Few skills are as useful as a basic understanding of accounting language. And with the right resources, learning the language of business can be intuitive, empowering, and fun.
Accounting For Dummies is the perfect place to start, whether you're operating a small business, just need help managing the family budget, or you're a rising star in corporate America. It's a financial blueprint for the everyday person, easy-to-understand, and full of practical advice.
You'll learn the basic ABC's of accounting, how to read and understand financial statements, create best in class budgets & forecasts, craft profitable business plans, take control of your own finances, gain insight on how companies get money from investors and banks, and avoid common money mistakes that trip up even the best of us. You'll also find out how to:
- Diagnose the financial health of your business and make a realistic plan to grow your company
- Improve your own or your family's money situation with sound financial planning and understanding
- Understand each of the three basic financial statements and what they say about a company's past, present, and future
- Enhance your knowledge of how accounting functions and operates in today's digital age and cloud-based world
As a useful tool for business or as a guide to your personal finances, nothing compares to accounting mastery. And once you've nailed the basics, you'll wonder how you ever lived without this universal and beautiful language.
Few skills are as useful as a basic understanding of accounting language. And with the right resources, learning the language of business can be intuitive, empowering, and fun.
Accounting For Dummies is the perfect place to start, whether you're operating a small business, just need help managing the family budget, or you're a rising star in corporate America. It's a financial blueprint for the everyday person, easy-to-understand, and full of practical advice.
You'll learn the basic ABC's of accounting, how to read and understand financial statements, create best in class budgets & forecasts, craft profitable business plans, take control of your own finances, gain insight on how companies get money from investors and banks, and avoid common money mistakes that trip up even the best of us. You'll also find out how to:
- Diagnose the financial health of your business and make a realistic plan to grow your company
- Improve your own or your family's money situation with sound financial planning and understanding
- Understand each of the three basic financial statements and what they say about a company's past, present, and future
- Enhance your knowledge of how accounting functions and operates in today's digital age and cloud-based world
As a useful tool for business or as a guide to your personal finances, nothing compares to accounting mastery. And once you've nailed the basics, you'll wonder how you ever lived without this universal and beautiful language.
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Overview
Few skills are as useful as a basic understanding of accounting language. And with the right resources, learning the language of business can be intuitive, empowering, and fun.
Accounting For Dummies is the perfect place to start, whether you're operating a small business, just need help managing the family budget, or you're a rising star in corporate America. It's a financial blueprint for the everyday person, easy-to-understand, and full of practical advice.
You'll learn the basic ABC's of accounting, how to read and understand financial statements, create best in class budgets & forecasts, craft profitable business plans, take control of your own finances, gain insight on how companies get money from investors and banks, and avoid common money mistakes that trip up even the best of us. You'll also find out how to:
- Diagnose the financial health of your business and make a realistic plan to grow your company
- Improve your own or your family's money situation with sound financial planning and understanding
- Understand each of the three basic financial statements and what they say about a company's past, present, and future
- Enhance your knowledge of how accounting functions and operates in today's digital age and cloud-based world
As a useful tool for business or as a guide to your personal finances, nothing compares to accounting mastery. And once you've nailed the basics, you'll wonder how you ever lived without this universal and beautiful language.
Product Details
| ISBN-13: | 9781119837541 |
|---|---|
| Publisher: | Wiley |
| Publication date: | 12/10/2021 |
| Sold by: | JOHN WILEY & SONS |
| Format: | eBook |
| Pages: | 448 |
| File size: | 4 MB |
About the Author
John A. Tracy, CPA, is an award-winning professor emeritus of accounting at the University of Colorado at Boulder. He has authored The Fast Forward MBA in Finance, 2nd Edition, and Accounting Workbook For Dummies.
Tage C. Tracy, CPA, operates a financial consulting firm focused on offering CFO support and planning services to private companies. He is the author of Business Financial Information Secrets and has coauthored several For Dummies titles.
Read an Excerpt
Accounting For Dummies
By John A. Tracy
John Wiley & Sons
ISBN: 0-7645-5314-3Chapter One
Introducing Accounting to Non-AccountantsIn This Chapter
* Understanding the different needs for accounting
* Making and enforcing accounting rules
* Peering into the back office: The accounting department in action
* Transactions: The heartbeat of a business
* Taking a closer look at financial statements
* Mama, should you let your baby grow up to be an accountant?
