MBA ASAP Corporate Finance Fundamentals for Career Success

I have added a bunch of quizzes to test your comprehension after video lectures. Here is why:

Practice with struggle > practice without struggle.

An example is a study of two groups of students. Group A studied a paper for 4 days. Group B studied it for 1 day and was tested on it for 3 days.

At the final test, Group B scored 50% more than Group A.

Why?

With every test, group B struggled. And that targeted struggle made them acquire more knowledge in the same amount of time.

This is about self-motivation and the measure of self-motivation in a person is the best predictor of upward mobility. Congratulations you have it.

Let me know what you think of the quizzes and this approach.

‘Nuff said. Let’s get started!

As we start, I want to give you an outline of the course and my thinking behind how I organized the material. I focus heavily on the fundamentals of finance at the beginning. 

To be successful, identifying what to learn matters most. When it comes to building a skill, which corporate finance is, the fundamentals are what we need to focus on. Everything takes off from there.

I take your time and attention very seriously. As your instructor, I am trying to balance going over the fundamentals, like financial statements, from several angles to ensure the concepts sink in and become obvious to you, and boring you by being too repetitive.

We all learn differently. Some of us come to this course with prior knowledge, and some have never encountered these concepts. My goal is for everyone to master these concepts. If the first part of the course dealing with financial statements seems too slow and repetitive, feel free to move on and get to the new topics. For the rest of us, take the time to watch the videos until each topic is mastered and makes sense. The fundamentals are what everything else is built on.

Elon Musk, the Tesla and SpaceX boss, shares a nugget of pure learning gold:

"One bit of advice: it is important to view knowledge as sort of a semantic tree -- make sure you understand the fundamental principles, i.e., the trunk and big branches before you get into the leaves/details, or there is nothing for them to hang on to."

Welcome to this course on Corporate Finance!  The video lectures are the main part of the course and the book supports the lectures.  Download the book provided here and give it a quick peruse.  You can follow along in the book with each video segment and the two will reinforce each other and the concepts presented.

Some of the material may seem repetitive.  I repeat the fundamental concepts from several different angles so that they have a chance to sink in.  If you find any of the videos or material repetitive, consider it a good sign.  That means you understand that concept.  The course isn't too long so have patience with the process.  Once you are comfortable with these concepts like Ratio Analysis, Time Value of Money, Discounted Cash Flows, and Present Value, you will be unstoppable!

This course is part of the MBA ASAP series.  I hope you find it valuable, instructive, and enjoyable.  

If you have any questions or suggestions email me at jjcousins@gmail.com   

Follow me on twitter @jjcousins   

Sign up for my email list at MBA-ASAP.com  

Thanks!  

John  

I have added a bunch of quizzes to test your comprehension after video lectures. Here is why:

Practice with struggle > practice without struggle.

An example is a study of two groups of students. Group A studied a paper for 4 days. Group B studied it for 1 day and was tested on it for 3 days.

At the final test, Group B scored 50% more than Group A.

Why?

With every test, group B struggled. And that targeted struggle made them acquire more knowledge in the same amount of time.

This is about self-motivation and the measure of self-motivation in a person is the best predictor of upward mobility. Congratulations you have it.

Let me know what you think of the quizzes and this approach.

Cognitively the act of taking a quiz, calling up knowledge from memory, makes that memory stronger and easier to access. So students who are frequently quizzed retain more knowledge of the subject they are studying.

Here are some of the benefits of using quizzes in online courses:

· Retrieval practice occurring during quizzes can greatly enhance retention of the retrieved information. An even higher level of retention than from restudying or rereading the course material.

· Quizzes permit students to discover gaps in their knowledge and focus study efforts on difficult material.

· An indirect effect of quizzes was found that if quizzed frequently, students tended to study more and with more regularity.

· Quizzing has been found to enable better metacognitive monitoring for both students and teachers because it provides feedback as to how well learning is progressing. Quizzes can be a beneficial self-learning check for students.

· Every time a student calls up knowledge from memory like when taking a quiz, that memory solidifies becoming more stable and more accessible.

Quizzes help us identify we know and what we don't know.

Repeated testing with quizzes and exams improves the cognitive process that can amplify long-term memory retention and retrieval. It doesn't just measure knowledge, but challenges it. If you test yourself more regularly, you are going to learn in greater detail than before.

