Tuesday, January 5, 2010
Tonight: Trade Secrets of a Multi-Million Dollar Guru
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Wow! I just finished reading the power points for Wednesday's webinar with my friend the ex-fund manager.
And, I've got to say, that in all my years in the trading business, this is the most content rich webinar I have ever seen. No hype, only hard core trading truths that not everyone is going to like.
Things like the fact that he and his hedge fund buddies used to hunt stops. Now he's teaching "civilians" how to make money off those hedge hunters.
If you are new to trading, this hour could save you thousands of dollars over the school of hard knocks.
Those who don't get information like this risk having their whole investment account being wiped out, before they've really had a chance to trade.
Don't miss out - Click here to register for this Free ETF and Money Management Seminar.
For trading veterans I can guarantee you that the advanced position sizing tip is a golden nugget you'll use for increasing profits and decreasing risks in the years to come. This one tip could double your profits regardless of what your entry system is. The one tip alone can turn any average system into a winning system.
We'll cover:
- How to maximize your winners.
- Why most traders have it backwards when it comes to risk.
- How to eliminate 95% of trading stress and emotion.
- Why most traders have it backwards when it comes to winning percentages.
- Even how to become a professional money manager and raise millions, if you so desire.
That last one really surprised me. Because I know that if you really want to make millions in trading the fastest way is to use leverage with other peoples' money, when you are ready.
There are so many reasons to attend this F.R.E.E webinar Wednesday at 9pm EST. I honestly believe you're missing the boat if you don't take advantage of this opportunity. It won't be a waste of your time! I love sharing high quality content with my subscribers and this is going to be one of the best.
Our host has worked trades as large as $50 million during his money management career. He will share a little of his story, but most of the hour will be spent teaching you how to improve your trading.
See you then,
Cheers,
Ave Ramel
P.S. That's right, $50 million advice, f.r.e.e, and a chance to win a free 1 year mentorship with a professional trader just by showing up.
*** Pay attention while our guest explains how you can make more profits with less risk trading the markets.
Labels: exchange traded fund, exchange traded fund etf, exchange traded funds, exchange traded funds etf, exchange traded funds etfs, exchange traded funds list, online accounting classes
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Monday, January 4, 2010
The Big Boys Are Working Against You - And I Can Prove It!
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Have you ever had that feeling ... after you were stopped out and the market went back in your original direction, that a bank or large fund had hunted your stop and stolen your shares?
Well, that's because it's true!
My guest on our Wednesday night webinar, a former big fund manager, used to do just that. In small markets like penny stocks his firm could do it all by themselves.
In larger more liquid markets they would team up with other hedge funds. He says even some banks would do it.
So what can you do about it? Learn to either stay out of the market when the hedge funds are hunting stops, or profit from it.
We'll talk about how to survive the hedge fund hunters during his complementary webinar Wednesday at 9pm EST.
Go ahead and reserve your slot now - with over 217,000 invitations and only 500 spaces, you'll need to register and opt in early to get on the webinar.
Click here to register:
In addition to the long list of topics I listed in yesterday's email, he will also be discussing:
- How some hedge funds hunt stops and a simple trick to avoid getting caught, most of the time. Yes, hedge funds, brokers and other individuals (not the "market") really do hunt your stops.
- One of his four proprietary profit target strategies. He'll just give you this valuable tip for listening in Wednesday.
- How to avoid being vague with your entries and stops (like those "gurus" who say, "Buy a few cents, ticks, or pips above ___.")
- A little known, no cost, scanner tool that can help you improve your trades, now.
- A complementary excel sheet that does ALL the math for you. You'll be able to easily see the optimal position size and risk vs. reward ratio on all your trades.
I promise it won't be a waste of your time. My trader friend really did do trades as large as $50 million before he left the world of money management. He will explain how he learned these tricks-of-the-trade, but most of the hour will be spent on teaching you how to be a better trader. I like to share useful content with my subscribers and this is a big chance to do just that.
Click here to register for your free seat at the Wednesday night webinar.
Hope to see you there,
Cheers,
Ave Ramel
P.P.S. Don't place another stop before you hear how the hedge funds are gunning for your profits!
P.P.P.S. In only 1 hour, you'll be handed years of hard won experience from a big time trader (who's willing to spill the beans). Plus his 1 year mentorship offer will be unavailable after Friday December 4th. He is the type of teacher who likes to support his new students and doesn't need to keep selling courses.
Labels: exchange traded fund, exchange traded fund etf, exchange traded funds, exchange traded funds etf, exchange traded funds etfs, exchange traded funds list, online accounting classes
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Saturday, January 2, 2010
How The Pros Make More Money With Less Risk
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This Wednesday, January 6th at 9pm EST, join me for a free session with an ex $50 Million dollar fund manager when he reveals the secrets professional money managers use to:
- Risk 1-2% per trade and still make great returns.
- Instantly remove 95% of your trading emotions (as you know, fear and greed are the successful traders' enemy) with two simple tricks.
- He'll also show you how to reduce risk using his unique position sizing technique.
- A combination of a percentage risk stop and a technical stop.
- Plus an advanced tip using this concept that can instantly double your returns regardless of what system or markets you trade.
- He explains why trading is not a "zero sum game" and what this really means for you.
- How you can make profitable trades in only 10 minutes per night.
- Plus how Warren Buffett, Jim Rogers and others became great traders and investors.
- And, what the "gurus" selling hype trading courses are hiding from you and an easy way to spot a counterfeit "trading teacher" from a mile away.
- Much more.
Sound like a good use of an hour of your time? I hope so… in fact, since this invitation is going out to over 237,454 people and we've only got 500 seats, I'm sure it's going to "sell out" even though it is f.r.e.e.
So, if you think you can make it, go ahead and click here to reserve your spot.
He will share a little of his story, but most of the hour will be spent showing you how to improve your trades. I like to share valuable information with my subscribers and this is a great opportunity to learn from a pro – for f.r.e.e.
He told me the other day that he could take even an average breakeven system and turn it into a profitable one by changing the money management and position sizing of the trades.
Now, what if you do that, on top of having a great system? You get long term consistent results; that's what.
To hear it straight from the expert, go ahead and click here to register.
I look forward to seeing with you Wednesday night,
Cheers,
Ave Ramel
P.S. I almost forgot to mention that everyone who joins us gets a f.r.e.e bonus just for attending.
Labels: exchange traded fund, exchange traded fund etf, exchange traded funds, exchange traded funds etf, exchange traded funds etfs, exchange traded funds list, online accounting classes
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Friday, January 1, 2010
A Scientific Breakthrough
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Hi,
At last, have finished the First VitaPlus Tour that will answer
a lot of your questions about this scientific breakthrough in
Health, Wellness, and Beauty.
You may now proceed to: First VitaPlus
The First VitaPlus Tour answers the ff:
- Five Power Vegetables
- Five Little Things You Should Know About First VitaPlus
- Prevention and Maintenance of Diseases
- Availability and Product Sizes
Cheers,
Ave Ramel
***Trust in the Lord with all your heart***
Labels: health drink, health drinking, health drinks, new health drink, online accounting classes
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Friday, November 27, 2009
How The Rich are Debt-Free
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Hi,
===========================================
Crisis ???
The Rich are debt-free and do really have
a lot of options in life.
If you want to be rich, you must know
- what kind of income to work hard for,
- how to keep it, and
- how to protect it from loss.
That is the key to great wealth.
Discover this kind of income in:
===========================================
Cheers,
Labels: become debt free, debt free, online accounting classes
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Monday, September 28, 2009
Inventory and Expenses
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Inventory is usually the largest current asset of a business that sells products. If the inventory account is greater at the end of the period than at the start of the reporting period, the amount the business actually paid in cash for that inventory is more than what the business recorded as its cost of good sold expense. When that occurs, the accountant deducts the inventory increase from net income for determining cash flow from profit.
The prepaid expenses asset account works in much the same way as the change in inventory and accounts receivable accounts. However, changes in prepaid expenses are usually much smaller than changes in those other two asset accounts.
The beginning balance of prepaid expenses is charged to expense in the current year, but the cash was actually paid out last year. this period, the business pays cash for next period's prepaid expenses, which affects this period's cash flow, but doesn't affect net income until the next period. Simple, right?
As a business grows, it needs to increase its prepaid expenses for such things as fire insurance premiums, which have to be paid in advance of the insurance coverage, and its stocks of office supplies. Increases in accounts receivable, inventory and prepaid expenses are the cash flow price a business has to pay for growth. Rarely do you find a business that can increase its sales revenue without increasing these assets.
The lagging behind effect of cash flow is the price of business growth. Managers and investors need to understand that increasing sales without increasing accounts receivable isn't a realistic scenario for growth. In the real business world, you generally can't enjoy growth in revenue without incurring additional expenses.
The prepaid expenses asset account works in much the same way as the change in inventory and accounts receivable accounts. However, changes in prepaid expenses are usually much smaller than changes in those other two asset accounts.
The beginning balance of prepaid expenses is charged to expense in the current year, but the cash was actually paid out last year. this period, the business pays cash for next period's prepaid expenses, which affects this period's cash flow, but doesn't affect net income until the next period. Simple, right?
As a business grows, it needs to increase its prepaid expenses for such things as fire insurance premiums, which have to be paid in advance of the insurance coverage, and its stocks of office supplies. Increases in accounts receivable, inventory and prepaid expenses are the cash flow price a business has to pay for growth. Rarely do you find a business that can increase its sales revenue without increasing these assets.
The lagging behind effect of cash flow is the price of business growth. Managers and investors need to understand that increasing sales without increasing accounts receivable isn't a realistic scenario for growth. In the real business world, you generally can't enjoy growth in revenue without incurring additional expenses.
Labels: expenses, inventory, online accounting classes
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Friday, September 25, 2009
Revenue and Receivables
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In most businesses, what drives the balance sheet are sales and expenses. In other words, they cause the assets and liabilities in a business. One of the more complicated accounting items are the accounts receivable. As a hypothetical situation, imagine a business that offers all its customers a 30-day credit period, which is fairly common in transactions between businesses, (not transactions between a business and individual consumers).
An accounts receivable asset shows how much money customers who bought products on credit still owe the business. It's a promise of case that the business will receive. Basically, accounts receivable is the amount of uncollected sales revenue at the end of the accounting period.
Cash does not increase until the business actually collects this money from its business customers. However, the amount of money in accounts receivable is included in the total sales revenue for that same period. The business did make the sales, even if it hasn't acquired all the money from the sales yet. Sales revenue, then isn't equal to the amount of cash that the business accumulated.
To get actual cash flow, the accountant must subtract the amount of credit sales not collected from the sales revenue in cash. Then add in the amount of cash that was collected for the credit sales that were made in the preceding reporting period. If the amount of credit sales a business made during the reporting period is greater than what was collected from customers, then the accounts receivable account increased over the period and the business has to subtract from net income that difference.
If the amount they collected during the reporting period is greater than the credit sales made, then the accounts receivable decreased over the reporting period, and the accountant needs to add to net income that difference between the receivables at the beginning of the reporting period and the receivables at the end of the same period.
An accounts receivable asset shows how much money customers who bought products on credit still owe the business. It's a promise of case that the business will receive. Basically, accounts receivable is the amount of uncollected sales revenue at the end of the accounting period.
Cash does not increase until the business actually collects this money from its business customers. However, the amount of money in accounts receivable is included in the total sales revenue for that same period. The business did make the sales, even if it hasn't acquired all the money from the sales yet. Sales revenue, then isn't equal to the amount of cash that the business accumulated.
To get actual cash flow, the accountant must subtract the amount of credit sales not collected from the sales revenue in cash. Then add in the amount of cash that was collected for the credit sales that were made in the preceding reporting period. If the amount of credit sales a business made during the reporting period is greater than what was collected from customers, then the accounts receivable account increased over the period and the business has to subtract from net income that difference.
If the amount they collected during the reporting period is greater than the credit sales made, then the accounts receivable decreased over the reporting period, and the accountant needs to add to net income that difference between the receivables at the beginning of the reporting period and the receivables at the end of the same period.