Most medium to large businesses employ one or more accountants. Even a very small business needs at least a part-time accountant. Have you ever wondered why? What do these bean counters with the green eye-shades do, anyway? Probably what you think of first is that accountants keep the books - they keep the records of the financial activities of the business. This is true, of course. But accountants perform other very critical, but less well-known, functions in a business:
In short, accountants are much more than bookkeepers - they provide the numbers that are so critical in helping business managers make the informed decisions that keep a business on course toward its financial objectives.
Business managers, investors, and others who depend on financial statements should be willing to meet accountants halfway. People who use accounting information, like spectators at a football game, should know the basic rules of play and how the score is kept. The purpose of this book is to make you a knowledgeable spectator of the accounting game.
Accounting Everywhere You Look
Accounting extends into virtually every walk of life. You're doing accounting when you make entries in your checkbook and fill out your federal income tax return. When you sign a mortgage on your home, you should understand the accounting method the lender uses to calculate the interest amount charged on your loan each period. Individual investors need to understand some accounting in order to figure the return on capital invested. And every organization, profit-motivated or not, needs to know how it stands financially. Accounting supplies all that information.
Many different kinds of accounting are done by many different kinds of persons or entities for many different purposes:
Accounting is necessary in any free-market, capitalist economic system. It's equally necessary in a centrally controlled, socialist economic system. All economic activity requires information. The more developed the economic system, the more the system depends on information. Much of the information comes from the accounting systems used by the businesses, individuals, and other institutions in the economic system.
Some of the earliest records of history are the accounts of wealth and trading activity, and the need for accounting information was a main incentive in the development of the numbering system we use today. Professor William A. Paton, a well-known accounting professor at the University of Michigan for many years (and who lived to be over 100), expressed the purpose of accounting very well in his classic book, Essentials of Accounting (Macmillan):
In a broad sense accounting has one primary function: facilitating the administration of economic activity. This function has two closely related phases: (1) measuring and arraying economic data; [and] (2) communicating the results of this process to interested parties.
The Basic Elements of Accounting
I like Professor Paton's short definition because it articulates the basic purpose of accounting. However, the definition does sidestep one aspect of accounting - bookkeeping (which you can find more about in Chapter 2). Accounting involves bookkeeping, which refers to the painstaking and detailed recording of economic activity and business transactions. But accounting is a much broader term than bookkeeping because accounting refers to the design of the bookkeeping system. It addresses the many problems in measuring the financial effects of economic activity. Furthermore, accounting includes the financial reporting of these values and performance measures to non-accountants in a clear and concise manner. Business managers and investors, as well as many other people, depend on financial reports for vital information they need to make good economic decisions.
Accountants design the internal controls in an accounting system, which serve to minimize errors in recording the large number of activities that a business engages in over the period. The internal controls that accountants design can detect and deter theft, embezzlement, fraud, and dishonest behavior of all kinds. In accounting, internal controls are the ounce of prevention that is worth a pound of cure.
An accountant seldom prepares a complete listing of all the details of the activities that took place during a period. Instead, he or she prepares a summary financial statement, which shows totals, not a complete listing of all the individual activities making up the total. Managers may occasionally need to search through a detailed list of all the specific transactions that make up the total, but this is not common. Most managers just want summary financial statements for the period - if they want to drill down into the details making up a total amount for the period, they ask the accountant for this more detailed backup information. Also, outside investors usually only see summary-level financial statements. For example, they see the total amount of sales revenue for the period but not how much was sold to each and every customer.
Financial statements are prepared at the end of each accounting period. A period may be one month, one quarter (three calendar months), or one year. One basic type of accounting report prepared at the end of the period is a "Where do we stand at the end of the period?" type of report. This is called the Statement of Financial Condition or, more commonly, the balance sheet. The date of preparation is given in the header, or title above this financial statement. A balance sheet shows two sides of the business.
On the one side are listed the assets of the business, which are its economic resources being used in the business. On the other side of the balance sheet is a breakdown of where the assets came from, or the sources of the assets. The asset values reported in the balance sheet are the amounts recorded when the assets were originally acquired. For many assets these values are recent - only a few weeks or a few months old. For some assets their values as reported in the balance sheet are the costs of the assets when they were acquired many years ago.
Assets are not like manna from the heavens. They come from borrowing money in the form of loans that have to be paid back at a later date and from owners' investment of capital (usually money) in the business. Also, making profit increases the assets of the business; profit retained in the business is the third basic source of assets. If a business has, say, $2.5 million in total assets (without knowing which particular assets the business holds), I know that the total of its liabilities, plus the capital invested by its owners, plus its retained profit, adds up to $2.5 million.