Practice with struggle > practice without struggle.

Excel is a versatile and indispensable tool for finance and investment professionals. Its importance cannot be overstated, as it is used in a wide range of financial tasks, from data analysis to financial modeling and reporting.

1. Financial Analysis and Reporting: Excel enables finance professionals to sort, analyze, and visualize data to identify trends, perform variance analysis, and forecast future financial scenarios. It supports using pivot tables, advanced formulas, and various graphing tools, which are crucial for creating detailed financial reports.

2. Financial Modeling: Excel is widely used for financial modeling, allowing analysts to build models that can predict income, budgeting, cash flow, and other financial projections. Using advanced functions and creating flexible, dynamic models is critical to making informed business decisions.

3. Excel Proficiency is a Game-changer for finance professionals, significantly boosting productivity by saving time. The ability to automate tasks with macros, handle complex calculations with ease, and manage large datasets efficiently are just a few ways Excel streamlines financial tasks.

4. Excel is not just a tool; it's a universal language in the finance industry. Mastery of Excel is often a prerequisite for many finance roles, making it an indispensable skill for job proficiency and career advancement.

5. Decision Making: Excel helps finance professionals in decision-making processes by providing a platform to work through various financial scenarios and analyze potential outcomes. What-if analysis and sensitivity tables are instrumental in this regard.

6. Accuracy and Precision: Excel's precision in handling financial data is critical. A single error can result in significant financial discrepancies; thus, the ability to use Excel to manage and cross-check numbers accurately is vital.

7. Integration and Compatibility: Excel can integrate with many business applications and databases, making it an effective tool for consolidating information from various sources for financial analysis and reporting.

Knowing Excel in finance is not just about understanding the basic features; it involves a deep understanding of its advanced capabilities, which are essential in the sophisticated world of finance.

Excel proficiency is a foundational skill that enables finance professionals to perform their roles effectively and efficiently, whether running regressions, building a discounted cash flow model, or analyzing complex datasets.

Download the MBA ASAP Ultimate Excel Handbook and level up your skill set.

30+ Best AI tools to 10x Productivity!

AI is the future. All should take AI seriously.

Bookkeeping and Accounting produce Financial Statements, the cornerstone of Corporate Finance. Therefore, understanding how business transactions aggregate to make financial statements is critical to a foundational understanding of corporate finance. 

Accounting is the procedure of data entry and recording, summarizing, analyzing, and reporting financial data. The end product of accounting is the three financial statements: Income Statement, Balance Sheet, and Cash Flow Statement.

FIVE BASIC ACCOUNTING PRINCIPLES:

1: Revenue Recognition:

→ Revenue is recorded at the time of the transaction.

2: Matching Principle:

→ Assets are recorded at their acquisition cost.

3: Historical Cost:

→ Fiscal Year Income is compared with Calendar Year Expense.

4: Full Disclosure:

→ Full disclosure of all relevant info is made available.

5: Objectivity Principle:

→ Information in books should be true, relevant, & accurate.

5 CATEGORIES OF ACCOUNTING:

1: Assets:

→ All Tangible & Intangible items owned by the company.

2: Liabilities:

→ Amounts the company owes to others.

3: Equity:

→ Net Worth of Entity: Assets - Liabilities

4: Expenses:

→ Amount paid purchases made in business.

5: Income:

→ Amount earned by the company from the sale of goods.

JOURNAL VS LEDGER:

→Journal Entries consist of Debits & Credits, the totals of which should be equal

→Journal entries are then transferred to the appropriate Ledger Accounts

FINANCIAL STATEMENTS:

1: Income Statement:

→ Shows profit or loss during the period.

2: Balance Sheet:

→ A company's assets, liabilities, and equity at a point in time.

3: Statement of Cash Flow:

→ Shows the inflow and outflow of cash during the period.

DOUBLE ENTRY SYSTEM

→ Each Accounting Entry will have two sides - Debit and Credit.

THREE FIELDS OF ACCOUNTING:

→ Financial Accounting: Preparing the Financial Statements.

→ Managerial Accounting: Prepare reports for internal use.

→ Cost Accounting: Measure the performance of resources.

The Accounting Cycle

The Accounting Process, Visualized:

Step 1: Identify transactions

→Identify and document all financial transactions that occur within the accounting period.

