Economic consequences of accounting
"It's not the economy anymore, stupid. It's the accounting."
- See complete article, Browning, E.S. and Jonathan Weil. "Burden of Dobut: Stocks Take
a Beating As Accounting Wories Spread Beyond Enron." The Wall Street J
Objectives and Game Plan
Understand some key concepts of Financial Accounting Appreciate the differences between cash basis and accrual accounting Develop a mental model for classifying types of accruals Practice the basic bookkeeping model
Why Do We Care About Revenue Recognition?
Revenue has BIG impact on bottom-line profitability => managers may be tempted to manage revenue Statistical Evidence: over 40% of SEC enforcement actions on accounting issues deal with Revenue Recognition Anecd
Accounting for inventory
Understand three accounting decisions < Product Costing (managerial accounting) < Cost-flows from inventory to cogs < Valuation adjustments (after midterms) Begin to understand the related < Alternative accounting rul