In this example suppose that the total amount of the liabilities of the business is $1.0 million. This means that the total amount of owners' equity in the business is $1.5 million, which equals total assets less total liabilities. Without more information we don't know how much of total owners' equity is traceable to capital invested by the owners in the business and how much is the result of profit retained in the business. But we do know that the total of these two sources of owners' equity is $1.5 million.
The financial condition of the business in this example is summarized in the following accounting equation (in millions):
$2.5 Assets = $1.0 Liabilities + $1.5 Owners' Equity
Looking at the accounting equation you can see why the statement of financial condition is also called the balance sheet; the equal sign means the two sides have to balance.
Double-entry bookkeeping is based on the accounting equation - or the fact that the total of assets on the one side are counter-balanced by the total of liabilities, invested capital, and retained profit on the other side. Double-entry bookkeeping is discussed in Chapter 2.
Other financial statements are different than the balance sheet in one important respect: they summarize the significant flows of activities and operations over the period. Accountants prepare two types of summary flow reports for businesses:
The balance sheet, income statement, and cash flow statement constitute the hard core of a financial report to those persons outside a business who need to stay informed about the business's financial affairs. These individuals have invested capital in the business, or the business owes them money; therefore they have a financial interest in how well the business is doing. These three key financial statements are also used by the managers of a business to keep informed about what's going on and the financial position of the business. They are absolutely essential to helping managers control the performance of a business, identify problems as they come up, and plan the future course of a business. Managers also need other information that is not reported in the three basic financial statements. (Part III of this book explains these additional reports.)
Accounting and Financial Reporting Standards
Imagine if every business could invent its own accounting methods and terminology for measuring profit and for presenting financial statements. As an example from the academic world, what if I give a student an A for a course and a professor at another university gives a student a K? Keeping track of academic performance would be pretty tough without some recognized and accepted standards.
Experience and common sense have taught business and financial professionals that uniform financial reporting standards and methods are critical in a free-enterprise, private, capital-based economic system. A common vocabulary, uniform accounting methods, and full disclosure in financial reports are the goals. How well the accounting profession performs in achieving these goals is an open question, but few disagree that they are worthy goals to strive for.
The supremacy of GAAP (generally accepted accounting principles)
The most important financial statement and financial reporting standards and rules are called generally accepted accounting principles (GAAP), which describe the basic methods to measure profit and to value assets and liabilities, as well as what information should be disclosed in those financial statements released outside a business. Suppose you're reading the financial statements of a business.
Continues...
Excerpted from Accounting For Dummies by John A. Tracy Excerpted by permission.
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Table of Contents
Introduction 1
About This Book 1
Foolish Assumptions 2
Icons Used in This Book 3
Beyond the Book 4
Where to Go from Here 4
Part 1: Opening the Books on Accounting 5
Chapter 1: Accounting in Today’s New Economy 7
Checking Your Preconceptions about Accounting 8
Thinking about where assets come from 9
Asking about profit 9
Sorting out stereotypes of accountants 10
Providing Vital Financial Information 11
Recognizing users of accounting information 12
Using accounting in your personal financial life 13
Seeing accounting at work 14
Accounting’s Two Primary Roles 15
Taking a Peek behind the Scenes 16
Focusing on Transactions 19
Separating basic types of transactions 20
Knowing who’s on the other side of transactions 21
Recording events 21
Taking the Financial Pulse of a Business 22
Meeting the balance sheet (statement of financial condition) 23
Reporting profit and loss 25
Reporting cash flows and changes in owners’ equity 26
Remembering management’s role 26
Accounting as a Form of Art 27
Chapter 2: Introducing Financial Statements 29