Step 2: Prepare journal entries:

→Create journal entries to record the details of each transaction, including the accounts affected and the corresponding debits and credits.

Step 3: Record journal entries:

→Enter the journal entries into the general ledger, the central repository for all financial transactions.

Step 4: Prepare trial balance:

→Summarize the balances of all accounts in the general ledger to ensure that the debits equal the credits.

Step 5: Make adjusting entries:

→Make necessary adjustments to the accounts to ensure the accuracy of the financial statements, such as recording accrued expenses or prepaid income.

Step 6: Review adjusted trial balance:

→Verify that the adjusted trial balance reflects the correct account balances after making the adjustments.

Step 7: Produce financial statements:

→Generate financial statements, including the income statement, balance sheet, and cash flow statement, to provide an overview of the company's financial performance and position.

Step 8: Post closing entries:

→Close temporary accounts, such as revenue and expense accounts, to start the next accounting period with zero balances.

Step 9: Review post-closing trial balance:

→Confirm that the post-closing trial balance only includes permanent accounts and that the debits still equal the credits.

Step 10: Prepare journal entries:

→Prepare journal entries for the next accounting period to continue recording new transactions.

Setting Up the Books

When we talk of the "books," we refer to the group of all the accounts of the transactions of an enterprise. This list, or group, makes up the general ledger.

The general ledger collects all asset, liability, equity, revenue, and expense accounts. Transactions are grouped in some related way as accounts, and accounts are grouped and categorized into the General Ledger ("GL").

Transactions are usually related by vendor, customer or type of transaction. For example, your office rent payments would be grouped in an account called "Landlord," "Office Rent," or something similar. Your sales income might be grouped by customer or simply in a general "sales revenue" account; your electric bills and payments would be recorded in an account set up for the utility company.

This list of accounts and vendors is the basic organizing principle of your accounting system. When starting an accounting system for a company, you create a chart of accounts that classifies different groupings of business transactions.

The chart of accounts is a listing of all accounts used in an organization's general ledger. The chart of accounts is simply a laundry list of all the accounts.

Usually, when you begin working for an existing company, the chart of accounts already exists, and as new vendors occur, a new account is added.

The vendor list shows information about the people or companies from whom you buy goods and services, including banks and tax agencies.

The Accounting Cycle

The accounting cycle is a straightforward eight-step procedure for finishing a business' bookkeeping duties. It offers a precise roadmap for the documentation, evaluation, and final reporting of a company's financial operations.

The whole accounting cycle is employed throughout a single reporting period. As a result, maintaining organization throughout the process can be a crucial component that contributes to maintaining overall efficiency. Depending on the necessity for reporting, accounting cycle times will change. Most businesses aim to evaluate their performance monthly. However, some could concentrate more on results on a quarterly or annual basis.

In any case, most bookkeepers are aware of the business's daily financial situation. In general, timing each accounting cycle is essential since it establishes dates for opening and closing. A new cycle starts once an accounting cycle ends, continuing the eight-step accounting procedure.

Understanding the 8-Step Accounting Cycle

The eight-step accounting cycle begins with the individual recording of each business transaction and concludes with a thorough report of the business's actions for the specified cycle duration. In addition, many companies use accounting software to automate the accounting cycle. This automation allows accountants to program cycle dates and receive automated reports.

The eight-step accounting cycle often has to be modified in particular ways for each organization to conform to its own business model and accounting practices.

Double-entry accounting is necessary for businesses to construct the income statement, balance sheet, and cash flow statement.

The 8 Steps of the Accounting Cycle

The following are the eight steps of the accounting cycle:

Step 1: Identify Transactions

The accounting cycle's initial stage is to identify transactions. Business transactions will be numerous throughout the accounting cycle. Each one must be accurately recorded in the business's books.

Recordkeeping is critical for recording all transactions. For example, many companies will use point-of-sale technology linked to their books to record sales transactions. In addition, expenses come in wide varieties.

Step 2: Record Transactions in a Journal

The cycle's second phase is producing journal entries for each transaction. Once more, combining steps one and two with point-of-sale technology is possible, but businesses must also keep track of their costs.

Both must be recorded at the moment of the sale following accrual accounting, which involves matching revenues and costs.

