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The Handy Accounting Answer Book , livre ebook

Visible Ink Press - Amber K. Gray

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282 pages

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An informative, easy-to-use guide to accounting fundamentals and concepts

Everyone needs to budget money and manage costs, whether for groceries and everyday purchases, rent or mortgage, education, retirement, or even a business. Like it or not, accounting infuses most everything in life. From credits, debits, and basic bookkeeping to getting the most out of tax deductions and from reading or creating a business’ financial statement to better understanding accounting lingo, The Handy Accounting Answer Book can help anyone acquire the skills to start or run a business, plan for retirement, set money aside for a big purchase, establish everyday budgets, and improve their money management.

Find out about the concepts and assumptions behind the Generally Accepted Accounting Principles. Understand tax returns and maximize write-off. Manage retirement account statements and find ways to improve their results. Learn how to create a business plan. Learn about a business’ financial ratios, cost of goods, depreciation, tax planning, recognizing revenue and expenses, financial audits, year-end closing the books, and other terms and rules. Maximize profits and improve personal or business bottom lines.

Covering accounting fundamentals, concepts, and jargon, The Handy Accounting Answer Book is for everyone who wants to understand the language of money and business. It uses basic terms and simple examples to illustrate complex accounting topics and can help you make better decisions about your business or personal finances. This handy primer answers nearly 800 questions and offers fun facts covering the basics of accounting, including …

What is the earliest known form of accounting?

What are the elements of financial statements?

When is revenue recognized?

What is accrual basis accounting?

How does an accountant determine which asset account titles to use?

What is goodwill?

How many different types of financial statements are there?

What is the basic accounting equation?

How is operating income different from net income?

How do you know if a company is doing well?

What is the quick ratio?

How is earnings per share evaluated?

What is a journal entry?

What is a purchase order?

What is the fraud triangle?

How is depreciation expense calculated and recorded?

What is a franchise?

What are the employer payroll taxes?

What is indirect labor?

How is a budget prepared?

What is a revenue variance?

What is contribution margin?

What is the time value of money?

What is one of the first things that must be done when starting a small business?

What are some of the key components of a business plan?

Can a business be successful if it doesn’t make a profit?

What is a CPA?

What happened at Enron?

For anyone planning for a business, retirement, college, or life in general, this informative book also includes a glossary of commonly used terms to cut through the jargon, a helpful bibliography, appendices providing examples of accountancy practices, and an extensive index, adding to its usefulness. It will help anyone’s financial intelligence!
Why do you need a business plan?

If you are starting a small business and intend to get a loan from a bank or attract investors, they will most likely request a business plan. After all, no one wants to loan money or invest money in something that they have no clue about. The business plan will give potential lenders and investors insight into your business idea, goals, and strategy for achieving those goals. Additionally, it is a good idea for existing businesses to regularly review and update their business plan as the business and the industry in which the business operates are continuously changing and evolving.

What are some of the key components of a business plan?
While business plans can be tailored to each business’s individual needs, most business plans include an executive summary, a company overview, and sections that detail the management team, products and/or services offered, industry analysis, marketing strategy, the financial plan, and key milestones and metrics used to evaluate the business. The Internet is full of resources on business plans and examples. Some basic information is provided below.

What is an executive summary?
An executive summary is a short (typically no more than one page) overview of the business plan. Think of it this way, if a busy executive only has time to read one page of your business plan, you need to tell them what you are going explain in the rest of the document in one, simple, easy-to-read section. If they’re interested or if they want more details, they can always read the entirety of the document. The executive summary is your sales pitch in one page or less. Make it count!

What is included in the company overview?
The company overview provides some of the basic information about your company. You should describe what your company will do, how it is unique, and what problem it solves. You can include a summary of the history of the business (if there is a history), the owners, the legal structure, the location, etc. You should also include a mission and/or vision statement.

What is included about the management team?
The management team section is optional but does give you a chance to show off your expertise. The management team section typically includes bios of the members of the management team, including a description of the role of each of the members. You can also point out any shortcomings that you see and how you plan to address them.

How detailed is the description of products and services?
The description of products and services should be very detailed. This is where you present your exact ideas about your products/services and why they are unique. Rather than simply saying “We will sell pizza,” you should say something like “Our customers will build their own pizza from a buffet of toppings. Our pizza chefs will then place the pizzas into a stone-fired pizza oven that is visible to the customers from the dining room, creating a unique pizza creation and dining experience.” You can also describe how you will obtain the supplies you need and what the perceived customer demand is for your product and/or service.

What is included in the industry summary?
Now that you have described your business, you need to focus on the industry that your business will operate in. You can start with a general overview of your industry and follow it up with details about how your business fits into that industry. This may be a good place to include a SWOT analysis or a Porter’s five forces analysis.

