Accounting for Financial Modeling

Identify how the balance sheet reveals a company’s financial position by detailing assets, liabilities, and equity, and show how uses of funds balance with sources of funds.

focus on current assets, especially cash and cash equivalents, including highly liquid investments and marketable securities, and their aggregation as cash for financial modeling.

Explore accounts receivable and its impact on financial statements, recognizing revenue on credit, recording receivables as current assets, and understanding accrual accounting through a credit sale example.

Analyze how inventory is formed and valued using FIFO, LIFO, weighted average, and specific identification, and how these methods impact COGS, gross profit, and balance sheet figures via examples.

Recognize prepaid expenses as assets funded by upfront payments and expense them as benefits are realized, illustrated by spreading a four-month insurance policy over its term.

Analyze property, plant and equipment (PPE) and related concepts, including depreciation (straight line and accelerated), impairment and write-downs, asset write ups, IFRS reevaluation, and PPE sale gains or losses.

Examine intangible assets from research and development, balance sheet reporting, and amortization under US GAAP vs IFRS, including software development costs.

Goodwill records the premium over the fair value of net assets in an acquisition, an indefinite-life intangible. It undergoes annual impairment tests; AT&T recognized about 10.5 billion in 2020.

Examine the liability side of the balance sheet by analyzing accounts payable and accrued expenses, their current-liability classification, and related examples.

Learn how deferred revenue represents customer prepayments recorded as a liability until delivery, with recognition timelines, balance sheet and cash flow effects, and industry examples like airlines and software.

Explore debt financing fundamentals, distinguishing debt from equity, and examine short- and long-term debt, revolvers, term loans, bonds, covenants, interest, and repayment schedules with a Boeing example.

Examine stockholders' equity components, including preferred stock, common stock, retained earnings, additional paid in capital, and treasury stock, along with par value, dividends, and other comprehensive income.

Master double entry accounting by linking debits and credits to assets, liabilities, and equity through t accounts. Tie revenue and expenses to net income and retained earnings.

Construct year-one balance sheet for an ice cream business by calculating current and non-current assets, depreciation, liabilities, equity, and cash flows from operations, investing, and financing.

Build year two income statement and balance sheet using fifo for cogs, with revenue from 9000 ice creams at 14 and costs including depreciation, amortization, rent, impairment, and r&d.

Compute year two balance sheet by calculating accounts receivable, fifo inventory, trademark, stands, warehouse, current and long-term liabilities, and stockholders' equity.

Learn how the cash flow statement reconciles net income from accrual accounting with cash from operating, investing, and financing activities, and compares indirect and direct methods within a sources-and-uses framework.

Apply the indirect method to build a cash flow statement from net income, adjusting for depreciation, impairment, and changes in accounts receivable and payable to reveal ending cash.

Demonstrate year three's financials by compiling the income statement, balance sheet, and cash flow statement, recognizing revenue from pre-payment for ice creams and new sales, and computing related COGS.

Learn how stock based compensation uses stock options and vesting schedules to create exercisable rights, influences earnings per share and diluted EPS, and is disclosed in annual reports.

Examine restricted stock and restricted stock units as stock-based compensation, covering grant, vesting, holding periods, voting rights, dividends, and EPS effects, with Airbnb reporting details.

Learn how to account for stock based compensation, including stock options and restricted stocks, by valuing grants at fair value, amortizing over vesting, and recognizing non-cash expense in equity.

Understand how restricted stocks are granted and vest, calculate fair value, and record journal entries for common stock and deferred compensation, tracking impacts on retained earnings and cash flows.

Explore how tax expense and deferred tax expense or benefit arise from differences between tax rules and accounting rules, and how depreciation methods affect cash taxes and deferred tax liabilities.

Explore how the five-year maker's schedule accelerates depreciation in the United States, compare tax versus GAAP depreciation, and analyze the resulting deferred tax liability and cash flow effects.

Explore net operating losses and how they create deferred tax assets on balance sheet, showing how tax benefits offset taxable income and affect tax expense versus cash taxes.

Examine how deferred tax assets are reported and reduced by a valuation allowance on the balance sheet and income statement, using net operating losses and changing tax rates as examples.

Explore how debt issuance costs affect debt financing accounting, covering revolvers, commitment fees, interest payments in cash and in kind, amortization, and net debt presentation.

Explore how commitment fees on a revolving credit facility are capitalized as an asset and amortized over the revolver’s term, impacting the income statement, balance sheet, and cash flows.

Explore payment-in-kind loans, subordinated to senior and mezzanine, where interest accrues and adds to principal, with repayment at end, and see impact on income statement, balance sheet, and cash flow.

Learn how capitalized interest adds to asset cost during construction, is depreciated over the asset’s life, and affects the income statement, balance sheet, and cash flows in project finance.

Learn how bonds are issued at discount or premium, how original issue discount and premium affect interest expense through amortization of coupon payments, and implicit discount rates drive cash flows.

Explore how original issue discount and premium create deferred tax assets and liabilities through timing differences between tax expense and cash taxes payable in a four-year bond example.

Master operating lease accounting by recognizing a right-of-use asset and lease liability, applying net present value with a discount rate to compute implied interest expense and depreciation.

Examine operating lease accounting with four-year payments at the beginning of each year, calculating net present value, lease expense, lease liability, and right-of-use asset at a 10% discount rate.

Record a finance lease as an asset and liability using the net present value of payments. Apply straight-line amortization and interest expense in the income and cash flow statements.

Analyze investment accounting by ownership: cost or fair value under 20%, equity method 20-50%, consolidation above 50%, and marketable securities classified as trading, available for sale, or held to maturity.

Explore how the equity method accounts for investees with significant influence (20–50%), adjusting the balance sheet value for affiliate net income and dividends, with a step-by-step example.

When purchase price exceeds book value, a fair value write up to investee assets occurs, with amortization or depreciation reducing affiliate net income and investment balance under the equity method.

Examine how under equity method accounting affiliate income and dividends face taxes, including dividends received deduction and its 7.65% effective rate, deferred tax liabilities, and effects on cash taxes.

Explore the acquisition method and consolidation, including how cash transactions, debt repayment, and equity elimination shape the pro-forma balance sheet for a full-control acquisition.

Explore non-controlling interest in partial acquisitions, including minority equity on the consolidated balance sheet and allocating net income to non-controlling shareholders, with dividends reflected in financing activities.

Learn to revalue the target's assets and liabilities to fair value at acquisition, allocate the purchase price to net assets, and assess goodwill, noncontrolling interest, and control premium effects.