Accounting Class

In My Humble Opinion
1

I am taking a master’s level accounting class and unfortunately have no real accounting experience. At my job I have to deal with budgets and occasionally look at balance sheets. That is the extent of my knowledge.

As you can imagine the class is rather difficult for me. All of my assignments center around a fake company. I am supposed to analyze their financial positions by looking at a variety of income sheets and other statements. I am supposed to do things like a horizontal/vertical analysis and trend analysis. I feel like in theory it all makes sense and when I read the books I am clear on what to do. But when I try to write my papers I get frustrated.

Any advice on how to proceed?

2

Advice is best suited to IMHO.

Colibri
General Questions Moderator

3

Hate to start with the obvious, but have you spoken to your professor?

4

I have through email and he offered me a PPT that sort of summarizes the task instructions. On my own I’ve found some youtube videos that are pretty good and I think will help.

I guess I am hoping for some sort of magic bullet when there isn’t one. Instead of studying I am posting here, haha.

5

nm duplicate post.

6

I’d suggest you go to the school book store or another university book store and pick up the text book for whatever Accounting 101 class is being offered this semester. It’ll walk you through Profit & Loss Statements, Balance Sheets, Two Column Accounting and probably everything else you need to know for this class, but it’ll do it like you’re a 19 year old drunk (or a 40 year old in night school just tying to boost your career). It’ll do it just like you’re talking about with fake companies, little scenarios, mini budgets etc, but it might be easier to get through then a master’s level book.

7

That’s good advice. A lot of the material I have assumes I know the basics. But can I do it like a 40 year old drunk? ha

8

I said 40 year old in night school OR 19 year old drunk, you can pick one.

9

The only real advice I have is to get the book open in front of you and follow the steps. Don’t think about it too hard - just follow the procedure. The thinking comes before and after the procedure (because you have to choose the right procedure and then analyze/check the results) but the procedure itself is usually a fairly mechanical process.

Other than that, see if you can find a study group. Watching other people do it is invaluable for many people.

10

I strongly recommend this book. It helped me out in a very similar situation.

11

Thanks Dracoi and Picker. I am going to order that book.

12

If it isn’t clear, what they want you to do is run the financial ratios and then evaluate based off those. There are tons of articles and books out there that say “if the net cash flow for operations is going down while the net cash flow from investing is going up, that isn’t a good sign.” At its most basic, its pretty formulaic. For a masters class, you might actually have to find insight.

If you haven’t already run the ratios, order the book picker recommended, google financial ratios, and run them for as far back as you have statements. Put them all in a spreadsheet. When the book arrives, it will help translate those into “they are holding onto too much inventory and carrying too much debt.”

13

Dangerosa, that’s exactly what I have to do. Run ratios for the statements and then interpret the results. Thanks.

14

Actually I have an excel workbook that has the ratios run. I am just supposed to interpret them and assess the health of the company.

15

I went looking, but I don’t have my cheat sheet notes from that class on “if this ratio is greater than 1 it tends to be good, if this one is less than 1 and this one is also less than 1, its usually bad.”

(It was a little more complicated than that.)

16

I appreciate the effort! And I was afraid it was a little more complicated than that, haha.

17

You must be much smarter than me. I am in accounting 101 and we just started getting into this horizontal/vertical analysis. I kind of see accounting as a bit like learning a language; you have to have a foundation and you then build upon it. I couldn’t imagine trying to do this kind of analysis without a solid understanding of debits and credits, the basic accounting equation and balance sheet effects. If you are able to get through the class at all I am very impressed; usually they require prerequisites.

18

I doubt I am smarter. I do have some “real world” experience which will help me some. And frankly I am never going to be an accountant. I don’t need to be an expert at this. I just need to be able to understand financial statements and talk the talk.

19

Not much though - most of it is darn obvious.

My earlier example - an established company is not getting most of its cash flow from operations - most of their cash flow is coming from the sale of PP&E or divestitures - that obviously isn’t a good sign - you want cash to come from what you DO (unless you are Berkshire Hathaway or something which does investing as a pretty big part of their business).

If the current ratios are barely enough to cover the bills - not good…if they are too high however, the company has a lot of short term assets (usually cash) and should probably have a plan to utilize it better (which is why you look at trends and the overall picture - sometimes when you close books there is a weird blip where you have a ton of cash that you just haven’t moved into something better yet.)