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Wednesday, September 23, 2009
Making a Profit
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Accountants are responsible for preparing three primary types of financial statements for a business. The income statement reports the profit-making activities of the business and the bottom-line profit or loss for a specified period. The balance sheets reports the financial position of the business at a specific point in time, ofteh the last day of the period. and the statement of cash flows reports how much cash was generated from profit what the business did with this money.
Everyone knows profit is a good thing. It's what our economy is founded on. It doesn't sound like such a big deal. Make more money than you spend to sell or manufacture products. But of course nothing's ever really simple, is it? A profit report, or net income statement first identifies the business and the time period that is being summarized in the report.
You read an income statement from the top line to the bottom line. Every step of the income statement reports the deduction of an expense. The income statement also reports changes in assets and liabilities as well, so that if there's a revenue increase, it's either because there's been an increase in assets or a decrease in a company's liabilities. If there's been an increase in the expense line, it's because there's been either a decrease in assets or an increase in liabilities.
Net worth is also referred to as owners' equity in the business. They're not exactly interchangeable. Net worth expresses the total of assets less the liabilities. Owners equity refers to who owns the assets after the liabilities are satisfied.
These shifts in assets and liabilities are important to owners and executives of a business because it's their responsibility to manage and control such changes. Making a profit in a business involves several variable, not just increasing the amount of cash that flows through a company, but management of other assets as well.
Everyone knows profit is a good thing. It's what our economy is founded on. It doesn't sound like such a big deal. Make more money than you spend to sell or manufacture products. But of course nothing's ever really simple, is it? A profit report, or net income statement first identifies the business and the time period that is being summarized in the report.
You read an income statement from the top line to the bottom line. Every step of the income statement reports the deduction of an expense. The income statement also reports changes in assets and liabilities as well, so that if there's a revenue increase, it's either because there's been an increase in assets or a decrease in a company's liabilities. If there's been an increase in the expense line, it's because there's been either a decrease in assets or an increase in liabilities.
Net worth is also referred to as owners' equity in the business. They're not exactly interchangeable. Net worth expresses the total of assets less the liabilities. Owners equity refers to who owns the assets after the liabilities are satisfied.
These shifts in assets and liabilities are important to owners and executives of a business because it's their responsibility to manage and control such changes. Making a profit in a business involves several variable, not just increasing the amount of cash that flows through a company, but management of other assets as well.
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Monday, September 21, 2009
Managing the Bottom Line
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If you don't keep track of how much money you're making, you have no idea whether your business is successful or not.You can't tell how well your marketing is working. And I don't just mean you should know the amount of your total sales or gross revenue. You need to know what your net profit is. If you don't, there's no way you can know how to increase it.
If you want your business to be successful, you need to make a financial plan and check it against the facts on a monthly basis, then take immediate action to correct any problems. Here are the steps you should take:
* Create a financial plan for your business. Estimate how much revenue you expect to bring in each month, and project what your expenses will be.
* Remember that lost profits can't be recovered. When entrepreneurs compare their projections to reality and find earnings too low or expenses too high, they often conclude, "I'll make it up later." The problem is that you really can't make it up later: every month profits are too low is a month that is gone forever.
* Make adjustments right away. If revenues are lower than expected, increase efforts in sales and marketing or look for ways to increase your rates. If overhead costs are too high, find ways to cut back. There are other businesses like yours around. What is their secret for operating profitably?
* Think before you spend. When considering any new business expense, including marketing and sales activities, evaluate the increased earnings you expect to bring in against its cost before you proceed to make a purchase.
* Evaluate the success of your business based on profit, not revenue. It doesn't matter how many thousands of dollars you are bringing in each month if your expenses are almost as high, or higher. Many high-revenue businesses have gone under for this very reason -- don't be one of them.
If you want your business to be successful, you need to make a financial plan and check it against the facts on a monthly basis, then take immediate action to correct any problems. Here are the steps you should take:
* Create a financial plan for your business. Estimate how much revenue you expect to bring in each month, and project what your expenses will be.
* Remember that lost profits can't be recovered. When entrepreneurs compare their projections to reality and find earnings too low or expenses too high, they often conclude, "I'll make it up later." The problem is that you really can't make it up later: every month profits are too low is a month that is gone forever.
* Make adjustments right away. If revenues are lower than expected, increase efforts in sales and marketing or look for ways to increase your rates. If overhead costs are too high, find ways to cut back. There are other businesses like yours around. What is their secret for operating profitably?
* Think before you spend. When considering any new business expense, including marketing and sales activities, evaluate the increased earnings you expect to bring in against its cost before you proceed to make a purchase.
* Evaluate the success of your business based on profit, not revenue. It doesn't matter how many thousands of dollars you are bringing in each month if your expenses are almost as high, or higher. Many high-revenue businesses have gone under for this very reason -- don't be one of them.
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Friday, September 18, 2009
Measuring Costs
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Measuring profits or net income is the most important thing accountants do. The second most important task is measuring costs. Costs are extremely important to running a business and managing them effectively can make a substantial difference in a company's bottom line.
Any business that sells products needs to know its product costs and depending on what is being manufactured and/or sold, it can get complicated. Every step in the production process has to be tracked carefully from start to finish. Many manufacturing costs cannot be directly matched with particular products; these are called indirect costs.
To calculate the full cost of each product manufactured, accountants devise methods for allocating indirect production costs to specific products. Generally accepted accounting principles (GAAP) provide few guidelines for measuring product cost.
Accountants need to determine many other costs, in addition to product costs, such as the costs of the departments and other organizational units of the business; the cost of the retirement plan for the company's employees; the cost of marketing and advertising; the cost of restructuring the business or the cost of a major recall of products sold by the company, should that ever become necessary.
Cost accounting serves two broad purposes: measuring profit and furnishing relevant information to managers. What makes it confusing is that there's no one set method for measuring and reporting costs, although accuracy is paramount. Cost accounting can fall anywhere on a continuum between conservative or expansive.
The phrase actual cost depends entirely on the particular methods used to measure cost. These can often be as subjective and nebulous as some systems for judging sports. Again accuracy is extremely important. The total cost of goods or products sold is the first and usually largest expense deducted from sales revenue in measuring profit.
Any business that sells products needs to know its product costs and depending on what is being manufactured and/or sold, it can get complicated. Every step in the production process has to be tracked carefully from start to finish. Many manufacturing costs cannot be directly matched with particular products; these are called indirect costs.
To calculate the full cost of each product manufactured, accountants devise methods for allocating indirect production costs to specific products. Generally accepted accounting principles (GAAP) provide few guidelines for measuring product cost.
Accountants need to determine many other costs, in addition to product costs, such as the costs of the departments and other organizational units of the business; the cost of the retirement plan for the company's employees; the cost of marketing and advertising; the cost of restructuring the business or the cost of a major recall of products sold by the company, should that ever become necessary.
Cost accounting serves two broad purposes: measuring profit and furnishing relevant information to managers. What makes it confusing is that there's no one set method for measuring and reporting costs, although accuracy is paramount. Cost accounting can fall anywhere on a continuum between conservative or expansive.
The phrase actual cost depends entirely on the particular methods used to measure cost. These can often be as subjective and nebulous as some systems for judging sports. Again accuracy is extremely important. The total cost of goods or products sold is the first and usually largest expense deducted from sales revenue in measuring profit.
Labels: costs, online accounting classes
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Wednesday, September 16, 2009
Parts of an Income Statement, Part 3
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While some lines of an income statement depend on estimates or forecasts, the interest expense line is a basic equation. When accounting for income tax expense, however, a business can use different accounting methods for some of its expenses than it uses for calculating its taxable income. The hypothetical amount of taxable income, if the accounting methods used were used in the tax return is calculated.
Then, the income tax based on this hypothetical taxable income is fitured. This is the income tax expense reported in the income statement. This amount is reconciled with the actual amount of income tax owed based on the accounting methods used for income tax purposes. A reconciliation of the two different income tax amounts is then provided in a footnote on the income statement.
Net income is like earnings before interest and tax (EBIT) and can vary considerably depending on which accounting methods are used to report sales revenue and expenses. This is where profit smoothing can come into play to manipulate earnings. Profit smoothing crosses the line from choosing acceptable accounting methods from the list of GAAP and implementing these methods in a reasonable manner, into the gray area of earnings management that involves accounting manipulation.
It's incumbent on managers and business owners to be involved in the decisions about which accounting methods are used to measure profit and how those methods are actually implemented. A manager can be requires to answer questions about the company's financial reports on many occasions.
It's therefore critical that any officer or manager in a company be thoroughly familiar with how the company's financial statements are prepared. Accounting methods and how they're implemented vary from business to business. A company's methods can fall anywhere on a continuum that's either left or right of center of GAAP.
Then, the income tax based on this hypothetical taxable income is fitured. This is the income tax expense reported in the income statement. This amount is reconciled with the actual amount of income tax owed based on the accounting methods used for income tax purposes. A reconciliation of the two different income tax amounts is then provided in a footnote on the income statement.
Net income is like earnings before interest and tax (EBIT) and can vary considerably depending on which accounting methods are used to report sales revenue and expenses. This is where profit smoothing can come into play to manipulate earnings. Profit smoothing crosses the line from choosing acceptable accounting methods from the list of GAAP and implementing these methods in a reasonable manner, into the gray area of earnings management that involves accounting manipulation.
It's incumbent on managers and business owners to be involved in the decisions about which accounting methods are used to measure profit and how those methods are actually implemented. A manager can be requires to answer questions about the company's financial reports on many occasions.
It's therefore critical that any officer or manager in a company be thoroughly familiar with how the company's financial statements are prepared. Accounting methods and how they're implemented vary from business to business. A company's methods can fall anywhere on a continuum that's either left or right of center of GAAP.
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Monday, September 14, 2009
Parts of an Income Statement, Part 2
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Of course profit and cost of goods sold expense are the two most critical components of an income statement, or at least they're what people will look at first. But an income statement is truly the sum of its parts, and they all need to be considered carefully, consistently and accurately.
In reporting depreciation expense, a business can use a short-life method and load most of the expense over the first few years, or a longer-life method and spread the expense evenly over the years. Depreciation is a big expense for some businesses and the method of reporting is especially critical for them.
One of the more complex elements of a an income statement is the line reporting employee pensions and post-retirement benefits. The GAAP rule on this expense is complex and several key estimates must be made by the business,such as the expected rate of return on the portfolio of funds set aside for these future obligations. This and other estimates affect the amount of expense recorded.
Many products are sold with expressed or implied warranties and guarantees. The business should estimate the cost of these future obligations and record this amount as an expense in the same period that the goods are sold, along with the cost of goods expense. It can't really wait until customers actually return products for repair or replacement, should be forecast as a percent of the total products sold.
Other operating expenses that are reported in an income statement may also have timing or estimating considerations. Some expenses are also discretionary in nature, which means that how much is spent during the year depends on the discretion of management.
Earnings before interest and tax (EBIT) measures the sales revenue less all the expenses above this line. It depends on all the decisions made for recording sales revenue and expenses and how the accounting methods are implemented.
In reporting depreciation expense, a business can use a short-life method and load most of the expense over the first few years, or a longer-life method and spread the expense evenly over the years. Depreciation is a big expense for some businesses and the method of reporting is especially critical for them.
One of the more complex elements of a an income statement is the line reporting employee pensions and post-retirement benefits. The GAAP rule on this expense is complex and several key estimates must be made by the business,such as the expected rate of return on the portfolio of funds set aside for these future obligations. This and other estimates affect the amount of expense recorded.
Many products are sold with expressed or implied warranties and guarantees. The business should estimate the cost of these future obligations and record this amount as an expense in the same period that the goods are sold, along with the cost of goods expense. It can't really wait until customers actually return products for repair or replacement, should be forecast as a percent of the total products sold.
Other operating expenses that are reported in an income statement may also have timing or estimating considerations. Some expenses are also discretionary in nature, which means that how much is spent during the year depends on the discretion of management.
