1.1 Intro to the Basics of Finance and Accounting

As a companion to your online training, click on the link below to download the course workbook PDF.

Assumptions and Estimates

• Accounting and finance are not black and white. Both disciplines are art and science.

• Accountants and finance professionals attempt to create a picture of reality through the numbers. It will never be exact or perfect.

• The reported results will to some extent be based on assumptions and estimates.

• This creative side of finance and accounting leaves the door open for some financial fraud to take place.

• To make sound decisions, you must understand enough about finance to ask the right questions.

U.S. Generally Accepted Accounting Principles (GAAP)

GAAP Background

• Much of what is done in accounting and finance in the United States comes from the U.S. generally accepted accounting principles (GAAP).

• GAAP provides a standard from which financial reports are created. It is used for publicly reported financial statements.

• Allows for comparisons across companies and across industries and provides a foundation of rules and guidelines to follow.

• Requires judgment calls in almost all parts of accounting; it is not black and white.

• Some estimate GAAP at more than 100,000 pages.

Non-GAAP Financials

• Typically, non-GAAP financials are created for internal management purposes, as well for use by analysts.

• They provide a picture of the health of the "core" of the company on a "go-forward" basis.

• They allow those inside a company to look at the numbers in a way that helps to analyze the results in order to make decisions.

• Non GAAP reporting typically excludes one-time items and non-operations related items such as:

• Stock option expense

• Amortization of intangibles

• Restructuring charges

Now that you have watched the video, answer the questions below.