Setting the Stage for Financial Statements 30
Offering a few preliminary comments about financial statements 31
Looking at other aspects of reporting financial statements 32
The Income Statement 33
Presenting the components of the income statement 33
Income statement pointers 35
The Balance Sheet 36
Presenting the components of the balance sheet 36
Balance sheet pointers 38
The Statement of Cash Flows 40
Presenting the components of the statement of cash flows 40
Statement of cash flows pointers 43
A Note about the Statement of Changes in Shareowners’ Equity 44
Gleaning Important Information from Financial Statements 44
How’s profit performance? 44
Is there enough cash? 45
Can you trust financial statement numbers? 46
Why no (or limited) cash distribution from profit? 47
Complying with Accounting and Financial Reporting Standards 48
Looking at who makes the standards 49
Knowing about GAAP 50
Divorcing public and private companies 51
Following the rules and bending the rules 52
Chapter 3: Safeguarding Company Assets 53
Separating the Duties of Bookkeepers and Accountants 54
Pedaling through the Bookkeeping Cycle 56
Getting to the end of the period 56
Finishing up for the period 58
Managing Accounting Systems 60
Categorize financial information: The chart of accounts 60
Standardize source documents and data-entry procedures for recording activities 62
Hire competent personnel 63
Get involved in end-of-period procedures 65
Leave good audit trails 66
Keep alert for unusual events and developments 66
Design truly useful reports for managers 67
Enforcing Strong Internal Controls 68
Double-Entry Accounting 70
Juggling the Books to Conceal Embezzlement and Fraud 73
Chapter 4: Accounting in the Digital Age 75
Noting a Few Foundational Accounting Concepts Related to Technology 76
Using Accounting Software in the Cloud and on the Ground 78
Controlling and Protecting Money Flows in the Electronic Age 80
Processing payroll 81
Controlling bank accounts 82
Surveying bank forms of electronic payments 82
Checking out non-bank forms of electronic payments 83
Using enhanced accounting controls 84
Managing the Accounting Function in the On-Demand World 86
Source documentation 86
Data rooms 86
Financial reporting 87
Flash reports and KPIs 87
Accounting and financial analysis tools 88
Chapter 5: Recognizing the Legal and Accounting Entity 89
Being Aware of the Legal Roots of Business Entities 90
Sole proprietorship 91
Partnerships 91
S corporations 92
Limited liability companies (LLCs) 93
C corporations 94
Going It Alone: Sole Proprietorships 95
Differentiating Partnerships and Limited Liability Companies 96
Looking at important features 96
Understanding profit allocation 97
Incorporating a Business 99
Issuing stock shares 100
Distinguishing different classes of stock shares 101
Determining the market value of stock shares 103
Watching out for dilution of share value 104
Recognizing conflicts between stockholders and managers 105
Part 2: Exploring Financial Statements 109
Chapter 6: Reporting Profit or Loss in the Income Statement 111
Presenting Typical Income Statements 112
Looking at businesses that sell products 113
Looking at businesses that sell services 115
Looking at investment businesses 117
Taking Care of Housekeeping Details 118
Being an Active Reader 121
Deconstructing Profit 122
Revenue and expense effects on assets and liabilities 123
Comparing three scenarios of profit 124
Folding profit into retained earnings 126
Pinpointing the Assets and Liabilities Used to Record Revenue and Expenses 127
Making sales: Accounts receivable and deferred revenue 127
Selling products: Inventory 128
Prepaying operating costs: Prepaid expenses 129
Understanding fixed assets: Depreciation expense 129
Figuring unpaid expenses: Accounts payable, accrued expenses payable, and income tax payable 130
Reporting Unusual Gains and Losses 132
Watching for Misconceptions and Misleading Reports 134
Chapter 7: Reporting Financial Condition in the Balance Sheet 137
Expanding the Accounting Equation 138
Presenting a Proper Balance Sheet 139
Doing an initial reading of the balance sheet 140
Kicking balance sheets out into the real world 143
Judging Liquidity and Solvency 144
Current assets and liabilities 145
Current and quick ratios 145
Understanding That Transactions Drive the Balance Sheet 146
Sizing Up Assets and Liabilities 149
Sales revenue and accounts receivable 150
Cost of goods sold expense and inventory 151
Fixed assets and depreciation expense 152
Operating expenses and their balance sheet accounts 153
Intangible assets and amortization expense 153
Debt and interest expense 155
Income tax expense and income tax payable 156
Net income and cash dividends (if any) 156
Financing a Business: Sources of Cash and Capital 157