Earnings before interest and tax (EBIT) measures the sales revenue less all the expenses above this line. It depends on all the decisions made for recording sales revenue and expenses and how the accounting methods are implemented.
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Friday, September 11, 2009
Parts of an Income Statement, Part 1
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The first and most important part of an income statement is the line reporting sales revenue. Businesses need to be consistent from year to year regarding when they record sales. For some business, the timing of recording sales revenue is a major problem, especially when the final acceptance by the customer depends on performance tests or other conditions that have to be satisfied.
For example, when does an ad agency report the sales revenue for a campaign it's prepared for its client? When the work is completed and sent to the client for approval? When the client approves it? When the ads appear in the media? Or when the billing is complete?
These are issues a company must decide on for reporting sales revenue, and they must be consistent each year, and the timing of reporting should be noted on the financial statement.
The next line in an income statement is the cost of goods sold expense. There are three methods of reporting cost of goods sold expense. One is called "first in-first out" (FIFO); another is the "last in-last out" (LIFO) method and the last is the average cost method.
Cost of goods sold expense is a huge item in an income statement and how it's reported can make a substantial impact on the reported bottom line.
Other items in an income statement include inventory write-downs. A business should regularly inspect its inventory carefully to determine any losses due to theft, damage and deterioration, and to apply the lower of cost or market (LCM) method.
Bad debts are also an important component of the income statement. Bad debts are those owed to a business by customers who bought on credit (accounts receivable) but are not going to be paid.
Again the timing of when bad debts are reported is crucial. Do you report it before or after any collection efforts are exhausted?
For example, when does an ad agency report the sales revenue for a campaign it's prepared for its client? When the work is completed and sent to the client for approval? When the client approves it? When the ads appear in the media? Or when the billing is complete?
These are issues a company must decide on for reporting sales revenue, and they must be consistent each year, and the timing of reporting should be noted on the financial statement.
The next line in an income statement is the cost of goods sold expense. There are three methods of reporting cost of goods sold expense. One is called "first in-first out" (FIFO); another is the "last in-last out" (LIFO) method and the last is the average cost method.
Cost of goods sold expense is a huge item in an income statement and how it's reported can make a substantial impact on the reported bottom line.
Other items in an income statement include inventory write-downs. A business should regularly inspect its inventory carefully to determine any losses due to theft, damage and deterioration, and to apply the lower of cost or market (LCM) method.
Bad debts are also an important component of the income statement. Bad debts are those owed to a business by customers who bought on credit (accounts receivable) but are not going to be paid.
Again the timing of when bad debts are reported is crucial. Do you report it before or after any collection efforts are exhausted?
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Wednesday, September 9, 2009
Personal Accounting
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If you have a checking account, of course you balance it periodically to account for any differences between what's in your statement and what you wrote down for checks and deposits. Many people do it once a month when their statement is mailed to them, but with the advent of online banking, you can do it daily if you're the sort whose banking tends to get away from them.
You balance your checkbook to note any charges in your checking account that you haven't recorded in your checkbook. Some of these can include ATM fees, overdraft fees, special transaction fees or low balance fees, if you're required to keep a minimum balance in your account. You also balance your checkbook to record any credits that you haven't noted previously.
They might include automatic deposits, or refunds or other electronic deposits. Your checking account might be an interest-bearing account and you want to record any interest that it's earned. You also need to discover if you've made any errors in your recordkeeping or if the bank has made any errors.
Another form of accounting that we all dread is the filing of annual federal income tax returns. Many people use a CPA to do their returns; others do it themselves. Most forms include the following items:
Income - any money you've earned from working or owning assets, unless there are specific exemptions from income tax.
Personal exemptions - this is a certain amount of income that is excused from tax.
Standard deduction - some personal expenditures or business expenses can be deducted from your income to reduce the taxable amount of income. These expenses include items such as interest paid on your home mortgage, charitable contributions and property taxes.
Taxable income - This is the balance of income that's subject to taxes after personal exemptions and deductions are factored in.
You balance your checkbook to note any charges in your checking account that you haven't recorded in your checkbook. Some of these can include ATM fees, overdraft fees, special transaction fees or low balance fees, if you're required to keep a minimum balance in your account. You also balance your checkbook to record any credits that you haven't noted previously.
They might include automatic deposits, or refunds or other electronic deposits. Your checking account might be an interest-bearing account and you want to record any interest that it's earned. You also need to discover if you've made any errors in your recordkeeping or if the bank has made any errors.
Another form of accounting that we all dread is the filing of annual federal income tax returns. Many people use a CPA to do their returns; others do it themselves. Most forms include the following items:
Income - any money you've earned from working or owning assets, unless there are specific exemptions from income tax.
Personal exemptions - this is a certain amount of income that is excused from tax.
Standard deduction - some personal expenditures or business expenses can be deducted from your income to reduce the taxable amount of income. These expenses include items such as interest paid on your home mortgage, charitable contributions and property taxes.
Taxable income - This is the balance of income that's subject to taxes after personal exemptions and deductions are factored in.
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Monday, September 7, 2009
Profit and Loss
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It might seem like a no-brainer to define just exactly what profit and loss are. But of course these have definitions like everything else. Profit can be called different things, for a start. It's sometimes called net income or net earnings. Businesses that sell products and services generate profit from the sales of those products or services and from controlling the attendant costs of running the business.
Profit can also be referred to as Return on Investment, or ROI. While some definitions limit ROI to profit on investments in such securities as stocks or bonds, many companies use this term to refer to short-term and long-term business results. Profit is also sometimes called taxable income.
It's the job of the accounting and finance professionals to assess the profits and losses of a company. They have to know what created both and what the results of both sides of the business equation are. They determine what the net worth of a company is. Net worth is the resulting dollar amount from deducting a company's liabilities from its assets. In a privately held company, this is also called owner's equity, since anything that's left over after all the bills are paid, to put it simply, belongs to the owners.
In a publicly held company, this profit is returned to the shareholders in the form of dividends. In other words, all liabilities have the first claim on any money the company makes. Anything that's left over is profit. It's not derived from one element or another. Net worth is determined after all the liabilities are deducted from all the assets, including cash and property.
Showing a profit, or a positive figure on the balance sheet, is of course the aim of every business. It's what our economy and society are built on. It doesn't always work out that way. Economic trends and consumer behaviors change and it's not always possible to predict these and what income they'll have on a company's performance.
Profit can also be referred to as Return on Investment, or ROI. While some definitions limit ROI to profit on investments in such securities as stocks or bonds, many companies use this term to refer to short-term and long-term business results. Profit is also sometimes called taxable income.
It's the job of the accounting and finance professionals to assess the profits and losses of a company. They have to know what created both and what the results of both sides of the business equation are. They determine what the net worth of a company is. Net worth is the resulting dollar amount from deducting a company's liabilities from its assets. In a privately held company, this is also called owner's equity, since anything that's left over after all the bills are paid, to put it simply, belongs to the owners.
In a publicly held company, this profit is returned to the shareholders in the form of dividends. In other words, all liabilities have the first claim on any money the company makes. Anything that's left over is profit. It's not derived from one element or another. Net worth is determined after all the liabilities are deducted from all the assets, including cash and property.
Showing a profit, or a positive figure on the balance sheet, is of course the aim of every business. It's what our economy and society are built on. It doesn't always work out that way. Economic trends and consumer behaviors change and it's not always possible to predict these and what income they'll have on a company's performance.
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Friday, September 4, 2009
Quasar Software
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Accounting has become more and more complex as have the businesses that use accounting functions. Fortunately, there are several excellent software packages that can help you manage this important function. Quasar is one such package.
All versions of Quasar offer comprehensive inventory controls. In its most basic use, the inventory module allows a business owner to track the locations and quantities of all inventory items. Additionally, the inventory capabilities go beyond simple record-keeping. Manufacturers and wholesalers can assemble kits using component items; whenever a kit is assembled, the inventory representing its component items are adjusted accordingly.
Items can be grouped into various categories and the groups can be nested many levels deep. Vendor purchase orders can be generated for items whose quantities are below a preset level. Costs and selling prices for items can be set and discounted in a myriad of different ways. Finally, these items can be reported upon to show such things as profits, margins, and sales per item.
Sales and purchasing are another strength of Quasar. Customer quotes can be easily converted to invoices to be paid. Promotions can be created and discounts can be given based on date, customer, or store location. Margins can be reported upon for traits such as individual items, individual customers, or individual salesperson.
Likewise, a purchase order can be created and converted to a vendor invoice, which can be paid in a number of different ways, including printing a check. Quasar can keep track of miscellaneous fees such as container deposits, freight charges, and franchise fees.
The intelligent design of Quasar's user interface allows for quick and easy data entry. Some programs you may encounter are not optimized for keyboard use. These programs require you to move your hand to the mouse to select frequently needed options.
While some of Quasar's menu options are only mouse-accessible, the bulk of Quasar's user interface is designed in such a way that you can keep you hands on the keyboard by using special shortcuts. This allows for faster data entry, which can save time (and therefore money) in the long run.
All versions of Quasar offer comprehensive inventory controls. In its most basic use, the inventory module allows a business owner to track the locations and quantities of all inventory items. Additionally, the inventory capabilities go beyond simple record-keeping. Manufacturers and wholesalers can assemble kits using component items; whenever a kit is assembled, the inventory representing its component items are adjusted accordingly.
Items can be grouped into various categories and the groups can be nested many levels deep. Vendor purchase orders can be generated for items whose quantities are below a preset level. Costs and selling prices for items can be set and discounted in a myriad of different ways. Finally, these items can be reported upon to show such things as profits, margins, and sales per item.
Sales and purchasing are another strength of Quasar. Customer quotes can be easily converted to invoices to be paid. Promotions can be created and discounts can be given based on date, customer, or store location. Margins can be reported upon for traits such as individual items, individual customers, or individual salesperson.
Likewise, a purchase order can be created and converted to a vendor invoice, which can be paid in a number of different ways, including printing a check. Quasar can keep track of miscellaneous fees such as container deposits, freight charges, and franchise fees.
The intelligent design of Quasar's user interface allows for quick and easy data entry. Some programs you may encounter are not optimized for keyboard use. These programs require you to move your hand to the mouse to select frequently needed options.
While some of Quasar's menu options are only mouse-accessible, the bulk of Quasar's user interface is designed in such a way that you can keep you hands on the keyboard by using special shortcuts. This allows for faster data entry, which can save time (and therefore money) in the long run.
Labels: online accounting classes, quasar
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Wednesday, September 2, 2009
Types of Costs
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Direct costs are those costs that cann be directly attributed to a product or product line, or to one source of sales revenue, or one business unit or operation of the business. An example of a direct cost would be the cost of tires on a new automobile.
Indirect costs are very different and can't be attached to any specific product, unit or activity. The cost of labor or benefits for an auto manufacturer is certainly a cost, but it can't be attached to any one vehicle. Each business has to devise a method of allocating indirect costs to different products, sources of sales revenue, business units, etc.
Most allocation methods are less than perfect, and generally end up being arbitrary to one degree or another. Business managers and accounts should always keep an eye on the allocation methods used for indirect costs and take the cost figures produced by these methods with a grain of salt.
Fixed costs are those costs that stay the same over a relatively broad range of sales volume or production output. They're like an albatross around the neck of business and a company must sell its product at a high enough profit to at least break even.
Variable costs can increase and decrease in proportion to changes in sales or production level. Variable costs vary proportionately with changes in production Relevant costs are essentially future costs that could be incurred, depending on what strategic course a business takes. If an auto manufacturer decides to increase production, but the cost of tires goes up, than that cost needs to be taken into consideration.
Irrelevant costs are those that should be disregarded when deciding on a future course of action. They're costs that could cause you to make a wrong decision. Whereas relevant costs are future costs, irrelevant costs are those costs that were incurred in the past. The money's gone.
Indirect costs are very different and can't be attached to any specific product, unit or activity. The cost of labor or benefits for an auto manufacturer is certainly a cost, but it can't be attached to any one vehicle. Each business has to devise a method of allocating indirect costs to different products, sources of sales revenue, business units, etc.
