About this course: Whenever the word “accounting” is pronounced, it is immediately associated with the need to memorize endless boring numbers. However, it is the common financial statements that contain important information that provides inputs for valuation of investment projects. The only challenge is how to properly extract them. Accounting and finance are indeed intertwined. Sometimes people that are not experienced in the area even mix them up. But most often emphasis in accounting is on numbers. Still, the deep understanding of key accounting concepts helps reveal the interests and actions of people behind these numbers. And the human dimension of accounting adds invaluable insight in the potential of successful project implementation. This Course discusses core ideas and concepts of both financial and managerial accounting. It by no means pretends to be comprehensive to any extent. But, being rather an accounting overview, it focuses on the issues that are most relevant and important for effective valuation of investment projects. The learners will gain insight into the essence of accounting. They will be able to use the obtained knowledge and skills to successfully advance in their career at a financial institution, as well as in the area of financial management at non-financial businesses. To pursue a career in accounting, a more detailed study is strongly recommended.
Who is this class for: The Course is designed for a wide audience of those interested in finance and accounting either professionally or just of curiosity. The audience includes managers of different levels – from top to line – specializing in finance, accounting, business planning, strategy, consulting, and project management. It will be of interest to the IT specialists engaged in the area of finance, accounting, fintech, big data, valuation etc. The Course might also add value to the students and instructors, and to anyone willing to better understand the core accounting ideas, approaches, and models, as well as the opportunities to properly apply them in finance.
Created by: Moscow Institute of Physics and Technology, American Institute of Business and Economics
Taught by: Konstantin Kontor, Director and Professor of Finance and Strategy
American Institute of Business and Economics (AIBEc)
| Basic Info | Course 3 of 5 in the Understanding Modern Finance Specialization |
| Level | Intermediate |
| Language | English |
| How To Pass | Pass all graded assignments to complete the course. |
Syllabus
WEEK 1
Financial Accounting – Basic Principles. Transaction Analysis. Income Recognition. Accounting for Current Assets
In Week 1 we discuss the scope of accounting and its two major areas – financial and managerial accounting. In the first part of the Course – Weeks 1 through 3 – we talk about financial accounting (FA). First, the key financial statements – the Balance Sheet (BS), the Income Statement (IS), and the Statement of Cash Flows (SCF) – are introduced, and the accounting equation is analyzed.
Then we move on to the basic accounting principles, standards, and approaches – from double-entry bookkeeping to GAAP. Equipped with the general understanding of the financial accounting approach, we apply accounting procedures to transaction analysis. Then we study revenue and expense recognition, and focus on accounts receivable and bad debts. Finally, you will learn how financial accounting deals with inventories.
12 videos, 11 readings, 1 practice quiz
- Reading: Konstantin Kontor
- Reading: AIBEc. The American Institute of Business and Economics
- Video: Introduction
- Reading: Grading
- Reading: Handouts – an important comment
- Video: 1.1. Why study accounting?
- Video: 1.2. What is accounting? Financial vs. managerial accounting
- Video: 1.3. Key financial statements – BS, IS, SCF
- Video: 1.4. Accounting principles. GAAP
- Video: 1.5. Double-entry bookkeeping
- Video: 1.6. Transaction analysis – an example
- Video: 1.7. Revenue and expense recognition
- Video: 1.8. Cash and accounts receivable
- Video: 1.9. Accounting for inventories (1) – cost travel
- Video: 1.10. Accounting for inventories (2) – cost of goods sold
- Video: 1.11. Accounting for inventories (3) – FIFO, LIFO, LCM
- Reading: 1.1. Financial accounting basics
- Reading: 1.2. Accounting record-keeping
- Reading: 1.3. Transaction analysis – an example
- Reading: 1.4. Revenue and expense recognition – an overview
- Reading: 1.5. Accounting for uncollectibles
- Reading: 1.6. Accounting for inventories (1) – cost travel
- Reading: 1.7. Accounting for inventories (2) – basic concepts. FIFO, LIFO, LCM
- Practice Quiz: 1 (Practice)
- Discussion Prompt: Open Question 1
Graded: 1 - Basic accounting procedures for current assets
WEEK 2
Operational Assets. Depreciation. Short-Term Investments. Long-Term Liabilities. Shareholders’ Equity. Some Tax Issues
Week 2 is devoted to long-term assets and liabilities. We start with operational assets and see the role of depreciation and amortization in financial accounting and compare it to the way depreciation is used in valuation of investment projects.
Then we discuss how financial investments in securities – stocks and bonds – are treated in accounting dependent upon goals and time horizon of holding and/or issuing of these securities. You will see how financial concepts (present values) are used in accounting for bond premium/discount amortization. Finally, an overview of the accounting approach to taxes is provided. On an example, you will study the core idea of deferred taxes.
