Intermediate Accounting For Dummies

Maire Loughran

• Publisher: For Dummies
• Year: 2012
• Print ISBN: 9781118176825
• eBook ISBN: 9781118240229
• Edition: 1
• Topic: Business
• Subtopic: Financial Accounting
• Index: Business

The easy way to master an intermediate accounting course

Intermediate accounting courses are required for students seeking bachelor's degrees in accounting and often for degrees in finance, business administration, and management. Intermediate Accounting For Dummies provides you with a deeper and broader level of accounting theory, serving as an excellent course supplement and study guide to help you master the concepts of this challenging program.

With easy-to-understand explanations and realworld examples, Intermediate Accounting For Dummies covers all the topics you'll encounter in an intermediate accounting course: the conceptual framework of Generally Accepted Accounting Principles (GAAP), International Financial Reporting Standards (IFRS), financial ratio analysis, equity accounting, investment strategies, financial statement preparation, and more

• Tracks to a typical intermediate accounting curriculum
• Expert information and real-world examples
• Other titles from Loughran: Financial Accounting For Dummies and Auditing For Dummies

With the help of Intermediate Accounting For Dummies, you'll discover the fast and easy way to take the confusion out of the complex theories and methods associated with a typical intermediate accounting course.

Part I

Introducing Financial Accounting and Standards

In this part . . .

You get a refresher course on financial accounting basics. This tutorial includes briefly going over the three financial statements: the income statement, balance sheet, and statement of cash flows. You review the nuts and bolts of accounting for financial transactions that show up on these financial statements.

In addition to explaining the financial statements, Chapter 1 provides info on how the financial statements are used. You explore the three standard-setting agencies that offer guidance to financial accountants and dictate how to handle all the transactions in your intermediate accounting course. Before you finish the chapter, you read over the accountant’s code of professional conduct.

Chapter 2 explains the Financial Accounting Standards Board’s (FASB) conceptual framework of accounting, which defines the boundaries of accounting. Along the way, you find out who the external users of the financial statements are and identify the objectives of financial reporting. Plus, you find out what basic assumptions users make when reviewing financial statements.

How to value financial transactions on the balance sheet is the subject of Chapter 3. I explain fair value, which is the price an asset will fetch in an open marketplace. You also dig into the future of fair value, especially in the international market.

The last chapter in this part, Chapter 4, explains basic accounting terms. You also find out how to book accounting transactions, investigate the difference between journals and ledgers, and work thought how to prepare a trial balance.

Chapter 1

Seeing the Big Picture of Financial Accounting

In This Chapter

Getting to know financial accounting

Understanding why accounting matters

Meeting key financial accounting players

Accepting ethical responsibilities

Most people don’t buy a title like Intermediate Accounting For Dummies on a whim in the bookstore, so I assume you have good reason for picking up this book. Most likely, you’re preparing for or in the midst of starting your series of classes on intermediate accounting. Or perhaps you’re gearing up to take the certified public accountant (CPA) exam and are looking for a plain-talk explanation of some tested topics. Maybe you’re a business owner wanting to get a better handle on financial statement preparation. Then again, maybe you’re just curious about the inner workings of the wonderful world of accounting. Whatever brought you here, welcome.

In this chapter, I talk about the background of financial accounting including key challenges to preparing financial statements. I also introduce you to the alphabet soup that is the three financial accounting standard-setting bodies: the SEC, FASB, and AICPA.

This chapter also introduces generally accepted accounting principles (GAAP), which defines for financial accountants the acceptable practices in the preparation of financial statements in the United States and addresses the recent Codification, which restructures GAAP into a more user-friendly format.

This chapter provides an overview of the financial accounting code of professional conduct and rules and regulations that set the standards for professionalism for financial accountants and certified public accountants. These standards give you a roadmap to follow when you’re trying to figure out how to handle various accounting transactions taking place during day-to-day business operations. In particular, I explain integrity, objectivity, independence, and due care.

Ready to jump into the pool of financial accounting? Time to go back to the beginning, to the early days of financial accounting.

Financial Accounting: Seeing Where It All Began

Financial accounting involves the process of preparing financial statements for a business. This extravaganza involves three major components: accounting information, type of business entity, and user of the financial statements.

The three financial statements are the income statement, balance sheet, and statement of cash flows.

Following is a brief description of each:

Information: Any accounting transactions the business completes during the accounting period. These transactions include generating revenue from the sales of company goods or services, paying business-related expenses, buying company assets, and incurring debt to run the company.

Business entity: The company incurring the accounting transactions. Important in this consideration is the type of business entity; some accounting transactions require different treatment, depending on the type of entity.

The three types of business entities are sole proprietorships (one owner), corporations, and flow-through entities, like a partnership.

User: The persons or businesses that need to see the accounting transactions organized into financial statements to make educated decisions of their own. More about these users comes in the “Providing results for the users of the financial statements” section of this chapter.

The next few sections give you more information about the three different financial statements and various users of the financial statements.

This book and your intermediate accounting textbook home in on the corporate business entity. Corporations are separate legal entities, with oversight by a board of directors and owned by its shareholders.

Preparing financial statements

The number one objective of financial accounting is to prepare financial statements that accurately reflect business operations and are understandable by those using the financial statements. You’ve taken your prerequisites to intermediate accounting, so you’re well aware of the fact that accountants can’t just throw accounting transaction data on the statements.

Rules govern how the accounting must be done, and they’re called generally accepted accounting principles (GAAP). I discuss them later in this chapter, in both the “Developing financial standards” and “Explaining Codification” sections. These rules pertain to both how the financial accountant shows the accounting transactions and on which financial statement the transactions appear.

But first, you get a mini-refresher on each of the financial statements:

Income statement: This financial statement shows the results of business operations consisting of revenue, expenses, gains, and losses. The end product is net income or loss. I talk about the income statement again in Chapt...

Table of contents

• Cover
• Table of Contents
• Title Page
• Introduction
• Part I: Introducing Financial Accounting and Standards
• Part II: Preparing and Using Financial Statements
• Part III: Homing in on Current and Noncurrent Assets
• Part IV: Analyzing Debt and Equity
• Part V: Accounting for Advanced Intermediate Issues
• Part VI: The Part of Tens