Most allocation methods are less than perfect, and generally end up being arbitrary to one degree or another. Business managers and accounts should always keep an eye on the allocation methods used for indirect costs and take the cost figures produced by these methods with a grain of salt.
Fixed costs are those costs that stay the same over a relatively broad range of sales volume or production output. They're like an albatross around the neck of business and a company must sell its product at a high enough profit to at least break even.
Variable costs can increase and decrease in proportion to changes in sales or production level. Variable costs vary proportionately with changes in production Relevant costs are essentially future costs that could be incurred, depending on what strategic course a business takes. If an auto manufacturer decides to increase production, but the cost of tires goes up, than that cost needs to be taken into consideration.
Irrelevant costs are those that should be disregarded when deciding on a future course of action. They're costs that could cause you to make a wrong decision. Whereas relevant costs are future costs, irrelevant costs are those costs that were incurred in the past. The money's gone.
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Saturday, August 29, 2009
What Are Auditors?
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Accountants and auditors help to ensure that the Nation's firms are run efficiently, its public records kept accurately, and its taxes paid properly and on time. They perform these vital functions by offering an increasingly wide array of business and accounting services, including public, management, and government accounting,as well as internal auditing, to their clients.
Beyond carrying out the fundamental tasks of the occupation-preparing, analyzing, and verifying financial documents in order to provide information to clients-many accountants now are required to possess a wide range of knowledge and skills. Accountants and auditors are broadening the services they offer to include budget analysis, financial and investment planning, information technology consulting, and limited legal services.
Specific job duties vary widely among the four major fields of accounting: public, management, and government accounting and internal auditing. Internal auditors verify the accuracy of their organization's internal records and check for mismanagement, waste, or fraud. Internal auditing is an increasingly important area of accounting and auditing.
Internal auditors examine and evaluate their firms' financial and information systems, management procedures, and internal controls to ensure that records are accurate and controls are adequate to protect against fraud and waste. They also review company operations, evaluating their efficiency, effectiveness, and compliance with corporate policies and procedures, laws, and government regulations.
There are many types of highly specialized auditors, such as electronic data-processing, environmental, engineering, legal, insurance premium, bank, and health care auditors. As computer systems make information timelier, internal auditors help managers to base their decisions on actual data, rather than personal observation.
Internal auditors also may recommend controls for their organization's computer system, to ensure the reliability of the system and the integrity of the data.
Government accountants and auditors work in the public sector, maintaining and examining the records of government agencies and auditing private businesses and individuals whose activities are subject to government regulations or taxation.
Accountants employed by Federal, State, and local governments guarantee that revenues are received and expenditures are made in accordance with laws and regulations. Those employed by the Federal Government may work as Internal Revenue Service agents or in financial management, financial institution examination, or budget analysis and administration.
Beyond carrying out the fundamental tasks of the occupation-preparing, analyzing, and verifying financial documents in order to provide information to clients-many accountants now are required to possess a wide range of knowledge and skills. Accountants and auditors are broadening the services they offer to include budget analysis, financial and investment planning, information technology consulting, and limited legal services.
Specific job duties vary widely among the four major fields of accounting: public, management, and government accounting and internal auditing. Internal auditors verify the accuracy of their organization's internal records and check for mismanagement, waste, or fraud. Internal auditing is an increasingly important area of accounting and auditing.
Internal auditors examine and evaluate their firms' financial and information systems, management procedures, and internal controls to ensure that records are accurate and controls are adequate to protect against fraud and waste. They also review company operations, evaluating their efficiency, effectiveness, and compliance with corporate policies and procedures, laws, and government regulations.
There are many types of highly specialized auditors, such as electronic data-processing, environmental, engineering, legal, insurance premium, bank, and health care auditors. As computer systems make information timelier, internal auditors help managers to base their decisions on actual data, rather than personal observation.
Internal auditors also may recommend controls for their organization's computer system, to ensure the reliability of the system and the integrity of the data.
Government accountants and auditors work in the public sector, maintaining and examining the records of government agencies and auditing private businesses and individuals whose activities are subject to government regulations or taxation.
Accountants employed by Federal, State, and local governments guarantee that revenues are received and expenditures are made in accordance with laws and regulations. Those employed by the Federal Government may work as Internal Revenue Service agents or in financial management, financial institution examination, or budget analysis and administration.
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Friday, September 5, 2008
What are independent auditors?
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Independent CPA auditors are like referees in the financial reporting arena. The CPA comes in, does an audit of the business's accounting system and methods and gives a report that is attached to the company's financial statements. Publicly owned businesses are required to have their annual financial reports audited by independent CPA firms and any privately owned businesses have audits done as well because they know that an audit report will add credibility to their financial reports.
An auditor judges whether the business accounting methods are in accordance with generally accepted accounting principles (GAAP). Generally everything is in place and the financial report is a reliable document. But at times an auditor will wave a yellow or red flag. Some indicators of potential trouble include when the business capability to continue normal operations is in doubt because of what are known as financial exigencies, which could mean a low cash balance, unpaid overdue liabilities, or major lawsuits that the business doesn't have the cash to cover.
An auditor must exercise professional skepticism, meaning the auditor should challenge the accounting methods and reporting practices of the client in order to make sure that its financial statement conform with accounting standards and are not misleading - in short, that the financial statement are fairly presented. Indeed, the words "fairly presented" are the exact words used in the auditor's report.
A good auditor need technical know-how, but also needs to know how to be tough on the accounting methods of the client. His job is to be the agent of the shareholders and other users of the business financial report. It's incumbent on an auditor to strictly uphold GAAP, and not let any irregularities slide.
There are a number of well-known companies that engaged in accounting fraud recently and that fraud was not discovered by the CPA auditors. Enron is one of these companies. In this case, the auditing firm, Arthur Anderson was found guilty of obstruction of justice because it destroyed audit evidence.
An auditor judges whether the business accounting methods are in accordance with generally accepted accounting principles (GAAP). Generally everything is in place and the financial report is a reliable document. But at times an auditor will wave a yellow or red flag. Some indicators of potential trouble include when the business capability to continue normal operations is in doubt because of what are known as financial exigencies, which could mean a low cash balance, unpaid overdue liabilities, or major lawsuits that the business doesn't have the cash to cover.
An auditor must exercise professional skepticism, meaning the auditor should challenge the accounting methods and reporting practices of the client in order to make sure that its financial statement conform with accounting standards and are not misleading - in short, that the financial statement are fairly presented. Indeed, the words "fairly presented" are the exact words used in the auditor's report.
A good auditor need technical know-how, but also needs to know how to be tough on the accounting methods of the client. His job is to be the agent of the shareholders and other users of the business financial report. It's incumbent on an auditor to strictly uphold GAAP, and not let any irregularities slide.
There are a number of well-known companies that engaged in accounting fraud recently and that fraud was not discovered by the CPA auditors. Enron is one of these companies. In this case, the auditing firm, Arthur Anderson was found guilty of obstruction of justice because it destroyed audit evidence.
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Tuesday, July 8, 2008
The Other Ratios Used In Financial Reporting
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The dividend yield ratio tells investors how much cash income they're receiving on their stock investment in a business. This is calculated by dividing the annual cash dividend per share by the current market price of the stock. This can be compared with the interest rate on high-grade debt securities that pay interest, such as Treasure bonds and Treasury notes, which are the safest.
Book value per share is calculated by dividing total owners equity by the total number of stock shares that are outstanding. While EPS is more important to determine the market value of a stock, book value per share is the measure of the recorded value of the company's assets less its liabilities, the net assets backing up the business's stock shares. It's possible that the market value of a stock could be less than the book value per share.
The return on equity (ROE) ratio tells how much profit a business earned in comparison to the book value of its stockholders equity. This ratio is especially useful for privately owned businesses, which have no way of determining the current value of owners' equity. ROE is also calculated for public corporations, but it plays a secondary role to other ratios. ROE is calculated by dividing net income by owners equity.
The current ratio is a measure of a business's short-term solvency, in other words, its ability to pay it liabilities that come due in the near future. This ratio is a rough indicator of whether cash on hand plus the cash to be collected from accounts receivable and from selling inventory will be enough to pay off the liabilities that will come due in the next period.
It is calculated by dividing the current assets by the current liabilities. Businesses are expected to maintain a minimum 2:1 current ratio, which means its current assets should be twice its current liabilities.
Book value per share is calculated by dividing total owners equity by the total number of stock shares that are outstanding. While EPS is more important to determine the market value of a stock, book value per share is the measure of the recorded value of the company's assets less its liabilities, the net assets backing up the business's stock shares. It's possible that the market value of a stock could be less than the book value per share.
The return on equity (ROE) ratio tells how much profit a business earned in comparison to the book value of its stockholders equity. This ratio is especially useful for privately owned businesses, which have no way of determining the current value of owners' equity. ROE is also calculated for public corporations, but it plays a secondary role to other ratios. ROE is calculated by dividing net income by owners equity.
The current ratio is a measure of a business's short-term solvency, in other words, its ability to pay it liabilities that come due in the near future. This ratio is a rough indicator of whether cash on hand plus the cash to be collected from accounts receivable and from selling inventory will be enough to pay off the liabilities that will come due in the next period.
It is calculated by dividing the current assets by the current liabilities. Businesses are expected to maintain a minimum 2:1 current ratio, which means its current assets should be twice its current liabilities.
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Tuesday, June 10, 2008
The Difference Between Private and Public Company Reporting
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A public corporation is a business whose securities are traded on the public stock exchanges, such as the New York Stock Exchange and Nasdaq. A private company is held solely by its owners and is not traded publicly. When the shareholders of a private business receive the periodical financial reports, they are entitled to assume that the company's financial statements and footnotes are prepared in accordance with GAAP.
Otherwise the president of chief officer of the business should clearly warn the shareholders that GAAP have not been followed in one or more respects. The content of a private business's annual financial report is often minimal.It includes the three primary financial statements - the balance sheet, income statement and statement of cash flows.There's generally no letter from the chief executive, no photographs, no charts.
In contrast, the annual report of a publicly traded company has more bells and whistles to it. There are also more requirements for reporting. These include the management discussion and analysis (MD&A) section that presents the top managers' interpretation and analysis of the business's profit performance and other important financial developments over the year.
Another section required for public companies is the earnings per share (EPS). This is the only ratio that a public business is required to report, although most public companies report a few others as well. A three-year comparative income statement is also required.
Many publicly owned businesses make their required filings with the SEC, but they present very different annual financial reports to their stockholders. A large number of public companies include only condensed financial information rather than comprehensive financial statements. They will generally refer the reader to a more detailed SEC financial report for more specifics.
Otherwise the president of chief officer of the business should clearly warn the shareholders that GAAP have not been followed in one or more respects. The content of a private business's annual financial report is often minimal.It includes the three primary financial statements - the balance sheet, income statement and statement of cash flows.There's generally no letter from the chief executive, no photographs, no charts.
In contrast, the annual report of a publicly traded company has more bells and whistles to it. There are also more requirements for reporting. These include the management discussion and analysis (MD&A) section that presents the top managers' interpretation and analysis of the business's profit performance and other important financial developments over the year.
Another section required for public companies is the earnings per share (EPS). This is the only ratio that a public business is required to report, although most public companies report a few others as well. A three-year comparative income statement is also required.
Many publicly owned businesses make their required filings with the SEC, but they present very different annual financial reports to their stockholders. A large number of public companies include only condensed financial information rather than comprehensive financial statements. They will generally refer the reader to a more detailed SEC financial report for more specifics.
Labels: online accounting classes, private company reporting, public company reporting
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Thursday, May 15, 2008
Welcome to Investing Basics!
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What if you suddenly realized everything you thought you knew about investing was a lie?
Types of Investments
Online trading
Budgeting
Risk tolerance
Bonds
Stocks
Investing Strategy
Rebates
Investment style
http://www.aredconsult.com/investing-basics/main.htm
How About Real Estate Investing?
