Wall Street Prep: Accounting Crash Course

10-K vs. 10-Q Above vs. Below the Line Above the Line: Everything above Operating Income on the I/S that's tied to the core operations of a business Below the Line: Everything below Operating Income Accelerated Depreciation Method Methods that calculate a greater amount of depreciation in earlier years than later years Common Methods: Declining balance Sum of years digits Units of production The Accounting Equation Every transaction can be viewed as having two sides -- the source of funds, and the way the funds were used (use of funds) It is because of this equivalence sources and uses of funds that assets will always equal liabilities and equity by definition Accounting Regulations Accounting attempts to standardize financial information and follows rules and regulations These rules are called Generally Accepted Accounting Principles (GAAP) In the US, the Securities and Exchange Commision (SEC) authorizes the Financial Accounting Standards Board (FASB) to determine accounting rules GAAP comes from the Statements of Financial Accounting Standards (SFAS) issued by the FASB Accounts Payable (A/P) A company's obligations to suppliers for services and products already purchased for them, but which have not been paid (unpaid bills for services obtained on credit from them) Current liability Note: No cash is used in the purchase of the inventory Accounts Receivable (A/R) Payment owed to a business by its customers for products and services already delivered to them Sales that a company has made on credit Ex. Insurance companies resulting from pharmacy sales; banks for customer credit card transfers that take in excess of seven days to process Linked to revenues on the I/S