Professional Documents
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Points Discussed in Lecture 1
Points Discussed in Lecture 1
4 main differences in Cash v/s Accrual basis of accounting (what are these and their effects on FS)
Unearned Revenue
Accrued Revenue
Prepaid expenses
Accrued Expenses
How Financial Statements are prepared – Journal entry to Ledger to Trial Balance to adjusted Trial
Balance and then FS
Accrual Basis
Going Concern
Consistency
Materiality
Fair Representation
Income Statement (What is it and its main Components like Sales, COGS, depreciation,
S,G&A, Interest and Tax)
Balance Sheet (What is it and its main Components like assets- current & non-Current,
liabilities like debt and equity; the most important equation: A = L + E)
Cash Flow Statement (CFO, CFF, CFI – what constitutes each)
Statement of changes in Owner’s Equity (What is it and its main Components like share
capital, APIC, treasury stock, retained earnings and accumulated other comprehensive
income)
Footnotes, explanations included significant accounting policies used
Management Discussion & analysis in 10-K – A must read for all analysts
INCOME STATEMENT
Its various components and the most important component: Revenue. What is revenue and the
criteria listed to determine revenue under GAAP and IFRS
Ho w to recognize revenue in some specific cases like Long-term contracts, Installment Sales and
Barter transactions:
Second most important component of Income Statement: Expenses. What are the different kinds of
expenses and how are they classified.
Classification of expenses as Period and Product costs, their respective effects and treatments in
Income Statement.
How & why are the components of Income Statement classified as operating or non-
operating?
What are discontinued operations and how are they reported in Income Statement?
What are unusual or infrequent items and how are they reported?
What are extraordinary items and how are they different from unusual or infrequent items?
Where are the extraordinary items reported in Income Statement
How do we account for changes in accounting standards which comprises of: changes in
accounting principles, changes in accounting estimates and prior-period adjustments
What do we mean by each of these accounting changes and their effects on financial
statements
The hierarchy of these components in Income Statement and whether they are reported
gross or net of tax
Differences between GAAP and IFRS w.r.t these components and their treatments
What is EPS, how is it calculated, its significance as the most important measure of corporate
profitability and performance
What is a capital structure? What are its two types: Simple and Complex?
What do we mean by Basic and Diluted EPS and how are they calculated? Effects of stock dividends
and stock splits on EPS. Treatment of Convertible Debt, Convertible preferred stock, Stock options
and Warrants in calculation of diluted EPS
What is Comprehensive Income? Its four major components: Unrealized gains/losses from available
for sale securities, minimum pension liability adjustments, foreign currency translation gains/losses
and unrealized gains/losses from cash flow hedge derivatives.
Difference between other comprehensive income, comprehensive income and accumulated other
comprehensive income
BALANCE SHEET
Significance of a Balance Sheet. Various formats of presenting a Balance Sheet. Its major
components: Assets, Liabilities and Equity
Assets
A brief introduction of the various common balance sheet asset accounts like accounts receivable,
inventory, cash & cash equivalents and investments
Classification of assets as current and non-current and a brief discussion on their components
thereof.
Under Non-Current Assets, assets are further classified into Tangible and Intangible Assets.What are
tangible and Intangible Assets? What is Goodwill, its importance and how is it calculated?
A discussion on what all expenses are capitalized as Intangible assets and which expenses are
expensed when incurred.
Liabilities
A brief introduction of the various common balance sheet liabilities accounts like accounts payable,
accrued expenses, bonds & notes payable and unearned revenue.
Classification of liabilities as current and non-current and a brief discussion on their components
thereof.
Equity
A brief introduction of the various common balance sheet equity accounts like share capital,
retained earnings, treasury stock, accumulated other comprehensive income, additional paid-in-
capital.
What does a statement of changes in stockholder’s equity signifies and what all transactions
comprise it.