Take a look at How To Get Monthly Rental Income From Real Estate,
Welcome to The Condotel Concept!
http://aredconsult.com/real-estate/lancaster/
Lancaster is The First Residential Condotel In The Philippines With An Atrium.
Types of Investments
Online trading
Budgeting
Risk tolerance
Bonds
Stocks
Investing Strategy
Rebates
Investment style
http://www.aredconsult.com/investing-basics/main.htm
How About Real Estate Investing?
Take a look at How To Get Monthly Rental Income From Real Estate,
Welcome to The Condotel Concept!
http://aredconsult.com/real-estate/lancaster/
Lancaster is The First Residential Condotel In The Philippines With An Atrium.
Labels: basics of investing, investing, online accounting classes
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Saturday, May 10, 2008
What Does An Audit Do?
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If a business breaks the rules of accounting and ethics, it can be liable for legal sanctions against it. It can deliberately deceive its investors and lenders with false or misleading numbers in its financial report. That's where audits come in.
Audits are one means of keeping misleading financial reporting to a minimum. CPA auditors are like highway patrol officers who enforce traffic laws and issue tickets to keep speeding to a minimum. An audit exam can uncover problems that the business was not aware of.
After completing an audit examination, the CPA prepares a short report stating that the business has prepared its financial statements, according to generally accepted accounting principles (GAAP), or where it has not. All businesses that are publicly traded are required to have annual audits by independent CPAs.
Those companies whose stocks are listed on the New York Stock Exchange or Nasdaq must be audited by outside CPA firms. For a publicly traded company, the expense of conducting an annual audit is the cost of doing business; it's the price a company pays for going into public markets for its capital and for having its shares traded in the public venue.
Although federal law doesn't require audits for private businesses, banks and other lenders to private businesses may insist on audited financial statements. If the lenders don't require audited statements, a business's owners have to decide whether an audit is a good investment. Instead of an audit, which they can't really afford, many smaller businesses have an outside CPA come in on a regular basis to look over their accounting methods and give advice on their financial reporting.
But unless a CPA has done an audit, he or she has to be very careful not to express an opinion of the external financial statements. Without a careful examination of the evidence supporting the amounts reported in the financial statements, the CPA is in no position to give an opinion on the financial statements prepared from the accounts of the business.
Audits are one means of keeping misleading financial reporting to a minimum. CPA auditors are like highway patrol officers who enforce traffic laws and issue tickets to keep speeding to a minimum. An audit exam can uncover problems that the business was not aware of.
After completing an audit examination, the CPA prepares a short report stating that the business has prepared its financial statements, according to generally accepted accounting principles (GAAP), or where it has not. All businesses that are publicly traded are required to have annual audits by independent CPAs.
Those companies whose stocks are listed on the New York Stock Exchange or Nasdaq must be audited by outside CPA firms. For a publicly traded company, the expense of conducting an annual audit is the cost of doing business; it's the price a company pays for going into public markets for its capital and for having its shares traded in the public venue.
Although federal law doesn't require audits for private businesses, banks and other lenders to private businesses may insist on audited financial statements. If the lenders don't require audited statements, a business's owners have to decide whether an audit is a good investment. Instead of an audit, which they can't really afford, many smaller businesses have an outside CPA come in on a regular basis to look over their accounting methods and give advice on their financial reporting.
But unless a CPA has done an audit, he or she has to be very careful not to express an opinion of the external financial statements. Without a careful examination of the evidence supporting the amounts reported in the financial statements, the CPA is in no position to give an opinion on the financial statements prepared from the accounts of the business.
Labels: audit examination, audits, online accounting classes
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Friday, May 2, 2008
What Does An Audit Report Contain?
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Most audit reports on financial statements give the business a clean bill of health, or a clean opinion. At the other end of the spectrum, the auditor may state that the financial statements are misleading and should not be relied upon. This negative audit report is called an adverse opinion. That's the big stick that auditors carry.
They have the power to give a company's financial statements an adverse opinion and no business wants that. The threat of an adverse opinion almost always motivates a business to give way to the auditor and change its accounting or disclosure in order to avoid getting the kiss of death of an adverse opinion. An adverse audit opinion says that the financial statements of the business are misleading.
The SEC does not tolerate adverse opinions by auditors of public businesses; it would suspend trading in a company's stock share if the company received an adverse opinion from its CPA auditor. One modification to an auditor's report is very serious - when the CPA firm says that it has substantial doubts about the capability of the business to continue as a going concern.
A going concern is a business that has sufficient financial wherewithal and momentum to continue it normal operations into the foreseeable future and would be able to absorb a bad turn of events without having to default on its liabilities.
A going concern does not face an imminent financial crisis or any pressing financial emergency. A business could be under some financial distress but overall still be judged a going concern. Unless there is evidence to the contrary, the CPA auditor assumes that the business is a going concern. If an auditor has serious concerns about whether the business is a going concern, these doubts are spelled out in the auditor's report.
They have the power to give a company's financial statements an adverse opinion and no business wants that. The threat of an adverse opinion almost always motivates a business to give way to the auditor and change its accounting or disclosure in order to avoid getting the kiss of death of an adverse opinion. An adverse audit opinion says that the financial statements of the business are misleading.
The SEC does not tolerate adverse opinions by auditors of public businesses; it would suspend trading in a company's stock share if the company received an adverse opinion from its CPA auditor. One modification to an auditor's report is very serious - when the CPA firm says that it has substantial doubts about the capability of the business to continue as a going concern.
A going concern is a business that has sufficient financial wherewithal and momentum to continue it normal operations into the foreseeable future and would be able to absorb a bad turn of events without having to default on its liabilities.
A going concern does not face an imminent financial crisis or any pressing financial emergency. A business could be under some financial distress but overall still be judged a going concern. Unless there is evidence to the contrary, the CPA auditor assumes that the business is a going concern. If an auditor has serious concerns about whether the business is a going concern, these doubts are spelled out in the auditor's report.
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Monday, April 28, 2008
What Happened at Enron?
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Everyone knows at least a little about the Enron story and the devastation it created in the lives of is employees. It's a story that belongs in any discussion of ethical accounting processes and what happens when accounting standards and ethics are discarded for personal greed.
Enron began in 1985 selling natural gas to gas companies and businesses. In 1996, energy markets were changed so that the price of energy could now be decided by competition among energy companies instead of being fixed by government regulations. With this change, Enron began to function more as a middleman than a traditional energy supplier, trading in energy contracts instead of buying and selling natural gas.
Enron's rapid growth created excitement among investors and drove the stock price up. As Enron grew, it expanded into other industries such as Internet services, and its financial contracts became more complicated.
In order to keep growing at this rate, Enron began to borrow money to invest in new projects. However, because this debt would make their earnings look less impressive, Enron began to create partnerships that would allow it to keep debt off of its books.
One partnership created by Enron, Chewco Investments (named after the Star Wars character Chewbacca) allowed Enron to keep $600 million in debt off of the books it showed to the government and to people who own Enron stock. When this debt did not show up in Enron's reports, it made Enron seem much more successful than it actually was.
In December 2000, Enron claimed to have tripled its profits in two years. In August 2001, Enron vice president Sherron Watkins sent an anonymous letter to the CEO of Enron, Kenneth Lay, describing accounting methods that she felt could lead Enron to "implode in a wave of accounting scandals." Also in August, CEO Kenneth Lay sent e-mails to his employees saying that he expected Enron stock prices to go up. Meanwhile, he sold off his own stock in Enron.
On October 22nd, the Securities and Exchange Commission (SEC) announced that Enron was under investigation. On November 8th, Enron said that it has overstated earnings for the past four years by $586 million and that it owed over $6 billion in debt by next year.
With these announcements, Enron's stock price took a dive. This drop triggered certain agreements with investors that made it necessary for Enron to repay their money immediately. When Enron could not come up with the cash to repay its creditors, it declared for Chapter 11 bankruptcy.
Enron began in 1985 selling natural gas to gas companies and businesses. In 1996, energy markets were changed so that the price of energy could now be decided by competition among energy companies instead of being fixed by government regulations. With this change, Enron began to function more as a middleman than a traditional energy supplier, trading in energy contracts instead of buying and selling natural gas.
Enron's rapid growth created excitement among investors and drove the stock price up. As Enron grew, it expanded into other industries such as Internet services, and its financial contracts became more complicated.
In order to keep growing at this rate, Enron began to borrow money to invest in new projects. However, because this debt would make their earnings look less impressive, Enron began to create partnerships that would allow it to keep debt off of its books.
One partnership created by Enron, Chewco Investments (named after the Star Wars character Chewbacca) allowed Enron to keep $600 million in debt off of the books it showed to the government and to people who own Enron stock. When this debt did not show up in Enron's reports, it made Enron seem much more successful than it actually was.
In December 2000, Enron claimed to have tripled its profits in two years. In August 2001, Enron vice president Sherron Watkins sent an anonymous letter to the CEO of Enron, Kenneth Lay, describing accounting methods that she felt could lead Enron to "implode in a wave of accounting scandals." Also in August, CEO Kenneth Lay sent e-mails to his employees saying that he expected Enron stock prices to go up. Meanwhile, he sold off his own stock in Enron.
On October 22nd, the Securities and Exchange Commission (SEC) announced that Enron was under investigation. On November 8th, Enron said that it has overstated earnings for the past four years by $586 million and that it owed over $6 billion in debt by next year.
With these announcements, Enron's stock price took a dive. This drop triggered certain agreements with investors that made it necessary for Enron to repay their money immediately. When Enron could not come up with the cash to repay its creditors, it declared for Chapter 11 bankruptcy.
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Monday, April 21, 2008
What Happened in Corporate Accounting Scandals?
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When a corporation deliberately conceals or skews information to appear healthy and successful to its shareholders, it has committed corporate or shareholder fraud. Corporate fraud may involve a few individuals or many, depending on the extent to which employees are informed of their company's financial practices. Directors of corporations may fudge financial records or disguise inappropriate spending.
Fraud committed by corporations can be devastating, not only for outside investors who have made share purchases based on false information, but for employees who, through 401ks, have invested their retirement savings in company stock.
Some recent corporate accounting scandals have consumed the news media and ruined hundreds of thousands of lives of the employees who had their retirement invested in the companies that defrauded them and other investors. The nuts and bolts of some of these accounting scandals are as follows:
WorldCom admitted to adjusting accounting records to cover its operation costs and present a successful front to shareholders. Nine billion dollars in discrepancies were discovered before the telecom corporation went bankrupt in July of 2002. One of the hidden expenses was $408 million given to Bernard Ebbers (WorldCom's CEO) in undisclosed personal loans.
At Tyco, shareholders were not informed of the $170 million in loans that were taken by Tyco's CEO, CFO, and chief legal officer. The loans, many of which were taken interest free and later written off as benefits, were not approved by Tyco's compensation committee. Kozlowski (former CEO), Swartz (former CFO), and Belnick (former chief legal officer) face continuing investigations by the SEC and the Tyco Corporation, which is now operating under Edward Breen and a new board of directors.
At Enron, investigations against uncovered multiple acts of fraudulent behavior. Enron used illegal loans and partnerships with other companies to cover its multi-billion dollar debt. It presented erroneous accounting records to investors, and Arthur Anderson, its accounting firm, began shredding incriminating documentation weeks before the SEC could begin investigations. Money laundering, wire fraud, mail fraud, and securities fraud are just some of the indictments directors of Enron have faced and will continue to face as the investigation continues.
Fraud committed by corporations can be devastating, not only for outside investors who have made share purchases based on false information, but for employees who, through 401ks, have invested their retirement savings in company stock.
Some recent corporate accounting scandals have consumed the news media and ruined hundreds of thousands of lives of the employees who had their retirement invested in the companies that defrauded them and other investors. The nuts and bolts of some of these accounting scandals are as follows:
WorldCom admitted to adjusting accounting records to cover its operation costs and present a successful front to shareholders. Nine billion dollars in discrepancies were discovered before the telecom corporation went bankrupt in July of 2002. One of the hidden expenses was $408 million given to Bernard Ebbers (WorldCom's CEO) in undisclosed personal loans.
