Business/Accounting/Finance ™ Making Everything Easier! Your plain-English guide Financial Accounting to navigating a financial Open the book and find: accounting course • The purpose of financial accounting With easy-to-understand explanations and real-life examples, Financial Accounting For Dummies provides you with the basic • Ethical responsibilities of Financial concepts, terminology, and methods to interpret, analyze, financial accountants and evaluate business financial statements. Whether you’re • What financial statements tell a student taking an introductory course or a business owner you about a company who needs a financial accounting initiation, this hands-on, • Regulatory issues and agencies Accounting friendly guide can help. you need to know • Financial Accounting 101 — get acquainted with the world • Accounting methods and concepts of financial accounting, from the responsibilities of financial • How to investigate income and accountants to the coursework, certifications, and career cash flow options available • Book it — discover the process behind financial accounting, • Different ways to analyze which starts with booking a company’s accounting transactions financial statements using journal entries and ledgers • The job (and income) outlook for • It’s a balancing act — get the lowdown on the different parts of financial accountants a balance sheet (assets, liabilities, and equity) and how together they illustrate a company’s financial position • Search for profit (or loss) — navigate an income statement to study a company’s revenue, expenses, gains, and losses Learn to: • Determine what each line of a financial • Follow the cash — find out what the statement of cash flows tells Go to Dummies.com® you about how a business uses its money statement tells you for videos, step-by-step examples, how-to articles, or to shop! • Identify the various accounting concepts and methods that companies can employ • Recognize how investors and creditors use financial reports to make decisions $24.99 US / $29.99 CN / £16.99 UK ISBN 978-0-470-93065-6 Maire Loughran, CPA, is a member of the American Institute of Certified Maire Loughran Public Accountants. An adjunct professor of auditing, accounting, and Adjunct Full Professor of Financial & taxation courses, she is also the author of Auditing For Dummies. Managerial Accounting Loughran Certified Public Accountant Get More and Do More at Dummies.com® Start with FREE Cheat Sheets Cheat Sheets include • Checklists • Charts • Common Instructions • And Other Good Stuff! To access the Cheat Sheet created specifically for this book, go to www.dummies.com/cheatsheet/financialaccounting Mobile Apps Get Smart at Dummies.com Dummies.com makes your life easier with 1,000s of answers on everything from removing wallpaper to using the latest version of Windows. Check out our • Videos • Illustrated Articles • Step-by-Step Instructions There’s a Dummies App for This and That Plus, each month you can win valuable prizes by entering our Dummies.com sweepstakes. * With more than 200 million books in print and over 1,600 unique Want a weekly dose of Dummies? Sign up for Newsletters on titles, Dummies is a global leader in how-to information. Now • Digital Photography you can get the same great Dummies information in an App. With • Microsoft Windows & Office topics such as Wine, Spanish, Digital Photography, Certification, • Personal Finance & Investing and more, you’ll have instant access to the topics you need to • Health & Wellness know in a format you can trust. • Computing, iPods & Cell Phones • eBay To get information on all our Dummies apps, visit the following: • Internet www.Dummies.com/go/mobile from your computer. • Food, Home & Garden www.Dummies.com/go/iphone/apps from your phone. Find out “HOW” at Dummies.com *Sweepstakes not currently available in all countries; visit Dummies.com for official rules. Financial Accounting FOR DUMmIES‰ by Maire Loughran, CPA 001_9780470930656-ffirs.indd1_9780470930656-ffirs.indd i 33/8/11/8/11 111:291:29 PMPM Financial Accounting For Dummies® Published by Wiley Publishing, Inc. 111 River St. Hoboken, NJ 07030-5774 www.wiley.com Copyright © 2011 by Wiley Publishing, Inc., Indianapolis, Indiana Published by Wiley Publishing, Inc., Indianapolis, Indiana Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permit- ted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http:// www.wiley.com/go/permissions. Trademarks: Wiley, the Wiley Publishing logo, For Dummies, the Dummies Man logo, A Reference for the Rest of Us!, The Dummies Way, Dummies Daily, The Fun and Easy Way, Dummies.com, Making Everything Easier, and related trade dress are trademarks or registered trademarks of John