What is a SWOT analysis?
A SWOT analysis is an analysis of your business in terms of its strengths, weaknesses, opportunities, and threats. It is usually shown in a matrix form. The strengths and weaknesses are internal in origin, meaning they contain the attributes of your business. The opportunities and threats are external in origin, meaning they contain the attributes of the environment in which your business operates. Using the pizza restaurant example above, a strength may be that you have thirty years of pizzeria management experience. A weakness may be that since this is a start-up, you will be draining cash. An opportunity may be that there are no pizzerias with dine-in availability within twenty miles of your location. A threat may be the consumer trend to eat healthier with whole-wheat and gluten-free options. A good SWOT analysis should be well thought out and have several items in each area. Who knows, after completing your SWOT analysis you might just decide you should offer gluten-free crust after all!

What is a Porter’s five forces analysis?
Porter’s five forces is a framework to analyze the level of competition within an industry and analyze the business strategy in relation to that competition. This framework was developed by Michael E. Porter in order to help companies assess the nature of an industry’s competitiveness and to develop an appropriate strategy.

What are Porter’s five forces?
Porter’s five forces are: competitive rivalry, bargaining power of suppliers, bargaining power of customers, threat of new entrants, and threat of substitutes. Competitive rivalry analyzes how intense the existing competition is in the industry. It includes things like the number of competitors, quality differences, and customer loyalty.

The bargaining power of suppliers determines how much power a business's supplier has and how much control it has over the potential to raise its prices. It includes things like the number of suppliers, size of suppliers, your ability to substitute, and the costs of changing suppliers. The bargaining power of customers analyzes the customers’ ability to affect prices and quality. It includes things like the number of customers, the size of orders, price sensitivity, and the cost of changing for the customer.

The threat of new entrants analyzes how easy it is for a competitor to enter your industry. This includes things like how much time or cost it takes to start up a business in your industry, what special knowledge is required, economies of scale required, technology protection, and any barriers to entry. The threat of substitutes analyzes the substitute products or services that could be offered in place of the products or services offered in your industry. Substitute products are products the consumer perceives as meeting the same need and that could replace your product.

What goes into the marketing strategy section?
The marketing strategy explains how you will convince people to buy your product and/or service. The marketing strategy should identify your target market, including the geographic area, customer demographics, and customer lifestyle, values, and purchasing motivations. The marketing strategy should also identify what percentage of the market you will attempt to gain (market share). You should include a description of the image you wish for your business to portray and any slogans or branding. Additionally, the marketing section should discuss the ways you will reach your customers through advertising and provide cost estimates for the advertising activities. The marketing section should identify your top competitors and their strengths and weaknesses, being sure to address how your business is superior. Finally, the marketing plan should address pricing of your products and/or services.

What is included in the financial plan?
The financial plan is a critical piece of the business plan. For a start-up business, the financial plan will project your financial results in the future and help you identify how much money you will need to start and run your business. A typical financial plan starts with a sales forecast. As discussed in the chapter entitled “Budgeting, Planning, and Controlling,” the budgeting process starts with sales. Additionally, the financial plan includes budgeted financial statements (income statement, balance sheet, and cash flow statement). Existing companies will also include actual financial statements and data, as well.

What are the key milestones and metrics?
Key milestones represent specific tasks you plan to accomplish, including dates they should be accomplished by. In addition, a business plan should identify specific metrics that will be used to measure the success of the business. These can be referred to as KPIs, or key performance indicators. These metrics should cover financial and non-financial areas and can be aligned with the balanced scorecard approach, which is discussed in the chapter entitled “Financial Statement Analysis.” In addition to identifying KPIs, goals should be set. For example, if you determine that current ratio is a KPI, you should determine what your target current ratio should be. When setting KPIs and goals, it is helpful to use the “smart” approach. The “smart” approach entails setting goals that are specific, measurable, attainable, relevant, and timely.