At Tyco, shareholders were not informed of the $170 million in loans that were taken by Tyco's CEO, CFO, and chief legal officer. The loans, many of which were taken interest free and later written off as benefits, were not approved by Tyco's compensation committee. Kozlowski (former CEO), Swartz (former CFO), and Belnick (former chief legal officer) face continuing investigations by the SEC and the Tyco Corporation, which is now operating under Edward Breen and a new board of directors.
At Enron, investigations against uncovered multiple acts of fraudulent behavior. Enron used illegal loans and partnerships with other companies to cover its multi-billion dollar debt. It presented erroneous accounting records to investors, and Arthur Anderson, its accounting firm, began shredding incriminating documentation weeks before the SEC could begin investigations. Money laundering, wire fraud, mail fraud, and securities fraud are just some of the indictments directors of Enron have faced and will continue to face as the investigation continues.
Labels: enron, fraud, online accounting classes, tyco, worldcom
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Tuesday, February 26, 2008
What Is Accounting Anyway?
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Anyone who's worked in an office at some point or another has had to go to accounting. They're the people who pay and send out the bills that keep the business running. They do a lot more than that, though. Sometimes referred to as "bean counters" they also keep their eye on profits, costs and losses.
Unless you're running your own business and acting as your own accountant, you'd have no way of knowing just how profitable - or not - your business is without some form of accounting. No matter what business you're in, even if all you do is balance a checkbook, that's still accounting. It's part of even a kid's life. Saving an allowance, spending it all at once - these are accounting principles.
What are some other businesses where accounting is critical? Well, farmers need to follow careful accounting procedures. Many of them run their farms year to year by taking loans to plant the crops. If it's a good year, a profitable one, then they can pay off their loan; if not, they might have to carry the loan over, and accrue more interest charges.
Every business and every individual needs to have some kind of accounting system in their lives. Otherwise, the finances can get away from them, they don't know what they've spent, or whether they can expect a profit or a loss from their business. Staying on top of accounting, whether it's for a multi-billion dollar business or for a personal checking account is a necessary activity on a daily basis if you're smart.
Not doing so can mean anything from a bounced check or posting a loss to a company's shareholders. Both scenarios can be equally devastating. Accounting is basically information, and this information is published periodically in business as a profit and loss statement, or an income statement.
Unless you're running your own business and acting as your own accountant, you'd have no way of knowing just how profitable - or not - your business is without some form of accounting. No matter what business you're in, even if all you do is balance a checkbook, that's still accounting. It's part of even a kid's life. Saving an allowance, spending it all at once - these are accounting principles.
What are some other businesses where accounting is critical? Well, farmers need to follow careful accounting procedures. Many of them run their farms year to year by taking loans to plant the crops. If it's a good year, a profitable one, then they can pay off their loan; if not, they might have to carry the loan over, and accrue more interest charges.
Every business and every individual needs to have some kind of accounting system in their lives. Otherwise, the finances can get away from them, they don't know what they've spent, or whether they can expect a profit or a loss from their business. Staying on top of accounting, whether it's for a multi-billion dollar business or for a personal checking account is a necessary activity on a daily basis if you're smart.
Not doing so can mean anything from a bounced check or posting a loss to a company's shareholders. Both scenarios can be equally devastating. Accounting is basically information, and this information is published periodically in business as a profit and loss statement, or an income statement.
Labels: accounting, online accounting classes
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Friday, February 22, 2008
What Is Accounting Fraud?
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Accounting fraud is a deliberate and improper manipulation of the recording of sales revenue and/or expenses in order to make a company's profit performance appear better than it actually is.
Some things that companies do that can constitute fraud are:
--Not listing prepaid expenses or other incidental assets
--Not showing certain classifications of current assets and/or liabilities
--Collapsing short- and long-term debt into one amount.
Over-recording sales revenue is the most common technique of accounting fraud. A business may ship products to customers that they haven't ordered, knowing that those customers will return the products after the end of the year. Until the returns are made, the business records the shipments as if they were actual sales.
Or a business may engage in channel stuffing. It delivers products to dealers or final customers that they really don't want, but business makes deals on the side that provide incentives and special privileges if the dealers or customers don't object to taking premature delivery of the products. A business may also delay recording products that have been returned by customers to avoid recognizing these offsets against sales revenue in the current year
The other way a business commits accounting fraud is by under-recording expenses, such as not recording depreciation expense. Or a business may choose not to record all of its cost of goods sold expense for the sales made during a period. This would make the gross margin higher, but the business's inventory asset would include products that actually are not in inventory because they've been delivered to customers.
A business might also choose not to record asset losses that should be recognized, such as uncollectible accounts receivable, or it might not write down inventory under the lower of cost or market rule. A business might also not record the full amount of the liability for an expense, making that liability understated in the company's balance sheet. Its profit, therefore, would be overstated.
Some things that companies do that can constitute fraud are:
--Not listing prepaid expenses or other incidental assets
--Not showing certain classifications of current assets and/or liabilities
--Collapsing short- and long-term debt into one amount.
Over-recording sales revenue is the most common technique of accounting fraud. A business may ship products to customers that they haven't ordered, knowing that those customers will return the products after the end of the year. Until the returns are made, the business records the shipments as if they were actual sales.
Or a business may engage in channel stuffing. It delivers products to dealers or final customers that they really don't want, but business makes deals on the side that provide incentives and special privileges if the dealers or customers don't object to taking premature delivery of the products. A business may also delay recording products that have been returned by customers to avoid recognizing these offsets against sales revenue in the current year
The other way a business commits accounting fraud is by under-recording expenses, such as not recording depreciation expense. Or a business may choose not to record all of its cost of goods sold expense for the sales made during a period. This would make the gross margin higher, but the business's inventory asset would include products that actually are not in inventory because they've been delivered to customers.
A business might also choose not to record asset losses that should be recognized, such as uncollectible accounts receivable, or it might not write down inventory under the lower of cost or market rule. A business might also not record the full amount of the liability for an expense, making that liability understated in the company's balance sheet. Its profit, therefore, would be overstated.
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Tuesday, February 19, 2008
Acid Test Ratio and ROA Ratio
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Investors calculate the acid test ratio, also known as the quick ratio or the pounce ratio. This ratio excludes inventory and prepaid expenses, which the current ratio includes, and it limits assets to cash and items that the business can quickly convert to cash.
This limited category of assets is known as quick or liquid assets. The acid-text ratio is calculated by dividing the liquid assets by the total current liabilities.
This ratio is also known as the pounce ratio to emphasize that you're calculating for a worst-case scenario, where the business's creditors could pounce on the business and demand quick payment of the business's liabilities. Short term creditors do not have the right to demand immediate payment, except in unusual circumstances. This ratio is a conservative way to look at a business's capability to pay its short-term liabilities.
One factor that affects the bottom-line profitability of a business is whether it uses debt to its advantage. A business may realize a financial leverage gain, meaning it earns more profit on the money it has borrowed than the interest paid for the use of the borrowed money. A good part of a business's net income for the year may be due to financial leverage.
The ROA ratio is determined by dividing the earnings before interest and income tax (EBIT) by the net operating assets.
An investor compares the ROA with the interest rate at which the corporation borrowed money. If a business's ROA is 14 percent and the interest rate on its debt is 8 percent, the business's net gain on its capital is 6 percent more than what it's paying in interest.
ROA is a useful ratio for interpreting profit performance, aside from determining financial gain or loss. ROA is called a capital utilization test that measures how profit before interest and income tax was earned on the total capital employed by the business.
This limited category of assets is known as quick or liquid assets. The acid-text ratio is calculated by dividing the liquid assets by the total current liabilities.
This ratio is also known as the pounce ratio to emphasize that you're calculating for a worst-case scenario, where the business's creditors could pounce on the business and demand quick payment of the business's liabilities. Short term creditors do not have the right to demand immediate payment, except in unusual circumstances. This ratio is a conservative way to look at a business's capability to pay its short-term liabilities.
One factor that affects the bottom-line profitability of a business is whether it uses debt to its advantage. A business may realize a financial leverage gain, meaning it earns more profit on the money it has borrowed than the interest paid for the use of the borrowed money. A good part of a business's net income for the year may be due to financial leverage.
The ROA ratio is determined by dividing the earnings before interest and income tax (EBIT) by the net operating assets.
An investor compares the ROA with the interest rate at which the corporation borrowed money. If a business's ROA is 14 percent and the interest rate on its debt is 8 percent, the business's net gain on its capital is 6 percent more than what it's paying in interest.
ROA is a useful ratio for interpreting profit performance, aside from determining financial gain or loss. ROA is called a capital utilization test that measures how profit before interest and income tax was earned on the total capital employed by the business.
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Wednesday, February 13, 2008
What is a Corporation?
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Most businesses start out as a small company, owned by one person or by a partnership. The most common type of business when there are multiple owners is a corporation. The law sees a corporation as real, live person. Like an adult, a corporation is treated as a distinct and independent individual who has rights and responsibilities.
A corporation's "birth certificate" is the legal form that is filed with the Secretary of State of the state in which the corporation is created, or incorporated. It must have a legal name, just like a person.
A corporation is separate from its owners. It's responsible for its own debts. The bank can't come after the stockholders if a corporation goes bankrupt.
A corporation issues ownership share to persons who invest money in the business. These ownership shares are documented by stock certificates, which state the name of the owner and how many shares are owned. the corporation has to keep a register, or list, of how many shares everyone owns.
Owners of a corporation are called stockholders because they own shares of stock issued by the corporation. One share of stock is one unit of ownership;how much one share is worth depends on the total number of shares that the business issues. the more shares a business issues,the smaller the percentage of total owners' equity each share represents.
Stock shares come in different classes of stock. Preferred stockholders are promised a certain amount of cash dividends each year. Common stockholders have the most risk. If a corporation ends up in financial trouble, it's required to pay off its liabilities first.
If any money is left over, then that money goes first to the preferred stockholders. If anything is left over after that, then that money is distributed to the common stockholders.
A corporation's "birth certificate" is the legal form that is filed with the Secretary of State of the state in which the corporation is created, or incorporated. It must have a legal name, just like a person.
A corporation is separate from its owners. It's responsible for its own debts. The bank can't come after the stockholders if a corporation goes bankrupt.
A corporation issues ownership share to persons who invest money in the business. These ownership shares are documented by stock certificates, which state the name of the owner and how many shares are owned. the corporation has to keep a register, or list, of how many shares everyone owns.
Owners of a corporation are called stockholders because they own shares of stock issued by the corporation. One share of stock is one unit of ownership;how much one share is worth depends on the total number of shares that the business issues. the more shares a business issues,the smaller the percentage of total owners' equity each share represents.
Stock shares come in different classes of stock. Preferred stockholders are promised a certain amount of cash dividends each year. Common stockholders have the most risk. If a corporation ends up in financial trouble, it's required to pay off its liabilities first.
If any money is left over, then that money goes first to the preferred stockholders. If anything is left over after that, then that money is distributed to the common stockholders.
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Friday, February 8, 2008
What is A Sole Proprietorship?
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A sole proprietorship is the business or an individual who has decided not to carry his business as a separate legal entity, such as a corporation, partnership or limited liability company. This kind of business is not a separate entity.
Any time a person regularly provides services for a fee, sells things at a flea market or engage in any business activity whose primary purpose is to make a profit, that person is a sole proprietor.
If they carry on business activity to make profit or income, the IRS requires that you file a separate Schedule C "Profit or Loss From a Business" with your annual individual income tax return. Schedule C summarizes your income and expenses from your sole proprietorship business.
As the sold proprietor of a business, you have unlimited liability, meaning that if your business can't pay all it liabilities, the creditors to whom your business owes money can come after your personal assets. Many part-time entrepreneurs may not know this, but it's an enormous financial risk. If they are sued or can't pay their bills, they are personally liable for the business's liabilities.