Double-entry bookkeeping requires that two entries be recorded with each transaction to maintain a balance sheet, income statement, and cash flow statement.

Public corporations must prepare their financial accounts according to accrual accounting and generally accepted accounting standards (GAAP).

Each transaction in double-entry accounting has a debit and a credit equal to one another.

Step 3: Posting

A transaction should post to an account in the general ledger after it has been entered as a journal entry. All accounting actions are broken down by account in the general ledger.

This enables a bookkeeper to keep track of account-by-account financial conditions and statuses. For instance, the cash account, which shows how much cash is on hand, is one of the general ledger accounts most frequently referred to.

The ledger was previously considered the gold standard for documenting transactions, but because practically all accounting is now done electronically, the ledger is no longer a significant issue.

Step 4: Unadjusted Trial Balance

The fourth stage of the accounting cycle involves calculating a trial balance at the conclusion of the accounting period. The firm may learn the unadjusted amounts in each account from a trial balance. After testing and analysis in the fourth stage, the unadjusted trial balance is taken on to the fifth step.

Once the accounting period has concluded, and all transactions have been discovered, documented, and posted to the ledger, this is the initial activity that takes place (this is usually done electronically and automatically).

This step is taken to ensure that the overall credit amount and debit balance are identical. If those figures are off, this step can catch a lot of errors.

Step 5: Worksheet

The fifth phase in the cycle involves reviewing a worksheet and locating modifying entries. A worksheet is first made to ensure that debits and credits are equivalent. Again, there will need to be modifications made if there are inconsistencies.

When adopting accrual accounting, correcting entries may also be required to match income and expenses and discover mistakes.

Step 6: Adjusting Journal Entries

A bookkeeper makes corrections in the sixth phase. Adjustments are documented in journal entries.

Step 7: Financial Statements

The seventh phase is when the business prepares its financial statements after completing all adjustment entries. These statements typically consist of an income statement, balance sheet, and cash flow statement for businesses.

Step 8: Closing the Books

In the eighth phase, a business finally completes the accounting cycle by closing its books at the end of the day on the designated closure date. The concluding remarks offer a report for analyzing performance throughout the period.

After closure, a new reporting period is used to restart the accounting cycle. Closing is typically a great time to submit documentation, make plans for the upcoming reporting period, and go through a schedule of the forthcoming activities.

Debits and Credits

Debit and Credit are the two most basic accounting terms to become familiar with. This is because they represent the fundamental concept of bookkeeping. However, the practice of double-entry bookkeeping and the application of debits and credits to accounts is not intuitive and will take some time to get used to. With that in mind, let's discuss the concepts more.

In accounting, there are two sides to every transaction, and they are called debit and Credit. Each journal entry affects at least two accounts; it can affect a group of debits and a group of credits, but they must equal each other. This concept may take a while to get your head around and get used to. But you will. Think of a situation where you lend someone $10.

As Shakespeare said, there are two sides to this IOU-type transaction: the borrower and the lender. You record that you expect the money back (asset), and the other party records that they expect to pay it back (liability). All transactions are two-sided like this example: one account is enhanced, and one is depleted. Or think of a deli counter transaction: you get a sandwich, and the deli receives money. But each side records two entries. From the deli side, they get money, which increases their revenue, and they give up a sandwich, which depletes their inventory. From your side, you get a delicious sandwich, an asset (albeit temporary), and you give up money, which depletes your bank account. Each side records a double-entry transaction. Each side's transaction entry mirrors the other: what you gain, and they give up, and vice versa. Accounting is a zero-sum endeavor.

Debit and Credit can be tricky concepts to understand initially. Here is another attempt at a simple explanation. A Debit increases the enterprise's resources, and a Credit reduces the resources. So, with Asset accounts that are resources, a Debit will increase the account.

With a Liability account, which are obligations of the enterprise, a Debit will decrease that account; because the decrease of a liability, like a loan, means, in essence, increasing the company's resources. Think of this as if you pay off a credit card, you have increased your resources by no longer carrying that debt obligation (and at the same time, you save a ton of interest payments!)

Credits are the mirror image opposite. When you pay a bill, you credit cash (an asset account) because you have reduced your cash amount. If you take out a loan, you credit the loan account (a liability account) because you have increased an obligation of the company.