12 videos, 5 readings, 1 practice quiz
- Video: 2.1. Operational assets – types and accounting approach
- Video: 2.2. Depreciation
- Video: 2.3. Depreciation tax shield
- Video: 2.4. Intangible assets – accounting and amortization
- Video: 2.5. Short-term investments in bonds
- Video: 2.6. Short-term investments in stocks
- Video: 2.7. Bonds (1) – parameters and accounting approach
- Video: 2.8. Bonds (2) – amortization of premium/discount
- Video: 2.9. Equity (1) – accounting for common and preferred stock
- Video: 2.10. Equity (2) – treasury stock and stock dividends
- Video: 2.11. Accounting for taxes – an overview
- Video: 2.12. Deferred taxes – an example
- Reading: 2.1. Operational assets
- Reading: 2.2. Depreciation tax shield
- Reading: 2.3. Accounting for long-term liabilities
- Reading: 2.4. Accounting for shareholders’ equity
- Reading: 2.5. Accounting for income taxes – an overview
- Practice Quiz: 2 (Practice)
Graded: 2 - Depreciation, amortization, and deferred items
WEEK 3
The Statement of Cash Flows. Analysis and Use of Financial Statements. Financial Accounting and Project Valuation
In Week 3 of the Course we discuss the idea and format of the Statement of Cash Flows and use examples to delve deeper in its role and importance. Special attention is paid to the use of financial accounting inputs – cash flows, net income, and investments – in valuation.
Then we briefly discuss the analysis and use of financial statements as a powerful tool in the overall assessment of performance, financial stability, and future development of a company or investment project. Finally, wrapping up the first part of the Course, we draw conclusions about the role of financial accounting in financial valuation in the world of uncertainty.
12 videos, 3 readings, 1 practice quiz
- Video: 3.1. The statement of cash flows (SCF) – idea and format
- Video: 3.2. SCF – Example 1
- Video: 3.3. SCF – a more advanced Example 2 (1)
- Video: 3.4. SCF – a more advanced Example 2 (2)
- Video: 3.5. Valuation revisited – cash flows, net income, and FCF
- Video: 3.6. Comparison of interest treatment in SCF and FCF
- Video: 3.7. The big question – why use earnings?
- Video: 3.8. Analysis and use of financial statements – an overview
- Video: 3.9. Ratio analysis (1) – current position and performance
- Video: 3.10. Ratio analysis (2) – capital structure
- Video: 3.11. Ratio analysis (3) – operating performance
- Video: 3.12. Financial accounting and valuation – conclusions
- Reading: 3.1. The statement of cash flows (1) – the idea and format
- Reading: 3.2. The statement of cash flows (2) – an example
- Reading: 3.3. Analysis and use of financial statements – an overview
- Practice Quiz: 3 (Practice)
- Discussion Prompt: Open Question 2
Graded: 3 - SCF inputs and ROI ratios
WEEK 4
Managerial Accounting – Core Ideas. Cost Behavior. Direct and Indirect Costs. Indirect Cost Allocation
Weeks 4 through 6 of the Course are devoted to the issues of managerial accounting. First, we introduce the key ideas of managerial accounting, and compare it to the financial accounting. We focus on the much closer link of managerial accounting to people.
Then the core idea of managerial accounting – cost – is introduced and discussed. You will learn why it is so important to identify the total cost of any product, project, or division. We will study cost behavior, fixed and variable costs, and break-even point.
The last part of Week 3 discusses cost tracing and allocation as a major task of any in-depth cost analysis. We study an example and come up with the tracing and allocation roadmap.
12 videos, 4 readings, 1 practice quiz
- Video: 4.1. What is managerial accounting? Key ideas
- Video: 4.2. Managerial vs. financial accounting – a comparison
- Video: 4.3. Systems of managerial accounting
- Video: 4.4. Introduction to costs – major terms
- Video: 4.5. Cost behavior
- Video: 4.6. Total cost – concept and information
- Video: 4.7. Direct and indirect costs
- Video: 4.8. Indirect cost allocation
- Video: 4.9. Cost allocation example (1) – initial cost allocation
- Video: 4.10. Cost allocation example (2) – cost re-allocation
- Video: 4.11. Cost allocation example (3) – cost allocation rates
- Video: 4.12. The tracing and allocation roadmap
- Reading: 4.1. The nature of managerial accounting
- Reading: 4.2. Cost behavior
- Reading: 4.3. Total cost (1) – the concept. Direct and indirect costs
- Reading: 4.4. Total cost (2) – direct costs measurement and overhead allocation
- Practice Quiz: 4 (Practice)
- Discussion Prompt: Open Question 3
Graded: 4 - Cost behavior and cost allocation
WEEK 5
Activity-Based Costing (ABC). Relevant Costs
In Week 5 we will study the more advanced approaches to costing – activity-based costing (ABC) and relevant costs – that provide for the more accurate costing of products, projects, and divisions, and allow to reveal actual relationship between numbers and people.