A sole proprietorship has no other owners to prepare financial statements for, but the proprietor should still prepare these statements to know how his business is doing. Banks usually require financial statements from sole proprietors who apply for loans. A partnership needs to maintain a separate capital or ownership account for each partners.
The total profit of the firm is allocated into these capital accounts, as spelled out in the partnership agreement. Although sole proprietors don't have separate invested capital from retained earnings like corporations do, they still need to keep these two separate accounts for owners' equity - not only to track the business, but for the benefit of any future buyers of the business.
Any time a person regularly provides services for a fee, sells things at a flea market or engage in any business activity whose primary purpose is to make a profit, that person is a sole proprietor.
If they carry on business activity to make profit or income, the IRS requires that you file a separate Schedule C "Profit or Loss From a Business" with your annual individual income tax return. Schedule C summarizes your income and expenses from your sole proprietorship business.
As the sold proprietor of a business, you have unlimited liability, meaning that if your business can't pay all it liabilities, the creditors to whom your business owes money can come after your personal assets. Many part-time entrepreneurs may not know this, but it's an enormous financial risk. If they are sued or can't pay their bills, they are personally liable for the business's liabilities.
A sole proprietorship has no other owners to prepare financial statements for, but the proprietor should still prepare these statements to know how his business is doing. Banks usually require financial statements from sole proprietors who apply for loans. A partnership needs to maintain a separate capital or ownership account for each partners.
The total profit of the firm is allocated into these capital accounts, as spelled out in the partnership agreement. Although sole proprietors don't have separate invested capital from retained earnings like corporations do, they still need to keep these two separate accounts for owners' equity - not only to track the business, but for the benefit of any future buyers of the business.
Labels: online accounting classes, sole proprietorship
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Tuesday, January 8, 2008
What is earnings per share?
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Publicly owned companies must report earnings per share (EPS) below the net income line in their income statements. This is mandated by generally accepted accounting practices (GAAP). The EPS gives investors a means of determining the amount the business earned on its stock share investments.
In other words, EPS tells investors how much net income the business earned for each stock share they own. It's calculated by dividing net income by the total number of capital stock share. It's important to the stockholders who want the net income of the business to be communicated to them on a per share basis so they can compare it with the market price of their shares.
Private businesses don't have to report EPS because stockholders focus more on the business's total net income.
Publicly-held companies actually report two EPS figures, unless they have what's known as a simple capital structure. Most publicly-held companies though, have complex capital structures and have to report two EPS figures.
One is called the basic EPS; the other is called the diluted EPS. Basic EPS is based on the number of stock shares that are outstanding. Diluted earnings are based on shares that are outstanding and shares that may be issued in the future in the form of stock options.
Obviously this is a complicated process. An accountant has to adjust the EPS formula for any number of occurrences or changes in the business. A business might issue additional stock shares during the year and buy back some of its own shares.
Or it might issue several classes of stock, which will cause net income to be divided into two or more pools - one pool for each class of stock. A merger, acquisition or divestiture will also impact the formula for EPS.
In other words, EPS tells investors how much net income the business earned for each stock share they own. It's calculated by dividing net income by the total number of capital stock share. It's important to the stockholders who want the net income of the business to be communicated to them on a per share basis so they can compare it with the market price of their shares.
Private businesses don't have to report EPS because stockholders focus more on the business's total net income.
Publicly-held companies actually report two EPS figures, unless they have what's known as a simple capital structure. Most publicly-held companies though, have complex capital structures and have to report two EPS figures.
One is called the basic EPS; the other is called the diluted EPS. Basic EPS is based on the number of stock shares that are outstanding. Diluted earnings are based on shares that are outstanding and shares that may be issued in the future in the form of stock options.
Obviously this is a complicated process. An accountant has to adjust the EPS formula for any number of occurrences or changes in the business. A business might issue additional stock shares during the year and buy back some of its own shares.
Or it might issue several classes of stock, which will cause net income to be divided into two or more pools - one pool for each class of stock. A merger, acquisition or divestiture will also impact the formula for EPS.
Labels: earnings per share, eps, online accounting classes
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Sunday, December 16, 2007
What is Financial Window Dressing?
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Financial managers can do certain things to increase or decrease net income that's recorded in the year. This is called profit smoothing, income smoothing or just plain old window dressing. This isn't the same as fraud, or cooking the books.
Most profit smoothing involves pushing some amount of revenue and/or expenses into other years than they would normally be recorded. A common technique for profit smoothing is to delay normal maintenance and repairs. This is referred to as deferred maintenance. Many routine and recurring maintenance costs required for autos, trucks, machines, equipment and buildings can be delayed, or deferred until later.
A business that spends a significant amount of money for employee training and development may delay these programs until the next year so the expense in the current year is lower.
A company can cut back on its current year's outlays for market research and product development. A business can ease up on its rules regarding when slow-paying customers are written off to expense as bad debts or uncollectible accounts receivable. The business can put off recording some of its bad debts expense until the next reporting year.
A fixed asset that is not being actively used may have very little current or future value to a business. Instead of writing off the un-depreciated cost of the impaired asset as a loss in the current year, the business might delay the write-off until the next year.
You can see how manipulating the timing of certain expenses can make an impact on net income. This isn't illegal although companies can go too far in massaging the numbers so that its financial statements are misleading.
For the most part though, profit smoothing isn't much more than robbing Peter to pay Paul. Accountants refer to these as compensatory effects. The effects next year offset and cancel out the effects in the current year. Less expense this year is balanced by more expense the next year.
Most profit smoothing involves pushing some amount of revenue and/or expenses into other years than they would normally be recorded. A common technique for profit smoothing is to delay normal maintenance and repairs. This is referred to as deferred maintenance. Many routine and recurring maintenance costs required for autos, trucks, machines, equipment and buildings can be delayed, or deferred until later.
A business that spends a significant amount of money for employee training and development may delay these programs until the next year so the expense in the current year is lower.
A company can cut back on its current year's outlays for market research and product development. A business can ease up on its rules regarding when slow-paying customers are written off to expense as bad debts or uncollectible accounts receivable. The business can put off recording some of its bad debts expense until the next reporting year.
A fixed asset that is not being actively used may have very little current or future value to a business. Instead of writing off the un-depreciated cost of the impaired asset as a loss in the current year, the business might delay the write-off until the next year.
You can see how manipulating the timing of certain expenses can make an impact on net income. This isn't illegal although companies can go too far in massaging the numbers so that its financial statements are misleading.
For the most part though, profit smoothing isn't much more than robbing Peter to pay Paul. Accountants refer to these as compensatory effects. The effects next year offset and cancel out the effects in the current year. Less expense this year is balanced by more expense the next year.
Labels: online accounting classes, window dressing
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Sunday, December 9, 2007
What is Forensic Accounting?
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Forensic accounting is the practice of utilizing accounting, auditing, and investigative skills to assist in legal matters. It encompasses 2 main areas - litigation support, investigation, and dispute resolution. Litigation support represents the factual presentation of economic issues related to existing or pending litigation.
In this capacity, the forensic accounting professional quantifies damages sustained by parties involved in legal disputes and can assist in resolving disputes, even before they reach the courtroom. If a dispute reaches the courtroom, the forensic accountant may testify as an expert witness.
Investigation is the act of determining whether criminal matters such as employee theft, securities fraud (including falsification of financial statements), identity theft, and insurance fraud have occurred. As part of the forensic accountant's work, he or she may recommend actions that can be taken to minimize future risk of loss.
Investigation may also occur in civil matters. For example, the forensic accountant may search for hidden assets in divorce cases. Forensic accounting involves looking beyond the numbers and grasping the substance of situations. It's more than accounting...more than detective work...it's a combination that will be in demand for as long as human nature exists.
Who wouldn't want a career that offers such stability, excitement, and financial rewards?
In short, forensic accounting requires the most important quality a person can possess: the ability to think. Far from being an ability that is specific to success in any particular field, developing the ability to think enhances a person's chances of success in life, thus increasing a person's worth in today's society.
In this capacity, the forensic accounting professional quantifies damages sustained by parties involved in legal disputes and can assist in resolving disputes, even before they reach the courtroom. If a dispute reaches the courtroom, the forensic accountant may testify as an expert witness.
Investigation is the act of determining whether criminal matters such as employee theft, securities fraud (including falsification of financial statements), identity theft, and insurance fraud have occurred. As part of the forensic accountant's work, he or she may recommend actions that can be taken to minimize future risk of loss.
Investigation may also occur in civil matters. For example, the forensic accountant may search for hidden assets in divorce cases. Forensic accounting involves looking beyond the numbers and grasping the substance of situations. It's more than accounting...more than detective work...it's a combination that will be in demand for as long as human nature exists.
Who wouldn't want a career that offers such stability, excitement, and financial rewards?
In short, forensic accounting requires the most important quality a person can possess: the ability to think. Far from being an ability that is specific to success in any particular field, developing the ability to think enhances a person's chances of success in life, thus increasing a person's worth in today's society.
Labels: forensic accounting, online accounting classes
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Friday, November 30, 2007
What is Price/Earnings Ratio?
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The price/earning (P/E) ratio is another measurement that's of particular interest to investors in public businesses. The P/E ratio gives you an idea of how much you're paying in the current price for stock shares for each dollar of earning. Earnings prop up the market value of stock shares, not the book value of the stock shares that's reported in the balance sheet.
The P/E ratio is a reality check on just how high the current market price is in relation to the underlying profit that the business is earning. Extraordinarily high P/E ratios are justified only when investors think that the company's earnings per share (EPS) has a lot of upside potential in the future.
The P/E ratio is calculated dividing the current market price of the stock by the most recent trailing 12 months diluted EPS. Stock share prices bounce around day to day and are subject to big changes on short notice. The current P/E ratio should be compared with the average stock market P/E to gauge whether the business selling above or below the market average.
P/E ratios are currently running high, despite a four-year slump in the stock market. P/E ratios vary from industry to industry and from year to year. One dollar of EPS may command only a $10 market value for a mature business in a no-growth industry, while a dollar of EPS in a dynamic business in a growth industry may have a $30 market value per dollar of earnings, or net income.
To sum up, the price/earnings ratio, or P/E ratio is the current market price of a capital stock divided by its trailing 12 months' diluted earnings per share (EPS) or its basic earnings per share if the business does not report diluted EPS. A low P/E may signal an underbalued stock or a pessimistic forecast by investors. A high P/E may reveal an overvalued stock or might be based on an optimistic forecast by investors.
The P/E ratio is a reality check on just how high the current market price is in relation to the underlying profit that the business is earning. Extraordinarily high P/E ratios are justified only when investors think that the company's earnings per share (EPS) has a lot of upside potential in the future.
The P/E ratio is calculated dividing the current market price of the stock by the most recent trailing 12 months diluted EPS. Stock share prices bounce around day to day and are subject to big changes on short notice. The current P/E ratio should be compared with the average stock market P/E to gauge whether the business selling above or below the market average.
P/E ratios are currently running high, despite a four-year slump in the stock market. P/E ratios vary from industry to industry and from year to year. One dollar of EPS may command only a $10 market value for a mature business in a no-growth industry, while a dollar of EPS in a dynamic business in a growth industry may have a $30 market value per dollar of earnings, or net income.
To sum up, the price/earnings ratio, or P/E ratio is the current market price of a capital stock divided by its trailing 12 months' diluted earnings per share (EPS) or its basic earnings per share if the business does not report diluted EPS. A low P/E may signal an underbalued stock or a pessimistic forecast by investors. A high P/E may reveal an overvalued stock or might be based on an optimistic forecast by investors.
Labels: online accounting classes, p/e ratio, price/earnings ratio
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Sunday, November 25, 2007
What Is The FASB?
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The FASB is one organization that provides standardized guidelines for financial reporting. The mission of the Financial Accounting Standards Board (FASB) is to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors and users of financial information.
Accounting standards are essential to the efficient functioning of the economy because decisions about the allocation of resources rely heavily on credible, concise, transparent and understandable financial information. Financial information about the operations and financial position of individual entities also is used by the public in making various other kinds of decisions.