Recognizing the Hodgepodge of Values Reported in a Balance Sheet 158
Chapter 8: Reporting Cash Sources and Uses in the Statement of Cash Flows 161
Meeting the Statement of Cash Flows 162
Presenting the direct method 163
Opting for the indirect method 165
Explaining the Variance between Cash Flow and Net Income 167
Accounts receivable change 168
Inventory change 169
Prepaid expenses change 170
Depreciation: Real but noncash expense 170
Changes in operating liabilities 172
Putting the cash flow pieces together 173
Sailing through the Rest of the Statement of Cash Flows 174
Understanding investing activities 174
Looking at financing activities 175
Reading actively 177
Pinning Down “Free Cash Flow” 178
Limitations of the Statement of Cash Flows 180
Chapter 9: Financial Accounting Issues 183
Reporting Changes in Owners’ Equity 185
Recognizing Reasons for Accounting Differences 186
Looking at a More Conservative Version of the Company’s Income Statement 188
Presenting an alternative income statement 188
Spotting significant differences 190
Explaining Differences 190
Accounts receivable and sales revenue 191
Inventory and cost of goods sold expense 192
Fixed assets and depreciation expense 193
Accrued expenses payable, income tax payable, and expenses 194
Wrapping things up 195
Calculating Cost of Goods Sold Expense and Inventory Cost 195
FIFO (first-in, first-out) 196
LIFO (last-in, first-out) 197
Recording Depreciation Expense 200
Scanning the Revenue and Expense Radar Screen 202
Using the Statement of Cash Flows as an Audit/Sanity Test 205
Part 3: Understanding Financial Reports, Financial Statements, and Financial Information 207
Chapter 10: Producing Financial Reports 209
Quickly Reviewing the Theory of Financial Reporting 210
Starting with the financial statements 210
Keeping in mind the reasons for financial reports 211
Recognizing Top Management’s Role 212
Keeping Current with Financial Accounting and Reporting Standards 214
Making Sure Disclosure Is Adequate 215
Footnotes: Nettlesome but needed 216
Other disclosures in financial reports 218
Putting a Spin on the Numbers (Short of Cooking the Books) 220
Window dressing: Pumping up the ending cash balance and cash flow 221
Smoothing the rough edges off year-to-year profit fluctuations 223
Comparing Public and Private Companies 226
Reports from publicly owned companies 226
Reports from private businesses 227
Dealing with Information Overload 228
Browsing based on your interests 229
Recognizing condensed versions 229
Using other sources of business information 230
Chapter 11: Deciphering a Financial Report 231
Knowing the Rules of the Game 232
Making Investment Choices 233
Managing investments alone or using a third party 234
Finding and understanding information sources 235
Contrasting Reading Financial Reports of Private Versus Public Businesses 236
Explaining the Role of MDORs and MD&As 237
Frolicking through the Footnotes 238
Checking Out the Auditor’s Report 240
Why audits? 241
What’s in an auditor’s report? 241
Discovering fraud, or not 243
Chapter 12: Analyzing Financial Information with Ratios 245
Understanding the Importance of Using Ratios to Digest Financial Statements 246
Improving Your Knowledge of Financial Language and Lingo 246
Starting with Sample Company Financial Statements 248
Benchmark Financial Ratios: Financial Strength and Solvency 252
Current ratio 254
Net working capital 254
Acid test ratio (aka quick ratio) 255
Debt-to-equity ratio 256
Debt-to-tangible net equity 257
Benchmark Financial Ratios: Financial Performance 258
Return on sales (ROS) 258
Return on equity (ROE) 260
Return on assets (ROA) 261
Earnings per share (EPS), basic and fully diluted 261
Price/earnings (P/E) ratio 263
Debt service coverage ratio 264
Making Time for Additional Ratios (If Needed) 265
Chapter 13: Generating Internal Financial Information for Management Use 267
Building on the Foundation of the External Financial Statements 268
Seeking out problems and opportunities 269
Avoiding information overload 269
Distinguishing Internal and External Financial Statements 270
Format 270
Detail 271
Confidentiality 271
Timeliness 271
Completeness 272
Gathering Financial Condition Information 272
Cash 275
Accounts receivable 276
Inventory 276
Fixed assets less accumulated depreciation 277
Intangible assets 278
Accounts payable 279
Accrued expenses payable 280
Income tax payable 281
Interest-bearing debt 281
Owners’ equity 282
Culling Profit Information 283
Presenting an income statement for managers 283
Calculating cash flow on the back of an envelope 284
Managing operating cash flows 286
Scrutinizing sales revenue and expenses 286
Avoiding Rookie Mistakes 287
Chapter 14: Applying Wall Street’s Tricks and Treats to Engineer Financial Results 289
Knowing What Financial Engineering Is Not 290