You may have to refer to this concept of debits and credits several times. Acknowledge that this concept may be challenging, and stay calm. It will become clear with use.

Bank Reconciliation - Manual vs Automated

Automation wasn't even in sight when I started preparing bank reconciliations as a general ledger accountant.

Yes, there was a time when you had to manually reconcile GL transactions and bank statements line by line.

Print them both and knock off reconciled items one by one.

You couldn't even download bank statements as CSV files.

The statements used to be paper-based and received in snail mail.

That also meant difficulty in reconciling bank accounts before the month-end close.

These days, life is much easier!

• Bank portal integration with the accounting software/ERP.

• Downloadable bank statements in the format you need.

• Automated reconciliation software.

You name it, you have it.

When entering transactions in the ERP system, one crucial consideration is that you must accurately tag each transaction so that the reconciliation software can read and compare it with the bank statement.

And tags should be aligned with the data provided by the bank.

Otherwise, reconciliation software is not very useful.

Remember, the review and approval process remains integral to bank reconciliation even after automation.

Here is a comparison of how accounting processes have evolved by leveraging technology.

1- Gathering Data

2- Match Transactions

3- Identify Differences

4- Adjustments

5- Ending Balances

6- Reconciliation

7- Review and Approval

8- Resolve Discrepancies

9- Final Reconciliation

The basics of accounting

This PDF will teach you everything you need to know

Here's what you'll learn:

- Accounting Cycle & Accounting Equation

- List of Accounts and Its Classification

- Accounting Principles

- Journal Entries, Adjusting Entries, & Closing Entries

- Financial Statements

13 Accounting Principles

Accounting is the language of business.

If you want to read financial statements, you MUST understand these 13 principles:

ACCOUNTING PRINCIPLES

→ The rules, benchmarks, and procedures in the accounting field companies should follow while reporting financial statements. In the United States, the common set of accounting standards is GAAP (Generally Accepted Accounting Principles).

ECONOMIC ENTITY

→The Owner & business are two different entities with separate liabilities.

REVENUE RECOGNITION

→ Revenue should be recognized using the accrual basis of accounting.

CONSERVATISM

→When there are two acceptable options for reporting, the less favorable option should be chosen.

CONSISTENCY

→The usage of methods and principles should be consistent until another method proves to be better.

HISTORICAL COST

→Assets should be recorded based on their original purchased value.

FULL DISCLOSURE

→All important information should be disclosed within the financial statements or as a footnote.

GOING CONCERN

→Business is assumed to carry on forever with no intention of liquidation.

MATCHING CONCEPT

→All debits should have a matching credit, and all credits should have a matching debit.

MATERIALITY

→Any information which will have a significant impact should be reported on the financial statements.

MONETARY UNIT

→Transactions that carry a monetary value should be recorded in terms of a monetary currency (Eg, Dollars)

RELIABILITY

→Transactions should only be recorded that can be proven & have significant evidence.

REVENUE TIMING

→ Revenues will be recognized at the time of the transactions regardless of whether payment has been made.

TIME PERIOD

→There should be a standardized time period for the reporting of the financial statements (Ex: Monthly, Quarterly, or Annually)

Do any of these principles need further explanation? If so, let me know in the comments section.

Accruals and Provisions

The Confusing Duo of Accounting. Let's Demystify!

Understanding the difference between accruals and provisions is fundamental for accurate accounting and financial reporting.

It is common for business owners or even us accountants to need clarification on the two.

But it doesn't have to be that way.

Not, at least, after the information I have put together to demystify the confusion.

This is what you will find in the excellent PDF attached:

1- The Confusion

2- The Reason for the Confusion

3- Why Understanding the Difference is Important?

4- Impact of Incorrect Classification?

5- The Concept

6- The Purpose

7- The Recognition

8- The Estimation

9- The Timing

10- The Reversal

11- The Adjustments

12- The Examples

13- The Impact on Cash Flow

14- The Accounting Treatment Process Flow

The General Ledger Closing Checklist

As I write this, I am helping a client streamline their month-end closing and reporting process, including developing and implementing best practices to close each function within the finance department.

Once complete, part of the project is to develop a management and board reporting pack to ensure a seamless record-to-report process.

The accuracy of the General Ledger is critical to achieving accurate and reliable reporting.