Do you need to hire a professional to draft a business plan?
No, you don’t need to hire a professional to draft a business plan. As mentioned earlier, there are a wealth of resources that can help you draft a business plan. However, if you are new to business and need to find investors or lenders, it couldn’t hurt to get some professional advice or assistance.
Preface and Acknowledgments
Introduction

1. What is Accounting? 2. Financial Accounting Standards Board’s (FASB) Conceptual Framework 3. Elements of Financial Statements 4. Four Basic Financial Statements 5. Financial Statement Analysis 6. Bookkeeping and the Accounting Cycle 7. Specific Accounting Issues 8. Cost Accounting Basics 9. Budgeting, Planning and Controlling 10. Managerial Accounting Basics 11. Starting a Small Business 12. Accountants and the Future of Accounting

Appendix 1: Journal Entries examples for most basic transactions Appendix 2: Partnership Accounting Appendix 3: Service Company, Merchandiser, and Manufacturer Financial Statements Appendix 4: Public Company Annual Report Form 10-K : Vera Bradley, Inc. Glossary of Terms Further Reading Index

Sujets

Accounting

Economie gestion

Generally Accepted Accounting Principles

Economics

Business

Informations

Publié par	Visible Ink Press
Date de parution	01 avril 2019
Nombre de lectures	0
EAN13	9781578596997
Langue	English
Poids de l'ouvrage	14 Mo

Informations légales : prix de location à la page 0,0950€. Cette information est donnée uniquement à titre indicatif conformément à la législation en vigueur.

Extrait

Table of Contents
A CKNOWLEDGMENTS
P HOTO S OURCES
I NTRODUCTION
WHAT IS ACCOUNTING?
Accounting Defined Users of Accounting Information Early Accounting A Very Brief History of Financial Accounting in the United States
FASB S CONCEPTUAL FRAMEWORK
The FASB The Conceptual Framework Qualitative Characteristics Elements of Financial Statements Recognition, Measurement, and Disclosure Concepts
FINANCIAL STATEMENT ELEMENTS
Elements Assets Liabilities Equity, Investments by Owners, and Distributions to Owners Revenues and Expenses Gains, Loses, and Comprehensive Income
FOUR BASIC FINANCIAL STATEMENTS
Financial Statements The Basic Accounting Equation The Income Statement The Statement of Retained Earnings The Balance Sheet The Statement of Cash Flows Other Financial Reporting
FINANCIAL STATEMENT ANALYSIS
Analysis Basics Horizontal Analysis Vertical Analysis Ratio Analysis Basics Liquidity Ratios Solvency Ratios Profitability Ratios Asset Management Ratios Market Performance Ratios The Balanced Scorecard
BOOKKEEPING AND THE ACCOUNTING CYCLE
The Accounting Cycle Steps 1-3: Analyze, Record, and Post Steps 4-8: The Month-End Close Steps 9-11: The Year-End Close Source Documents in the Accounting System
SPECIFIC ACCOUNTING ISSUES
Fraud and Internal Controls Merchandisers Inventory Accounting Accounts Receivable and Bad Debt Fixed Assets and Intangibles Payroll Accounting
COST ACCOUNTING BASICS
The Operating Cycle Cost Classifications Job-Order Costing Activity-based Costing Process Costing Other Costing Systems
BUDGETING, PLANNING, AND CONTROLLING
Why Budget? The Master Budget Flexible Budgets Standard Costs and Variances
MANAGERIAL ACCOUNTING BASICS
The Contribution Format Income Statement Cost-Volume-Profit Analysis Managerial Decision Making Drop or Retain a Segment Make or Buy Special Order Constrained Resources Responsibility Accounting Capital Budgeting
STARTING A SMALL BUSINESS
Choosing a Business Structure Creating a Business Plan Setting Up an Accounting Information System Profit and Cash Flow Employees and Payroll Tax Issues
ACCOUNTANTS AND THE FUTURE OF ACCOUNTING
Accounting Careers Credentials Major Players Notable Accountants Accounting Scandals The Future of Accounting
APPENDIX 1: JOURNAL ENTRIES
APPENDIX 2: PARTNERSHIP ACCOUNTING
APPENDIX 3: FINANCIAL STATEMENTS
APPENDIX 4: ANNUAL REPORT EXAMPLE
G LOSSARY
F URTHER R EADING
I NDEX
Dedication
This book is dedicated to Patrick, Lucas, and Olivia, whose patience, love, and support made writing this book possible. You guys are the best!
Acknowledgments
There are many people whose support and assistance made this book possible. I would like to thank Marsha Fielder for making me aware of this opportunity, Roger J necke and Kevin Hile for their support and brainstorming efforts, Patrick Quinlan for encouraging me to write, Keith Christy for motivating me to keep writing, and the rest of my colleagues at Adrian College for cheering me on in the process. Additionally, I d like to thank Jack Ruhl of Western Michigan University for giving me my first teaching opportunity, and Jerry Kreuze, David Rozelle, and Chip Hines for helping me to see how cool accounting can be.
Photo Sources
Florida Times : p. 288 .
Louvre Museum: p. 5 .
Mblumber (Wikipedia): p. 7 .
Museo Nazionale di Capodimonte: p. 6 .
Shutterstock: pp. 3 , 14 , 16 , 18 , 20 , 22 , 25 , 28 , 36 , 78 , 82 , 90 , 107 , 262 , 269 , 272 , 276 , 280 , 284 , 286 .
U.S. Government: p. 283 .
All line art by Amber K. Gray and Kevin Hile. Shutterstock images used in graphics created by Kevin Hile on pp. 164 , 166 , and 192 .
Introduction
The study of accounting is often dreaded by business students. They seem to look at accounting as an unfortunate hurdle in the process of getting their business degree. My goal is to change their minds. A person cannot truly understand business without first understanding accounting. Most people know that profit is good and losses are bad, but they do not actually know what profit is or what transactions cause profit to increase or decrease. Accounting is the language of business. It is my hope that in reading this book, you will start to understand that language to make sense of business decisions that have been made and to understand the ramifications of those decisions.
Every item that shows up on a financial statement starts with a transaction. Accountants must analyze those transactions and record them in the accounting system. The accounting system summarizes the data and results in the preparation of financial reports. Those reports are consulted by both internal and external users to make decisions. Just as a good cook needs to understand how different ingredients and flavors work together in a recipe, a good business person needs to understand how various transactions impact the financial reports of the business.
This book touches on many aspects of accounting that are found in introductory accounting textbooks, such as how to prepare financial statements, how to calculate financial ratios, and how to budget. In addition, this book includes information that would be helpful to non-accountants who want to understand business better or perhaps start a small business one day. For them, it explains such important issues as business plans and employee payroll issues.
Many of the examples in this book are very simplistic so as to clearly illustrate basic accounting concepts. I have attempted to use examples that are relatable to most people. Not all accounting concepts are covered in this book, nor should they be. My hope is that this book will allow you to understand the language of business to be able to make better decisions, whether as an employee, owner, investor, or individual. Most importantly, I hope you enjoy it and find that you learn a little bit of something new and interesting.
-Amber K. Gray
WHAT IS ACCOUNTING?