Defining What Financial Engineering Is 291
Identifying Commonly Used “Tricks of the Trade” 293
Using tricks that fit within GAAP but need more digging 293
Understanding commonly used tricks outside the realm of GAAP 295
Manufacturing Imaginary Profits (and, Yes, Losses) 297
Reviewing examples of “manufacturing” profits 297
Keeping critical points in mind 299
Looking Out for Particular Trends and Terminology 299
Part 4: Leveraging Accounting in Managing a Business 301
Chapter 15: Analyzing Profit 303
Helping Managers: The Fourth Pillar of Accounting 304
Branching out in the field of management accounting 304
Following the organizational structure 305
Centering on profit centers 306
Internal Profit Reporting 307
Designing internal profit (P&L) reports 307
Reporting operating expenses 308
Looking at Strategic Profit Analysis 309
Presenting a profit analysis template 310
Separating variable and fixed expenses 311
Stopping at operating earnings 313
Focusing on margin — the catalyst of profit 314
Using the template to explain profit 315
Taking a Closer Look at the Lines in the Profit Template 316
Sales revenue 316
Cost of goods sold 317
Variable operating expenses 318
Fixed operating expenses 318
Using the Profit Template for Decision-Making Analysis 320
Tucking Away Some Valuable Lessons 321
Recognize the leverage effect caused by fixed operating expenses 321
Don’t underestimate the impact of small changes in sales price 322
Know your options for improving profit 323
Chapter 16: Accounting for Costs 325
Looking Down the Road to the Destination of Costs 326
Are Costs Really That Important? 327
Becoming More Familiar with Costs 330
Direct versus indirect costs 330
Fixed versus variable costs 331
Relevant versus irrelevant costs 332
Actual, projected, and standard costs 333
Product versus period costs 334
Assembling the Product Cost of Manufacturers 334
Minding manufacturing costs 335
Classifying costs properly 337
Calculating product cost 339
Examining fixed manufacturing costs and production capacity 340
Puffing Profit by Excessive Production 343
Shifting fixed manufacturing costs to the future 343
Cranking up production output 345
Being careful when production output is out of kilter with sales volume 346
Chapter 17: Preparing Best-in-Class Forecasts, Projections, and Budgets 347
Focusing on Key Forecasting Concepts 348
Putting Forecasting in Its Place 349
Planning reasons for forecasting 350
Control reasons for preparing forecasts 351
Exploring Forecasting 352
The living and breathing business forecast 353
Projections as financial models 356
Increasing the Power of Your Forecasts 357
The SWOT 358
Top down or bottom up 358
What if? 360
Rolling forecasts 361
Seeing a Financial Forecast in Action 362
The income statement 362
The balance sheet 364
The statement of cash flows 366
Rehashing the Value of Forecasts 367
Chapter 18: Capitalizing a Business: How, When, Why, and What 369
Identifying the Elements of a Business Plan 370
Capturing the most critical material 371
Providing a few examples 372
Valuing Businesses: A Crash Course in the Basics 373
Why businesses are valued 373
How businesses are valued 375
Surveying Commonly Used Business Valuation Techniques 377
Cash flow multiple method 378
Price earnings multiple method 379
Summarizing the Two Basic Types of Available Capital 379
Realizing when to raise equity 380
Knowing when debt is the best source of capital 381
Taking a Deeper Dive into Raising Debt Capital 383
Maturity and security 383
Debt sources (loans) 383
Debt underwriting and costs 384
Debt structure 384
Debt covenants 385
Digging Further into the World of Equity Capital 386
Disguising equity as debt 388
Structuring equity with preferences 390
Reaching the end of the line with equity capital 393
Raising Capital: Tips, Tidbits, and Traps 394
Part 5: The Part of Tens 397
Chapter 19: Ten Tips for Managers 399
Reach Breakeven and Then Rake in Profit 400
Set Sales Prices Right 401
Don’t Confuse Profit and Cash Flow 401
Call the Shots on Accounting Policies 402
Prepare Accurate Forecasts and Projections 403
Demand the Accounting Information You Want 404
Tap into Your CPA’s Expertise 405
Critically Review Your Controls over Employee Dishonesty and Fraud 406
Lend a Hand in Preparing Your Financial Reports 406
Speak about Your Financial Statements as a Pro 407
Chapter 20: Ten Tips for Reading a Financial Report 409
Get in the Right Frame of Mind 410
Decide What to Read 410
Improve Your Accounting Savvy 411
Judge Profit Performance 412
Test Earnings Per Share (EPS) against Change in Bottom Line 413
Tackle Unusual Gains and Losses 414
Check Cash Flow from Profit 415
Look for Signs of Financial Distress 416
Recognize the Possibility of Restatement and Fraud 417
Remember the Limits of Financial Reports 417
Index 419