Accounting teams cannot avoid the task of closing the books at the end of the month.

It always seems like the next month-end closing is upon us before we close the previous month.

The cycle keeps repeating itself over and over again, like Groundhog Day.

For those days, checklists become handy to ensure we have completed each task necessary to close the month.

I'm a big fan of checklists. Atul Gawande's The Checklist Manifesto is a great book.

One such checklist is the general ledger closing checklist.

Here's something I've created for my client. I am sharing it with the broader audience.

It is helpful to take this and create one based on your processes and dates.

Here's what I have covered in the graphic:

1. Preparation and Planning

2. Review Subsidiary Ledgers

3. Adjusting Entries

4. Revenue Recognition

5. Expense Recognition

6. Depreciation and Amortization

7. Bank Reconciliation

8. Accruals

9. Financial Statement Preparation

10. Review and Approval

11. Documentation & Audit Trail

12. Adjusting Entries

13. Aging Reports

14. Post-Closing Adjustments

15. Final Review

GAAP vs non GAAP

If accounting is the language of business, as we often teach, understanding its high-level concepts is essential.

Yet, when listening to insiders or stock market veterans, they often use industry jargon and alphabet soup acronyms without explaining what each means.

In today’s lesson, we will tackle one of accounting’s most confusing terms, which is crucial to understand when going through a company’s financial statements: GAAP, which stands for generally accepted accounting principles.

GAAP accounting is a commonly accepted set of rules and procedures designed to govern corporate accounting and financial reporting within the United States.

GAAP rules were jointly established by the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB).

GAAP rules are applied to profitable corporations (overseen by the FASB) and government and non-profit organizations (regulated by the GASB).

This raises an important question: Why do companies report non-GAAP results if GAAP rules are for corporations?

Non-GAAP refers to accounting practices that do not comply with the GAAP standards. As a result, these metrics aren’t audited and don’t have a standardized reporting format.

Many companies report non-GAAP results to shareholders (in addition to their GAAP results) to add important color and nuance to their numbers that the GAAP standard misses.

However, it’s important to note that non-GAAP numbers can also disguise weaknesses in a company’s results.

Therefore, a discerning investor must carefully comb through the numbers, comparing the GAAP with the non-GAAP results, to see an accurate picture of companies’ finances.

Welcome to the world of Managerial Accounting! As you embark on this journey through the "Principles of Managerial Accounting pages," get ready to unlock the secrets behind the numbers that drive business decisions. This book is not just about crunching numbers; it's about understanding how those numbers tell the story of a business's financial health and guide strategic decisions.

Envision yourself as a pivotal figure in a company, entrusted with making decisions that can steer the course of success or failure. Managerial accounting equips you with the tools to navigate these challenges. From budgeting and cost analysis to financial planning and performance evaluation, you'll acquire the skills to gather, interpret, and utilize financial data, empowering you to make informed decisions that can shape the future of your organization.

Real-world scenarios serve as your guide, illustrating how businesses allocate resources, manage costs, and plan for the future. You'll delve into concepts like job order costing, process costing, and activity-based costing, which provide a clear understanding of the true cost of products and services. Armed with these insights, you'll be better prepared to enhance efficiency, reduce waste, and maximize profitability in any business setting.

Moreover, this book goes beyond traditional accounting. It delves into how accounting information supports managers in planning, directing, and controlling functions. You'll learn to analyze financial statements, develop budgets, and perform variance analysis—all essential skills for any aspiring manager or business leader.

So, why should you choose to delve into the comprehensive knowledge offered by the "Principles of Managerial Accounting"? Because it will not only equip you with the necessary knowledge but also empower you with the skills to make sound business decisions. Whether you're aspiring for a career in accounting, management, or entrepreneurship, this book serves as your gateway to mastering the language of business and becoming a strategic thinker in the corporate world.

Prepare to be inspired and challenged as you delve into the principles that underpin successful business management. Your journey into the heart of managerial accounting begins now.

Download the Managerial Accounting book.

