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Over 200,000 copies sold!
Thomas R. Ittelson’s master work for entrepreneurs, non-financial managers, business students, lawyers, lenders, and investors―the bestselling book of its kind, with over 200,000 copies in print―has gotten even better with this 20th anniversary edition.
Ittelson is an expert at translating complicated financial topics in an accessible way for non-financial audiences. In this book, he empowers readers by clearly and simply demonstrating how the three major accounting statements interact to offer a snapshot of a company’s financial health.
This book teaches readers how to use specialized accounting vocabulary and makes accessible the structure and purpose of the three major numeric statements that describe a company’s financial condition. Each statement paints a different and essential picture―the “three-legged stool” of company reporting:
- The income statement shows the manufacturing (or service offerings) and selling actions of the company that result in profit or loss during a period. It gives a very important perspective on the company’s performance, its profitability.
- The cash flow statement details cash into and out of the company for a period. You need money to make money. Running out of cash is bad. Duh.
- The balance sheet records at the end of a period, an instant in time, what the company owns and what it owes, including the owners’ stake, called shareholders’ equity.
With two new major topic sections (nonprofit organization accounting and pricing theory for profitability) and spot color reformatting to improve comprehension, this third edition of Financial Statements is simply the clearest and most comprehensive introduction to financial reporting available. No accounting background is required.
From the Publisher
A Lesson in Vocabulary
This book is written for people who need to use financial statements in their work but have no formal training in accounting and financial reporting. Don’t feel bad if you fall into this category. My guess is that 95 percent of all non-financial managers are financially illiterate when it comes to understanding the company’s books. Let us proceed toward some enlightenment.
Sales and revenue mean the same thingProfits, earnings, and income mean the same thing.Now, revenue and income do not mean the same thing.Costs are different from expenses.Expenses are different from expenditures.Sales are different from orders but are the same as shipments.Profits are different from cash.Solvency is different from profitability.
Back to Basics
What are Assets?
Assets are everything you’ve got-cash in the bank, inventory, machines, buildings-all of it.Assets are also certain “rights” you own that have a monetary value…like the right to collect cash from customers who owe you money.Assets are valuable and this value must be quantifiable for an asset to be listen on the Balance Sheet. Everything in a company’s financial statements must be translated into dollars and cents.
What Are Liabilities?
Liabilities are economic obligations of the enterprise such as money that the corporation owes to lenders, suppliers, employees, etc.Liabilities are categorized and grouped for presentation on the balance sheet by: (1) to whom the debt is owed and (2) whether the debt is payable within the year (current liabilities) or is a long-term obligation.Shareholders’ equity is a very special kind of liability. It represents the value of the corporation that belongs to its normal course of business.
What Are Retained Earnings?
All of the company’s profits that have not been returned to the shareholders as dividends are called retained earnings.Retained earnings can be viewed as a “pool” of money from which future dividends could be paid.If the company has not made a profit but rather has sustained losses, is has “negative retained earnings” that are called its accumulated deficit.
A Deeper Dive
Financial accounting means recording each and every event (transaction) that has a financial impact on the enterprise. By keeping track of these activities just as they happen, the accountant can easily summarize the firm’s financial position and issue financial statements. Journals and ledgers are “the books” in which accountants scribble transaction entries.
A journal is a book (or computer memory) in which all of a company’s financial events are recorded in chronological order. Everything is there, there is nothing missing. Journal entries can (and must) be made if:
We know with reasonable certainty the amount of money involved.We know the timing of the event.An actual exchange between the parties of cash, goods or some formal representation of value (such as stock) has occurred.
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