This is the second part of a two-class sequence on financial accounting. FINANCIAL ACCOUNTING I & II, held consecutively, will provide you with a strong foundation to tackle many financial issues. Accounting I covers the basics, while Accounting II deals with more advanced topics. The topics discussed are “general” and apply to accounting practices worldwide – whether in the USA, Europe, Asia, etc.
Accounting is “the language of business”. It is spoken by managers, employees, investors, financial analysts, internal and external auditors, supervisory boards, management accountants, bankers and other decision-makers with whom managers regularly interact. It is widely agreed that future business leaders need to understand this language in order to interpret and use financial statements and other accounting information for internal management purposes (e.g., planning, directing, controlling) as well as corporate communication purposes (e.g., capital markets, banks, rating agencies). If you want to compete in this arena, it will be useful for you to acquire a working knowledge of accounting. This class is targeted to students having little, if any, background in financial accounting.
At the end of the day, numbers are what matter in the business world. You just cannot escape them; hence, you should learn them well. Contrary to what you might believe, you cannot become a successful professional unless you master the numbers of the financial world. This is the class that will teach you how.
Overview
Syllabus
- Module 1: Introduction
- Why learn accounting? Because it is an integral part of finance, one of the most sought after and highly paid professions across the world. Financial literacy is extremely valuable from a personal and professional point of view, irrespective of what type of job you are doing.
- Module 2: Accounts Receivable and Inventories
- Accounts receivable, or selling on credit, is a hallmark of modern societies. Receivable entail complex estimations, and managerial judgement. They are under the discretion of management and involve significant flexibility. The learning objectives of this session are: Understand receivables; Understand the selling cycle; Understand how to report bad debt expense; Understand the percentage of sales method, and the percentage of receivables (i.e., balance sheet method); Understand receivable write-offs; Understand how receivables can be manipulated; Understand receivables turnover. Inventories constitute, often, the biggest line item a firm’s income statement (through Cost of Good Sold (COGS). Hence, understanding inventories is important, and leads to lean and efficient operations. The learning objectives of this session are: Understand inventories; Understand how inventories are converted to cost of goods sold; Understand the difference between raw materials, work-in-progress, and finished goods; Understand the lower of cost-or-market rule (LCM); Understand inventory write-downs (or write-offs, or impairment); Understand inventory management, and how reduced working capital conserves cash; Understand inventory turnover.
- Module 3: Long-Term Assets
- Long-term assets are at the heart of the productive capacity of business. Whether tangible, or intangible, such assets are at the heart of a firm’s productive capacity. The learning objectives of this session are: Understand long-term assets; Understand the differences between tangible and intangible assets; Understand the concepts of depreciation, amortization, and depletion; Understand impairment testing; Understand the financial statement implications of purchasing and selling assets; Understand the difference between capitalizing and expensing Understand the concept of fair values vs. historic costs; Understand how R&D is treated in financial statements; Understand fixed asset turnover; Understand how long term assets are manipulated.
- Module 4: Equity
- Equity is what remains to the shareholders. Equity makes us happy and makes us buy stuff. Equity is the illusion of wealth when it is all (sometimes) only on paper. The objectives of this session are: Understand common stock and paid in capital; Understand treasury shares; Understand stock buybacks and dividends; Understand EPS.
- Module 5: Liabilities
- Liabilities, bonds, and leases are at the heart of understanding liabilities. Too many firms went under because they did not understand the importance of liabilities, and its effect on firm risk. The objectives of this session are: Understand how leverage leads to risk; Understand the difference between operating and capital leases (financial leases); Understand bank loans, and its accounting; Understand bonds, and its accounting; Understand deferred revenue, contingent liabilities, and provisions.
- Module 6: Financial Assets
- Financial assets are the culprit of too many crises, and are especially important for banks. Moreover, financial assets help us understand how firms invest into bonds, stocks, and other investments. The objectives of this session are: Understand the difference between trading securities (or marketable securities), and equity investments (or investments into affiliates); Understand mark-to-market; Understand held-to-maturity instruments; Understand bonds issued at a premium, at par, and at a discount.
- Module 7: Mergers and Acquisitions
- There are more than 40,000 mergers and acquisitions (M&As) yearly, globally. M&As are how companies grow, acquire vital resources, and control supply chains and product markets. The objectives of this session are: Understand M&A accounting; Understand the concepts of goodwill and minority interest; Understand goodwill impairment; Understand the consolidation process, and adjusting entries.
- Module 8: Taxes
- Taxes are something nobody likes (except, the government!). Taxes makes us cringe, taxes make us cry. Nonetheless, we all have to pay taxes, and we need to understand the rules and how to take advantage of the flexibilities in these rules. The objectives of this session are: Understand Taxes, tax expense, and tax paid; Understand how governments use taxes to incentivize corporate behavior; Understand the difference between temporary differences and permanent differences; Understand deductions, and additions, to taxable income; Understand why some corporations pay such low taxes.
- Module 9: Earnings Management
- Earnings management is probably the most common term when we hear about accounting. Fraud. And fraud is everywhere, unfortunately. The objective of this session is: Understand.
Taught by
Prof. Garen Markarian