We start with the analysis of ABC on an example of a small retail firm. Then we move on to the more detailed example of the use of ABC in manufacturing. Both examples will help us gain insight in the role of ABC in identifying ways to improve performance.
Finally, we analyze the idea of relevant costs and its application to managerial actions –make-or-buy decisions, product mix under capacity constraints, customer profit analysis. Of special attention will be the role of relevant and opportunity costs in valuation.
12 videos, 8 readings, 1 practice quiz
- Video: 5.1. Activity-based costing (ABC) – an overview
- Video: 5.2. ABC for a retail firm (1)
- Video: 5.3. ABC for a retail firm (2)
- Video: 5.4. ABC in manufacturing (1)
- Video: 5.5. ABC in manufacturing (2)
- Video: 5.6. Insights provided by ABC
- Video: 5.7. Relevant costs – an idea
- Video: 5.8. Make-or-buy decisions (1)
- Video: 5.9. Make-or-buy decisions (2)
- Video: 5.10. Product mix under capacity constraints
- Video: 5.11. Customer profit, ABC, and relevant costs
- Video: 5.12. Irrelevance of past costs
- Reading: 5.1. Activity-based costing (1) – ABC for a retail firm
- Reading: 5.2. Activity-based costing (2) – ABC in manufacturing
- Reading: 5.3. Insights provided by ABC
- Reading: 5.4. The concept of relevance
- Reading: 5.5. Outsourcing and make-or-buy decisions
- Reading: 5.6. Product mix under capacity constraints
- Reading: 5.7. Customer profit, ABC, and relevant costs
- Reading: 5.8. Irrelevance of past costs
- Practice Quiz: 5 (Practice)
- Discussion Prompt: Open Question 4
Graded: 5 - Costs, activities, and relevance
WEEK 6
Budgets and Responsibility Accounting. Accounting and Valuation – Final Conclusions
Week 6, the final week of the Course, is devoted to the discussion of budgets and responsibility accounting as powerful tools of improving efficiency and quality of managerial decision making. A comprehensive example of preparing the operational budget will help reveal the interdependence of different areas of management in the budgeting process.
We will also discuss responsibility accounting in some more detail to follow relationships between decision makers, processes, and results – or, as we call it, numbers and people. We will comment on some major trends in approaching budgeting in the fast changing, uncertain, and complex world.
Finally, we summarize the contribution of accounting to the valuation of investment projects. As a result, you will be able to successfully apply the obtained knowledge and skills well beyond accounting, but in any financial and managerial area.
12 videos, 4 readings
- Video: 6.1. Budgets – an overview. The budgeting cycle
- Video: 6.2. Budgets, planning and project management
- Video: 6.3. The master budget – an idea
- Video: 6.4. Operational budget – the data (1)
- Video: 6.5. Operational budget – the data (2)
- Video: 6.6. Preparing operational budget (1)
- Video: 6.7. Preparing operational budget (2)
- Video: 6.8. Preparing operational budget (3)
- Video: 6.9. Preparing operational budget (final steps)
- Video: 6.10. Budgeting and responsibility accounting
- Video: 6.11. Changes in budgeting – major trends
- Video: 6.12. Accounting and valuation – final conclusions
- Reading: 6.1. Budgets – ideas, roles, and advantages
- Reading: 6.2. Preparing operating budget (1) – the data
- Reading: 6.3. Preparing operating budget (2) – the road map
- Reading: 6.4. Budgets and responsibility accounting
- Discussion Prompt: Open Question 5
Graded: Final Test
Graded: Project essay
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Moscow Institute of Physics and Technology
Московский физико-технический институт (неофициально известный как МФТИ или Физтех) является одним из самых престижных в мире учебных и научно-исследовательских институтов. Он готовит высококвалифицированных специалистов в области теоретической и прикладной физики, прикладной математики, информатики, биотехнологии и смежных дисциплин. Физтех был основан в 1951 году Нобелевской премии лауреатами Петром Капицей, Николаем Семеновым, Львом Ландау и Сергеем Христиановичем. Основой образования в МФТИ является уникальная «система Физтеха»: кропотливое воспитание и отбор самых талантливых абитуриентов, фундаментальное образование высшего класса и раннее вовлечение студентов в реальную научно-исследовательскую работу. Среди выпускников МФТИ есть Нобелевские лауреаты, основатели всемирно известных компаний, известные космонавты, изобретатели, инженеры.
American Institute of Business and Economics
The American Institute of Business and Economics (AIBEc) offers a wide variety of business courses in finance, accounting, marketing, strategy, HR, business law, economics, general management, business psychology, as well as course projects and the Field study. AIBEc provides for flexibility and customization of programs and schedules.
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