This refresher in financial accounting has been written for college students who studied financial accounting in their Freshman year but struggled with double-entry bookkeeping which is the basis of accounting. The good news is that I assume no knowledge of double entry, but it is supposed that you would like to refresh your knowledge on the four financial statements, namely income statement, balance sheet, statement of retained earnings, and the cash flow statement.
Initially I discuss the fundamentals of accounting based on U.S. GAAP. In Chapter 2, I clearly explain the financial statements and crucially how they are linked or articulated through Case Study 1. This is very important as it gives an overview or an “accounting bird’s eye view” of what is going on and how the financial statements fit together.
In Chapter 3, I describe the major adjustments and demonstrate those using basic examples and timelines rather than journals or double entry. It is important to recognize that any adjustment will have an effect on the income statement and the balance sheet. Think of it like pulling a lever on the income statement that must be compensated for by pulling a lever on the balance sheet as well. With practice and patience, your knowledge of accounting will improve, and if you complete further courses, this will deepen your appreciation and understanding.
In Chapter 5, I introduce the Corporation and how it differs from owner-managed businesses. This chapter is completed with a mini case study where an income statement, statement of retained earnings, and balance sheet for a Corporation are prepared. Chapter 6 is an extended case study using a Corporation as an example.
Chapter 7 is about the interpretation of financial statements and is illustrated through a comprehensive example that covers profitability, liquidity, activity, and financial leverage ratios. Chapter 8 is an unusual case study as there are very few numbers and asks the reader to comment using ratio analysis, thus enhancing higher-order cognition.
The case studies should not be attempted until you have a full understanding of all the other chapters, and I have also included a basic financial accounting glossary in Appendix 4.
Best of Luck! And do get in touch if you have any suggestions for improvements.
Faisal Sheikh
[email protected]
July 2017