To accomplish its mission, the FASB acts to:
--Improve the usefulness of financial reporting by focusing on the primary characteristics of relevance and reliability and on the qualities of comparability and consistency;
--Keep standards current to reflect changes in methods of doing business and changes in the economic environment;
--Consider promptly any significant areas of deficiency in financial reporting that might be improved through the standard-setting process;
--Promote the international convergence of accounting standards concurrent with improving the quality of financial reporting; and
--Improve the common understanding of the nature and purposes of information contained in financial reports.
The FASB develops broad accounting concepts as well as standards for financial reporting. It also provides guidance on implementation of standards. Concepts are useful in guiding the Board in establishing standards and in providing a frame of reference, or conceptual framework, for resolving accounting issues.
The framework will help to establish reasonable bounds for judgment in preparing financial information and to increase understanding of, and confidence in, financial information on the part of users of financial reports. It also will help the public to understand the nature and limitations of information supplied by financial reporting.
Accounting standards are essential to the efficient functioning of the economy because decisions about the allocation of resources rely heavily on credible, concise, transparent and understandable financial information. Financial information about the operations and financial position of individual entities also is used by the public in making various other kinds of decisions.
To accomplish its mission, the FASB acts to:
--Improve the usefulness of financial reporting by focusing on the primary characteristics of relevance and reliability and on the qualities of comparability and consistency;
--Keep standards current to reflect changes in methods of doing business and changes in the economic environment;
--Consider promptly any significant areas of deficiency in financial reporting that might be improved through the standard-setting process;
--Promote the international convergence of accounting standards concurrent with improving the quality of financial reporting; and
--Improve the common understanding of the nature and purposes of information contained in financial reports.
The FASB develops broad accounting concepts as well as standards for financial reporting. It also provides guidance on implementation of standards. Concepts are useful in guiding the Board in establishing standards and in providing a frame of reference, or conceptual framework, for resolving accounting issues.
The framework will help to establish reasonable bounds for judgment in preparing financial information and to increase understanding of, and confidence in, financial information on the part of users of financial reports. It also will help the public to understand the nature and limitations of information supplied by financial reporting.
Labels: fasb, Financial Accounting Standards Board, online accounting classes
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Thursday, November 15, 2007
What is the Sarbanes-Oxley Act?
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The Sarbanes-Oxley Act of 2002 is a United States federal law passed in response to the recent major corporate and accounting scandals including those at Enron, Tyco International, and WorldCom (now MCI).
These scandals resulted in a decline of public trust in accounting and reporting practices. Named after sponsors Senator Paul Sarbanes (D-Md.) and Representative Michael G. Oxley (R-Oh.), the Act was approved by the House by a vote of 423-3 and by the Senate 99-0.
The legislation is wide-ranging and establishes new or enhanced standards for all U.S. public company Boards, Management, and public accounting firms.
The first and most important part of the Act establishes a new quasi-public agency, the Public Company Accounting Oversight Board, which is charged with overseeing and disciplining accounting firms in their roles as auditors of public companies. Some of the major provisions of the Sarbanes-Oxley Act's include:
--Certification of financial reports by chief executive officers and chief financial officers
--Auditor independence, including outright bans on certain types of work for audit clients and pre-certification by the company's Audit Committee of all other non-audit work
--A requirement that companies listed on stock exchanges have fully independent audit committees that oversee the relationship between the company and its auditor
--Significantly longer maximum jail sentences and larger fines for corporate executives who knowingly and willfully misstate financial statements, although maximum sentences are largely irrelevant because judges generally follow the Federal Sentencing Guidelines in setting actual sentences
--Employee protections allowing those corporate fraud whistleblowers who file complaints with OSHA within 90 days, to win reinstatement, back pay and benefits, compensatory damages, abatement orders, and reasonable attorney fees and costs.
These scandals resulted in a decline of public trust in accounting and reporting practices. Named after sponsors Senator Paul Sarbanes (D-Md.) and Representative Michael G. Oxley (R-Oh.), the Act was approved by the House by a vote of 423-3 and by the Senate 99-0.
The legislation is wide-ranging and establishes new or enhanced standards for all U.S. public company Boards, Management, and public accounting firms.
The first and most important part of the Act establishes a new quasi-public agency, the Public Company Accounting Oversight Board, which is charged with overseeing and disciplining accounting firms in their roles as auditors of public companies. Some of the major provisions of the Sarbanes-Oxley Act's include:
--Certification of financial reports by chief executive officers and chief financial officers
--Auditor independence, including outright bans on certain types of work for audit clients and pre-certification by the company's Audit Committee of all other non-audit work
--A requirement that companies listed on stock exchanges have fully independent audit committees that oversee the relationship between the company and its auditor
--Significantly longer maximum jail sentences and larger fines for corporate executives who knowingly and willfully misstate financial statements, although maximum sentences are largely irrelevant because judges generally follow the Federal Sentencing Guidelines in setting actual sentences
--Employee protections allowing those corporate fraud whistleblowers who file complaints with OSHA within 90 days, to win reinstatement, back pay and benefits, compensatory damages, abatement orders, and reasonable attorney fees and costs.
Labels: online accounting classes, Sarbanes-Oxley Act
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Monday, November 12, 2007
What Are Partnerships And Limited Liability Companies?
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Some business owners choose to create partnerships or limited liability companies instead of a corporation. A partnership can also be called a firm, and refers to an association of a group of individuals working together in a business or professional practice.
While corporations have rigid rules about how they are structured, partnerships and limited liability companies allow the division of management authority, profit sharing and ownership rights among the owners to be very flexible.
Partnerships fall into two categories. General partners are subject to unlimited liability. If a business can't pay its debts, its creditors can demand payment from the general partners personal assets. General partners have the authority and responsibility to manage the business. They're analogous to the president and other officers of a corporation.
Limited partners escape the unlimited liability that the general partners have. They are not responsible as individuals, for the liabilities of the partnership. These are junior partners who have ownership rights to the profits of the business, but they don't generally participate in the high-level management of the business. A partnership must have one or more general partners.
A limited liability company (LLC) is becoming more prevalent among smaller businesses. An LLC is like a corporation regarding limited liability and it's like a partnership regarding the flexibility of dividing profit among the owners. Its advantage over other types of ownership is its flexibility in how profit and management authority are determined.
This can have a downside. The owners must enter into very detailed agreements about how the profits and management responsibilities are divided. It can get very complicated and generally requires the services of a lawyer to draw up the agreement.
A partnership or LLC agreement specifies how profits will be divided among the owners. While stockholders of a corporation receive a share of profit that's directly related to how many shares they own, a partnership or LLC does not have to divide profit according to how much each partner invested. Invested capital is only of the factors that are used in allocating and distributing profits.
While corporations have rigid rules about how they are structured, partnerships and limited liability companies allow the division of management authority, profit sharing and ownership rights among the owners to be very flexible.
Partnerships fall into two categories. General partners are subject to unlimited liability. If a business can't pay its debts, its creditors can demand payment from the general partners personal assets. General partners have the authority and responsibility to manage the business. They're analogous to the president and other officers of a corporation.
Limited partners escape the unlimited liability that the general partners have. They are not responsible as individuals, for the liabilities of the partnership. These are junior partners who have ownership rights to the profits of the business, but they don't generally participate in the high-level management of the business. A partnership must have one or more general partners.
A limited liability company (LLC) is becoming more prevalent among smaller businesses. An LLC is like a corporation regarding limited liability and it's like a partnership regarding the flexibility of dividing profit among the owners. Its advantage over other types of ownership is its flexibility in how profit and management authority are determined.
This can have a downside. The owners must enter into very detailed agreements about how the profits and management responsibilities are divided. It can get very complicated and generally requires the services of a lawyer to draw up the agreement.
A partnership or LLC agreement specifies how profits will be divided among the owners. While stockholders of a corporation receive a share of profit that's directly related to how many shares they own, a partnership or LLC does not have to divide profit according to how much each partner invested. Invested capital is only of the factors that are used in allocating and distributing profits.
Labels: limited liability, online accounting classes, partnership
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Saturday, November 10, 2007
Who Uses Forensic Accountants?
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Forensic accounting financial investigative specialists work with financial information for the purpose of conveying complicated issues in a manner that others can easily understand.
While some forensic accountants and forensic accounting specialists are engaged in the public practice of forensic examination, others work in private industry for such entities as banks and insurance companies or governmental entities such as sheriff and police departments, the Federal Bureau of Investigation (FBI), and the Internal Revenue Service (IRS).
The occupational fraud committed by employees usually involves the theft of assets. Embezzlement has been the most often committed fraud for the last 30 years. Employees may be involved in kickback schemes, identity theft, or conversion of corporate assets for personal use. The forensic accountant couples observation of the suspected employees with physical examination of assets, invigilation, inspection of documents, and interviews of those involved.
Experience on these types of engagements enables the forensic accountant to offer suggestions as to internal controls that owners could implement to reduce the likelihood of fraud. At times, the forensic accountant may be hired by attorneys to investigate the financial trail of persons suspected of engaging in criminal activity.
Information provided by the forensic accountant may be the most effective way of obtaining convictions. The forensic accountant may also be engaged by bankruptcy court when submitted financial information is suspect or if employees (including managers) are suspected of taking assets. Opportunities for qualified forensic accounting professionals abound in private companies.
CEOs must now certify that their financial statements are faithful representations of the financial position and results of operations of their companies and rely more heavily on internal controls to detect any misstatement that would otherwise be contained in these financials.In addition to these activities, forensic accountants may be asked to determine the amount of the loss sustained by victims, testify in court as an expert witness and assist in the preparation of visual aids and written summaries for use in court.
While some forensic accountants and forensic accounting specialists are engaged in the public practice of forensic examination, others work in private industry for such entities as banks and insurance companies or governmental entities such as sheriff and police departments, the Federal Bureau of Investigation (FBI), and the Internal Revenue Service (IRS).
The occupational fraud committed by employees usually involves the theft of assets. Embezzlement has been the most often committed fraud for the last 30 years. Employees may be involved in kickback schemes, identity theft, or conversion of corporate assets for personal use. The forensic accountant couples observation of the suspected employees with physical examination of assets, invigilation, inspection of documents, and interviews of those involved.
Experience on these types of engagements enables the forensic accountant to offer suggestions as to internal controls that owners could implement to reduce the likelihood of fraud. At times, the forensic accountant may be hired by attorneys to investigate the financial trail of persons suspected of engaging in criminal activity.
Information provided by the forensic accountant may be the most effective way of obtaining convictions. The forensic accountant may also be engaged by bankruptcy court when submitted financial information is suspect or if employees (including managers) are suspected of taking assets. Opportunities for qualified forensic accounting professionals abound in private companies.
CEOs must now certify that their financial statements are faithful representations of the financial position and results of operations of their companies and rely more heavily on internal controls to detect any misstatement that would otherwise be contained in these financials.In addition to these activities, forensic accountants may be asked to determine the amount of the loss sustained by victims, testify in court as an expert witness and assist in the preparation of visual aids and written summaries for use in court.
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Thursday, November 8, 2007
Accounting Online Resource Blog
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Hello World! Welcome to The Accounting Online Resource and Guide.
Unless you're running your own business and acting as your own accountant, you'd have no way of knowing just how profitable - or not - your business is without some form of accounting.
Every business and every individual needs to have some kind of accounting system in their lives. Otherwise, the finances can get away from them, they don't know what they've spent, or whether they can expect a profit or a loss from their business.
Staying on top of accounting, whether it's for a multi-billion dollar business or for a personal checking account is a necessary activity on a daily basis if you're smart.
See you again. Cheers.
Unless you're running your own business and acting as your own accountant, you'd have no way of knowing just how profitable - or not - your business is without some form of accounting.
Every business and every individual needs to have some kind of accounting system in their lives. Otherwise, the finances can get away from them, they don't know what they've spent, or whether they can expect a profit or a loss from their business.
Staying on top of accounting, whether it's for a multi-billion dollar business or for a personal checking account is a necessary activity on a daily basis if you're smart.
See you again. Cheers.
Labels: online accounting classes
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