalculating the margin of safetyDoing What-If AnalysisLower profit from lower sales - but that much lower?Violent profit swings due to operating leverageCutting sales price, even a little, can gut profitImproving profitCutting prices to increase sales volume: A very tricky game to play!Cash flow from improving profit margin versus improving sales volumeA Final Word or TwoChapter 10: Business BudgetingThe Reasons for BudgetingThe modelling reasons for budgetingPlanning reasons for budgetingManagement control reasons for budgetingOther benefits of budgetingBudgeting and Management AccountingBudgeting in ActionDeveloping your profit strategy and budgeted profit and loss accountBudgeting cash flow from profit for the coming yearCapital BudgetingCalculating paybackDiscounting cash flowCalculating the internal rate of returnStaying Flexible with BudgetsChapter 11: Choosing the Right Ownership StructureFrom the Top Line to the Bottom LineWhat Owners Expect for Their MoneyCompaniesPartnerships and limited partnershipsSole proprietorshipsLimited companies (Ltd) and public limited companies (plc)Choosing the Right Legal Structure for Tax PurposesCompaniesPartnerships, limited liability partnerships, and sole proprietorshipsDeciding which legal structure is bestChapter 12: Cost ConundrumsPreviewing What's Coming Down the RoadWhat Makes Cost So Important?Sharpening Your Sensitivity to CostsDirect versus indirect costsFixed versus variable costsBreaking evenRelevant versus irrelevant (sunk) costsSeparating between actual, budgeted, and standard costsProduct versus period costsPutting Together the Pieces of Product Cost for ManufacturersMinding manufacturing costsAllocating costs properly: Not easy!Calculating product costFixed manufacturing costs and production capacityExcessive production output for puffing up profitA View from the Top Regarding CostsChapter 13: Choosing Accounting MethodsDecision-Making Behind the Scenes in Profit and Loss AccountsCalculating Cost of Goods Sold and Cost of StockThe FIFO methodThe LIFO methodThe average cost methodIdentifying Stock Losses: Net Realisable Value (NRV)Appreciating Depreciation MethodsCollecting or Writing Off Bad DebtsReconciling Corporation TaxTwo Final Issues to ConsiderPart IVChapter 14: How Investors Read a Financial ReportFinancial Reporting by Private versus Public BusinessesAnalysing Financial Reports with RatiosGross margin ratioProfit ratioEarnings per share, basic and dilutedPrice/earnings (P/E) ratioDividend yieldBook value per shareReturn on equity (ROE) ratioCurrent ratioAcid-test ratioReturn on assets (ROA) ratioFrolicking through the FootnotesChecking for Ominous Skies on the Audit ReportFinding Financial FactsPublic company accountsPrivate company accountsScoring creditChapter 15: Professional Auditors and AdvisersWhy Audits?Who's Who in the World of AuditsWhat an Auditor Does Before Giving an OpinionWhat's in an Auditor's ReportTrue and fair, a clean opinionOther kinds of audit opinionsDo Audits Always Catch Fraud?Looking for errors and fraudWhat happens when auditors spot fraudAuditors and GAAPFrom Audits to AdvisingPart VChapter 16: Ten Ways Savvy Business Managers Use AccountingMake Better Profit DecisionsUnderstand That a Small Sales Volume Change Has a Big Effect on ProfitFathom Profit and Cash Flow from ProfitProfit accounting methods are like hemlinesThe real stuff of profitGovern Cash Flow BetterCall the Shots on Your Management Accounting MethodsBuild Better BudgetsOptimise Capital Structure and Financial LeverageDevelop Better Financial ControlsMinimise TaxExplain Your Financial Statements to OthersChapter 17: Ten Places a Business Gets Money FromMajor Stock MarketsMinor Stock MarketsPrivate EquityBusiness AngelsBanks: Long-Term MoneyBanks: Short-Term MoneyLeasing and Hire-PurchaseFactoring and Invoice DiscountingGrants and IncentivesUsing the Pension FundChapter 18: Ten (Plus One) Questions Investors Should Ask When Reading a Financial ReportDid Sales Grow?Did the Profit Ratios Hold?Were There Any Unusual or Extraordinary Gains or Losses?Did Earnings Per Share Keep Up with Profit?Did the Profit Increase Generate a Cash Flow Increase?Are Increases in Assets and Liabilities Consistent with the Business's Growth?Are There Any Signs of Financial Distress? Will the Business Be Able to Pay Its Liabilities?Are There Any Unusual Assets and Liabilities?How Well Are Assets Being Utilised?What Is the Return on Capital Investment?What Does the Auditor Say?Part VIAppendix A: Glossary: Slashing through the Accounting Jargon JungleAppendix B: Accounting SoftwarePopular Accounting ProgramsMoney 2007, www.microsoft.co.ukMYOB, www.myob.co.ukTAS Books, www.tassoftware.co.ukQuickBooks 2008, www.intuit.co.uk/quickbooks/Instant Accounting, www.sage.co.ukOther Accounting Software Systems
Understanding Business Accounting For Dummies®, 2nd Edition
Introduction
Part I
Chapter 1: Introducing Accounting to Non-Accountants
Chapter 2: Bookkeeping 101: From Shoe Boxes to Computers
Chapter 3: Taxes, Taxes, and More Taxes
Chapter 4: Accounting and Your Personal Finances
Part II
Chapter 5: Profit Mechanics
Chapter 6: The Balance Sheet from the Profit and Loss Account Viewpoint
Chapter 7: Cash Flows and the Cash Flow Statement
Chapter 8: Getting a Financial Report Ready for Prime Time
Part III
Chapter 9: Managing Profit Performance
Chapter 10: Business Budgeting
Chapter 11: Choosing the Right Ownership Structure
Chapter 12: Cost Conundrums
Chapter 13: Choosing Accounting Methods
Part IV
Chapter 14: How Investors Read a Financial Report
Chapter 15: Professional Auditors and Advisers
Part V
Chapter 16: Ten Ways Savvy Business Managers Use Accounting
Chapter 17: Ten Places a Business Gets Money From
Chapter 18: Ten (Plus One) Questions Investors Should Ask When Reading a Financial Report
Part VI
Appendix A: Glossary: Slashing through the Accounting Jargon Jungle
Appendix B: Accounting Software
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