Accounting
Where do the three statements come from, and who decided what goes in them?
16 of 16 chapters published
Chapters
Beginner
- What accounting is forCompany analysis teaches you to read the statements. This subject is about where they come from — who prepared them, under what rules, and how much judgment went in before you ever saw a number.
- The accounting equationAssets equal liabilities plus equity, always, by construction. Everything else in accounting is a consequence of keeping that identity true while the business does things.
- Double entryEvery transaction is recorded twice, and the rule for which side is not arbitrary — it falls directly out of the accounting equation. Debit and credit mean nothing more than left and right.
- The journal and the ledgerHow thousands of transactions become five pages. The route from a receipt to a published statement is mechanical, and knowing it tells you exactly where judgement gets inserted.
- Accrual versus cashThe single decision that separates profit from cash, and the reason a profitable company can go bankrupt. Accrual accounting is more useful and more manipulable at the same time.
Intermediate
- Revenue recognitionThe top line is a judgement, and Ind AS 115 is the five-step procedure for making it. Knowing the steps tells you exactly where an aggressive company has room to move.
- InventoryWhich cost goes to the shelf and which goes to the income statement is a choice, and the choice moves profit directly. Inventory is also the account most often used to hide a problem.
- Depreciation and amortisationSpreading the cost of a long-lived asset over the years it serves. Two estimates decide the number, neither is verifiable in advance, and both move profit every year of the asset's life.
- Provisions and contingenciesA liability of uncertain timing and amount. Three conditions decide whether it appears on the balance sheet, is merely disclosed, or is ignored — and the gradations between them are where bad news hides.
- LeasesInd AS 116 put almost every lease onto the balance sheet, and in doing so changed the reported debt of whole industries without changing a single contract or a single rupee of cash.
- Deferred taxAccounting profit and taxable profit are computed under different rules, and the difference has to go somewhere. Deferred tax is that somewhere, and it is the least understood line on the balance sheet.
Advanced
- Consolidation and the groupMost listed companies are a parent with subsidiaries, and the consolidated accounts are the ones that matter. Control, not ownership percentage, decides what gets consolidated.
- Ind AS, and where it differs from IFRSConverged is not identical. The deliberate departures are called carve-outs, each has a stated reason rooted in Indian conditions, and knowing they exist is what makes a cross-border comparison honest.
- The cash flow statement, preparedCompany analysis taught you to read it. This builds it — starting at profit and removing every accrual until only cash is left, which is also the clearest way to see what the accruals were.
- Earnings managementEvery judgement in this subject is a lever, and using them to produce a desired number is legal until it is not. The techniques are known, they leave traces, and the traces are in the statements you already know how to read.
- From books to an annual reportThe whole subject as one sequence — from a receipt to a published document, through the people who check it. And what the audit opinion is actually asserting, which is narrower than most readers assume.