Maire Loughran - Financial Accounting for Dummies: 2nd Edition

Financial Accounting For Dummies, 2nd Edition

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Published simultaneously in Canada

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Library of Congress Control Number: 2020949692

ISBN 978-1-119-75812-9 (pbk); ISBN 978-1-119-75813-6 (ePDF); ISBN 978-1-119-75814-3 (epub)

1. Chapter 17

1. Chapter 2
2. Chapter 3
3. Chapter 5
4. Chapter 7
5. Chapter 8
6. Chapter 9
7. Chapter 10
8. Chapter 11
9. Chapter 12
10. Chapter 13
11. Chapter 14
12. Chapter 16
13. Chapter 17
14. Chapter 18
15. Chapter 19
16. Chapter 20

Accounting is known as the language of business because it communicates financial and economic facts about a business to all sorts of interested parties both internal (employees of the company) and external (people not employed by the company in question). External users include investors, creditors, banks, and regulatory agencies such as the Internal Revenue Service and the U.S. Securities and Exchange Commission.

Zeroing in on the external users of accounting information, this book is about financial accounting. Financial accounting serves the needs of external users by providing them with understandable, materially correct financial statements. There are three financial statements: the income statement, balance sheet, and statement of cash flows. This book is a step-by-step guide on how to prepare all three.

You also find out the purposes of the financial statements:

• To report on the financial position of the company what types of assets the company owns and what types of liabilities it owes.
• To show how well the company performs over a period of time, which is referred to as an accounting period. You measure performance by seeing whether the company made or lost money during the accounting period.

A lot of first-time accounting students tell me that they are afraid they wont do well in their financial accounting class because they havent done well in math classes theyve taken in the past. Forgot about the math thats why you have a computer and a calculator! Financial accounting is less about adding and subtracting than using logic-based skills. Added to the mix is the importance of gaining a working understanding of the standards set in place by authoritative accounting bodies.

After years spent in the classroom as both a professor and student, I realize that many accounting textbooks are, well, boring. My purpose in writing this book is to breathe some life into the subject of financial accounting and make it more understandable.

This book, like all For Dummies books, is written so that each chapter stands on its own. I always assume that whatever chapter youre reading is the first one youve tackled in the book. Therefore, you can understand the concepts I explain in each chapter regardless of whether its your first chapter or your last.

However, certain terms and concepts pertain to more than one subject in this book. To avoid writing the same explanations over and over, whenever I reference a financial accounting term, method, or other type of fact that I fully explain in another chapter, I give you a brief overview and direct you to the spot where you can get more information. For example, I may suggest that you see (which, by the way, discusses the statement of cash flows).

Also, in this book I break financial accounting down to its lowest common denominator. I avoid using jargon that only accounting majors with several accounting classes already under their belts will understand. Please keep in mind that the list of financial accounting topics and methods I present in this book isnt all-inclusive. I simply cant cover every possible nuance and twist related to preparing financial accounting data and statements. This book is meant to illuminate the rather dry presentation of topics given in all the financial accounting textbooks from which Ive taught, providing a perfect companion to the financial accounting textbook your professor is using.