All the principles you need to know

Chapter 1: Managerial Accounting Concepts

Chapter 2: Job Order Costing

Chapter 3: Process Costing

Chapter 4: Activity-Based Costing

Chapter 5: Cost Volume Profit Analysis

Chapter 6: Variable Costing Analysis

Chapter 7: Budgeting

Chapter 8: Variance Analysis

Chapter 9: Differential Analysis

Source: Christine Jonick, Ed. D

Cost Accounting Formulas

This PDF teaches you everything you need to know

Here's what you'll learn:

- Total Cost (TC)

- Average Cost (AC)

- Marginal Cost (MC)

- Contribution Margin (CM)

- Gross Profit (GP)

- Break-Even Point (BEP)

- Return On Investment (ROI)

- Cost of Goods Sold (COGS)

- Overhead Allocation

- Cost Variance

- Price Variance

- Labor Efficiency Variance

- Predetermined Overhead Rate (POR)

- Economic Order Quantity (EOQ)

- Cost of Quality (COQ)

- Production Volume Variance

- Margin of Safety

- Availability

- Reorder Point

- Takt Time

FP&A Internal Controls and Best Practices

Management and the board rely on your analyses and insights, making decisions based on your TIMELY reports.

A single error can question the accuracy and reliability of the entire report.

How do you achieve accuracy, reliability, and timeliness?

Always remember two things:

1- Accuracy and reliability through internal controls

2- Efficiency and timeliness through process improvement & technology

Here's something to help you achieve just that:

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Establish clear budget procedures and approval processes and monitor performance.

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Implement controls to monitor actual outcomes versus projections and conduct variance analysis.

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Financial data accuracy, completeness, and reliability in FP&A require data validation checks and reviews of data sources and inputs.

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Implement controls to ensure financial analyses, reports, and recommendations are subject to appropriate review and approval.

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Establish segregation of duties within the FP&A function to prevent conflicts of interest and reduce the risk of errors.

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Implement controls to manage changes in processes, models, or methodologies.

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Implement controls to protect sensitive financial information.

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Maintain proper documentation of FP&A activities, including assumptions, models, and calculations.

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Establish controls to ensure compliance with relevant financial regulations, accounting standards, and internal policies.

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Implement controls to monitor the performance and effectiveness of the FP&A function.

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✅ Alignment with Strategy

✅ Collaboration & Communication

✅ Driver-Based Planning

✅ Use of Technology

Provisions in Accounting

Understanding provisions is critical to protecting your business from unexpected financial hits.

Here's a straightforward guide on everything you need to know.

A provision is an amount set aside from a company's profits to cover future liabilities or losses that are probable but uncertain in timing or amount.

It helps businesses prepare for potential financial obligations and ensure their financial statements reflect an accurate and fair view.

What Business Owners Should Know:

-> Provisions enable companies to present a clearer financial picture by accounting for future liabilities in the current period.

-> By setting aside funds for potential future expenses, provisions help businesses manage risks effectively.

-> Proper provisions ensure compliance with accounting standards and regulations, avoiding legal and financial penalties.

Managing provisions accurately is vital for your business's financial health and stability.

Ensure your financial statements reflect an accurate and fair view by properly accounting for future liabilities.

12 Steps Approach to Process Improvement

Improve any process within your organization by following these steps.

With years of corporate experience and a current focus on helping establish and improve processes, I've witnessed the transformative power of streamlining processes.

From enhancing efficiency to boosting productivity, the results speak for themselves.

Here are some of the benefits:

- Enhances quality and consistency.

- Increases efficiency and reduces waste.

- Supports compliance and risk management.

- Facilitates better communication and collaboration.

- Promotes continuous improvement and innovation.

Leveraging my experience, I am helping SMEs document and improve accounting and finance processes and supporting them in doing the same in other departments across the organization.

Here are some examples of processes across the organization:

- Accounting & Finance: Customer Invoicing

- Human Resources: Employee onboarding process

- Operations: Manufacturing workflow optimization

- Customer Service: Customer support ticket resolution

- Information Technology: Software deployment and update process

- Supply Chain Management: Inventory management and replenishment

Here's how you can follow the systematic approach to improve any process within your organization:

1- Understand the Current Process

2- Define the Current Process

3- Identify Pain Points and Bottlenecks

4- Set Objectives

5- Engage Stakeholders

6- Research Best Practices

7- Design the Future State

8- Document the Improved Process

9- Implement Changes Incrementally

10- Provide Training

11- Monitor and Measure

12- Iterate and Refine