Wiley & Sons, Inc. and/ or its affi liates in the United States and other countries, and may not be used without written permission. All other trademarks are the property of their respective owners. Wiley Publishing, Inc., is not associated with any product or vendor mentioned in this book. LIMIT OF LIABILITY/DISCLAIMER OF WARRANTY: THE PUBLISHER AND THE AUTHOR MAKE NO REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE ACCURACY OR COMPLETENESS OF THE CONTENTS OF THIS WORK AND SPECIFICALLY DISCLAIM ALL WARRANTIES, INCLUDING WITH- OUT LIMITATION WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE. NO WARRANTY MAY BE CREATED OR EXTENDED BY SALES OR PROMOTIONAL MATERIALS. THE ADVICE AND STRATEGIES CONTAINED HEREIN MAY NOT BE SUITABLE FOR EVERY SITUATION. THIS WORK IS SOLD WITH THE UNDERSTANDING THAT THE PUBLISHER IS NOT ENGAGED IN RENDERING LEGAL, ACCOUNTING, OR OTHER PROFESSIONAL SERVICES. IF PROFESSIONAL ASSISTANCE IS REQUIRED, THE SERVICES OF A COMPETENT PROFESSIONAL PERSON SHOULD BE SOUGHT. NEITHER THE PUBLISHER NOR THE AUTHOR SHALL BE LIABLE F OR DAMAGES ARISING HEREFROM. THE FACT THAT AN ORGANIZA- TION OR WEBSITE IS REFERRED TO IN THIS WORK AS A CITATION AND/OR A POTENTIAL SOURCE OF FURTHER INFORMATION DOES NOT MEAN THAT THE AUTHOR OR THE PUBLISHER ENDORSES THE INFORMATION THE ORGANIZATION OR WEBSITE MAY PROVIDE OR RECOMMENDATIONS IT MAY MAKE. FURTHER, READERS SHOULD BE AWARE THAT INTERNET WEBSITES LISTED IN THIS WORK MAY HAVE CHANGED OR DISAPPEARED BETWEEN WHEN THIS WORK WAS WRITTEN AND WHEN IT IS READ. For general information on our other products and services, please contact our Customer Care Department within the U.S. at 877-762-2974, outside the U.S. at 317-572-3993, or fax 317-572-4002. For technical support, please visit www.wiley.com/techsupport. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. Library of Congress Control Number: 2011924129 ISBN: 978-0-470-93065-6 Manufactured in the United States of America 10 9 8 7 6 5 4 3 2 1 001_9780470930656-ffirs.indd1_9780470930656-ffirs.indd iiii 33/8/11/8/11 111:291:29 PMPM About the Author Maire Loughran is a certifi ed public accountant and a member of the American Institute of Certifi ed Public Accountants. Her professional experi- ence includes four years of internal auditing for a publicly traded company in the aerospace industry, two years as an auditor in the not-for-profi t sector, and even some experience as a U.S. federal agent! Her public accounting experience includes fi nancial reporting and analysis, audits of private corpo- rations, accounting for e-commerce, and forensic accounting. Maire is a full adjunct professor who teaches graduate and undergradu- ate auditing, accounting, and taxation classes. Interested in many different business-related fi elds, she has written Auditing For Dummies (a Wiley pub- lication), a training manual for a Microsoft product, and a guide to starting a home-based business, as well as the Arts and Crafts Business Guide for About.com, a part of The New York Times Company. 001_9780470930656-ffirs.indd1_9780470930656-ffirs.indd iiiiii 33/8/11/8/11 111:291:29 PMPM 001_9780470930656-ffirs.indd1_9780470930656-ffirs.indd iviv 33/8/11/8/11 111:291:29 PMPM Dedication To my much-loved son Joey, who serves his country aboard the USS Harry S. Truman: I am prouder of you than mere words can ever describe. And to my late husband Jeff, so long gone from our lives but never absent from our hearts. Author’s Acknowledgments To the Ursuline nuns and Jesuit priests who provided me with a stellar edu- cation, and to my parents, who selfl essly footed the bill. To my agent, Barb Doyen, for all her hard work and support. And to the wonderful Joan Friedman, for all her fantastic advice, months of editing, and follow-through. 001_9780470930656-ffirs.indd1_9780470930656-ffirs.indd v 33/8/11/8/11 111:291:29 PMPM Publisher’s Acknowledgments We’re proud of this book; please send us your comments at http://dummies.custhelp.com. For other comments, please contact our Customer Care Department within the U.S. at 877-762-2974, out- side the U.S. at 317-572-3993, or fax 317-572-4002. Some of the people who helped bring this book to market include the following: Acquisitions, Editorial, and Media Composition Services Development Project Coordinator: Sheree Montgomery Project Editor: Joan Friedman Layout and Graphics: Melanee Habig, Acquisitions Editor: Tracy Boggier Corrie Socolovitch Assistant Editor: David Lutton Proofreaders: Laura L. Bowman, Technical Reviewers: Linda K. MacFarlane, CPA; John Greenough Karen Schuele, PhD, CPA Indexer: Broccoli Information Management Senior Editorial Manager: Jennifer Ehrlich Editorial Supervisor: Carmen Krikorian Editorial Assistant: Rachelle S.