10. Advanced topics you can explore on your own

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Из курса от партнера IESE Business School

Accounting: Principles of Financial Accounting

764 оценки

IESE Business School

Accounting: Principles of Financial Accounting

764 оценки

Курс 1 из 5 — Specialization Foundations of Management

Financial Accounting is often called the language of business; it is the language that managers use to communicate the firm's financial and economic information to external parties such as shareholders and creditors. Nobody working in business can afford financial illiteracy. Whether you run your own business, work as a manager or are just starting your career, you want to understand financial information and be able to interact with accountants, controllers, and financial managers. You want to talk business! This course will provide you with the accounting language's essentials. Upon completion, you should be able to read and interpret financial statements for business diagnosis and decision-making. More importantly, you will possess the conceptual base to keep learning more sophisticated accounting and finance on your own. Do not forget that, as with any other language, becoming proficient with accounting requires constant practice.

Из урока

Week 4: Accrual Accounting

By using accrual accounting we can measure performance when a financial transaction takes place, even if no cash has actually changed hands. In this final session, we'll discuss the difference between accrual and cash accounting and also read and interpret a real enterprise's financial statements. Course objectives: By the end of the session, you will be able to handle numerous transactions for the purposes of financial reporting, and understand the advantages of accrual accounting.

1. Introduction to Week 42:07

2. Recap of Week 35:47

3. Accrual accounting vs. cash accounting5:02

4. Measuring performance with accrual accounting6:24

5. A few examples: prepaid insurance, accrued interest and advances from customers7:12

6. Performance evolution of the Campus Bookstore I8:12

7. Performance evolution of the Campus Bookstore II7:15

8. Reading and interpreting real financial statements I7:52

9. Reading and interpreting real financial statements II4:20

10. Advanced topics you can explore on your own6:47

11. Conclusions6:14

Познакомьтесь с преподавателями

Marc Badia
Assistant Professor
Accounting and Control

[MUSIC]

In this course, Accounting: Making Sound Decisions, we have covered the basics of

Financial Accounting, in order to read and interpret financial statements.

In addition,

you're now equipped to understand more advanced accounting topics.

So in this video, I would like to mention some of these more advanced topics in

order to arouse your curiosity.

On the website of this course, you're going to find references to technical

notes that explain these more advanced topics.

These technical notes are available on the website of IESE publishing.

So, let me give you a few examples of advanced topics

based on the experience we have already with the Campus BookStore.

Remember that in the Campus BookStore, Christina was keeping track of the value

of the inventories and also the cost of the books sold through a barcode system.

So, she was controlling exactly the cost of each one of the books she was selling.

Now for many companies, where products are very similar, or

they are the same kind of product and

this product is purchased at different points in time with different prices.

It's very difficult to track which of these products you're selling to whom.

And what many companies do is an assumption about

what is the cost of the goods sold?

So, there are different methods like FIFO, LIFO, weighted average cost.

While all of this would be an advanced topic that you can explore on your own.

Also, in the case of manufacturing companies, they have to decide what

production costs they are going to include in the value of their inventories, and

how to keep track of all these costs.

So that's another accounting decision, the production costs.

Finally, many industries, for example the fashion industry at the end of the season,

many of the stocks, many of the inventories lose volume

because they cannot be sold at the price higher than the inventory.

So how do you recognize this loss in volume of the inventories?

Well, all of these are questions that have to do with inventory valuation,

the first of our topics.

Another we thing that we saw in the campus bookstore are credit sales.

When we have credit sales, we recognize accounts receivable.

But what would happen if some of these customers wouldn't pay us?

Actually, in many industries,

we know by experience that there is a percentage of customers that do not pay.

Maybe you don't know which customers are not going to pay.

Otherwise you wouldn't sell to them, right?

But the thing is that you know that some of them will not pay.

So, do we need to account for anything about this?

Do we need to make an estimation of the amount of bad debt?

That's another topic for your exploration, and

I can assure you that in some sectors this is very important.

For example, in the case of the banking sector, you have the bad loans.

So, people who do not return their loans, and

that's something that the banks want to monitor very carefully.

More things that could happen in the Campus BookStore and in other businesses

for that matter, what if customers come back to return some of the books?

How would you account for that?

In the case we were selling more sophisticated product like cars or

computers, what if some of these cars or computers do not work properly and so

people come back with them exercising the warranty contract they have?

How would you account for these warranties?

Would you wait until people come with a problem?

Or maybe you can make an estimation of the amount of people that will come back.

All of this has to do with warranty liabilities and with sales returns.

Next, remember that the campus bookstore invested in shares of Apple.

We accounted for them at purchase cost.

But now, what would happen in year x3,

if obviously the price fluctuates in the stock market.

Do we really need to really recognize that change in value on our balance sheet?

Do we need to recognize the change in value in our financial assets?

Well, that would be another big advanced topic

that you can learn from in other technical notes.

More things that could happen in the Campus BookStore.

Let's say that some of the equipment, for example, the computer breaks down and

all of a sudden it doesn't work anymore.

How would you recognize that loss in value of the asset?

Obviously that has nothing to do with depreciation.

A depreciation is a systematic decrease in the value because of the passage of time,

and the usage of that asset.

But here we are talking about the sudden decreasing value because of an unexpected

reasons.

So, how would you recognize that?

All of this has to do with impairments of noncurrent assets, another topic for

your exploration.

Let's continue.

The campus bookstore got a loan from the bank,

actually got a couple of loans from the bank.

Now, big corporations, many times what they do is they issue bonds.

So instead of asking for

a loan from a bank, what they do is they partition all the debts they need

in different small securities and they sell them in the market.

So there are many different investors that purchase the bonds,

these are called bonds, from the companies.

Now, how would you account for these bonds?

Another very popular source of financing are leases.

And here we can distinguish capital leases and operating leases.

So accounting for leases, is another big accounting topic.

More advanced topics, everything that has to do with owners' equity.

So, besides increases in owners' equity because of profit and

the decreases because of dividend payments, you can have many other

operations, many other transactions that effect your owners' equity.

For example, a new capital issue or a capital write down.

Or a share dividend, repurchase of phone shares.

So, there are many different operations that effect owners' equity and

that you might be interested in learning more about.

Finally, in the Campus BookStore, we assume that accounting rules and

tax rules were the same.

So we were using the profit before taxes,

the accounting profit before taxes, in order to calculate,

to estimate, the amount of taxes we had to pay to the tax authorities.

In reality though, there are many differences between accounting rules and

tax rules.

And so, adjustments have to be performed to the accounting profit in order to get

the taxable profit.

All of this generates some differences that we need to account for,

that we need to reconcile.

And this has to do with Corporate Taxes.

So, another advanced topic that you can explore,

that you can study in our technical notes is accounting for corporate taxes.

I'm pretty sure that you have many more questions about the specific transactions.

By now you have already learned the basic accounting concepts that you need,

to study all these transactions, these advanced topics, on your own.

And understand the impact that these transactions have on the financial

statements of a firm.

[MUSIC]

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