ACCOUNTING DEFINED
What is accounting?
Accounting is a system of record keeping designed to analyze, record, and summarize the activities of the business and report the results to users. The process of analyzing, recording, and summarizing these activities is discussed in detail in the chapter entitled Bookkeeping and the Accounting Cycle.
What are the main activities of the business?
A business s activities can be divided into three main categories: operating, investing, and financing. Operating activities are those activities that involve running the business. For example, the operating activities of a Jimmy John s Sandwiches franchise would include buying ingredients and paying wages to employees. Investing activities are those activities that involve making an investment in your business or other business through the purchase of stock. For example, the investing activities of a Jimmy John s Sandwiches franchise could include buying the building for the restaurant and buying the furniture that goes in it. Financing activities are those activities that involve getting the funds necessary to cover the operating and investing activities of the business. A business can be financed with debt and/or equity. Debt involves borrowing money that must be paid back. Equity involves receiving investments from owners. For example, the financing activities for a Jimmy John s Sandwiches franchise could include any loans taken from the bank to finance the purchase of the building and any money contributed by the owners upon the start-up of the franchise. All of these activities must be recorded by the accounting system.
Why is accounting referred to as the language of business?
In order to understand and manage a business, you must understand the nature and the impacts of the operating, investing, and financing decisions. You must understand how transactions occur, how they are recorded, and where they show up in the financial reports. Accounting takes multitudes of data (daily transactions) and turns it into useful information (in the form of financial reports). Just like you would want at least some basic knowledge of the French language prior to taking a trip to France, everyone wishing to understand the activities of the business should have at least some basic knowledge of accounting. If you don t understand accounting, it will be hard to understand business.
Will reading this book make you an expert in accounting?
No. Reading this book will not make you an expert in accounting. What this book will do is give you some basic knowledge of both financial and managerial accounting so that you can better understand the business world and make more informed decisions. Think of it like taking a French/English dictionary with you on your trip to France. You won t be able to speak the language fluently, but you ll understand enough to have an enjoyable trip.
USERS OF ACCOUNTING INFORMATION
Who uses accounting information?
There are two basic types of users of financial information: external and internal. External users are those users who are outside the company. External users typically include creditors (people who loan the business money) and investors (stockholders). External users can also include other stakeholders, such as the government, customers, suppliers, etc. Internal users are those users who are inside the company. Internal users include executives, managers, supervisors, etc.
What type of financial information are external users most interested in?
External users are typically interested in evaluating the financial condition of the business to determine whether or not they will get a return on their investment or be paid back for any loans.
How is the accounting information reported to external users?
Information about the financial condition of the company is reported by the accounting system in the form of reports called financial statements. These reports provide information about the financial position, profitability, and cash flows of the business. Financial