Accounting Crash Course 2025 | Complete Guide to
Financial & Managerial Accounting | Real Practice
Problems + Answer Key
Basic EPS
(Net Income - Preferred Dividends)/(Weighted Average of Shares Outstanding)
numerator: net income to common shareholders. Shares outstanding are basic shares
Diluted EPS
[(Net Income - Preferred Dividends) + Convertible Preferred Dividends + Convertible Debt
Interest * (1-t)] / [Weighted Average Shares + Shares from Conversion of Preferred Shares +
Shares from Converted Debt + Shares from Issuable Stock Options]
Diluted Shares
- Total # of shares outstanding fluctuates as shares from other securities (options and preferred)
are converted or company repurchases shares
- § Diluted shares outstanding include the impact of dilutive security holders that expand their
share base, like stock option holders and preferred shareholders that can convert their preferred
shares to common stock
· Securities can be converted into common stock include:
o Stock options and warrants (right to buy shares at a predetermined price)
o Convertible preferred stock
o Convertible debt
Accrual accounting
- Revenues are recognized and recorded when an economic exchange occurs, while expenses are
recognized when the associated revenues are recognized, not necessarily when cash is
exchanged. By matching, this more accurately depicts company's operating results.
- When the product is sold, we then identify the cost. Even though you may have paid for the
product / COGS of product long before, only recognize these expenses in I/S when revenue is
generated
COGS
- Includes inventory used during the year
- Includes depreciation / amort of assets that relate to the production or manufacturing of goods
,- Even if you purchased 60M in inventory, but only use 40M in inventory, COGS is only 40
because of matching principle
Gains/ losses on sale of assets
- Reflected in the I/S. Usually as 'non-operating income / loss'
SG&A
- Includes depreciation / amort when the asset relates to operating expenses
EBIT
- Operating income. Income after COGS, operating expenses, any expenses tied to operations
Interest Expense
- Loan borrowing or principal paydowns are not captured in the interest expense on I/S. Only the
interest expense associated with loan borrowing is reflected in the I/S
Current Assets
- Assets that can be converted into cash within 12 months
Intangible assets
- frequently have an indefinite useful life
Retained earnings
- Net Income - Dividends
- Total company earnings or losses since inception less dividends
- Decreases from dividends, depreciation expense, loss on assets
-Is unaffected by share buybacks, capex, or debt repayments since these have nothing to do with
company's accumulated profits. Different parts of capital structure. Not impacted by financing
activities
- Adds or subtracts from cumulative value of the business. More profit serves a source of funds
so we can carry more resources
- used to reinvest in the business or pay down debt
Treasury stock within equity
- Contra account
- Repurchasing shares is a debit to treasury stock which decreases equity, reissuing treasury stock
is a Credit to treasury stock which increases equity
Asset debit vs credits
, - Asset increases = debit, decreases = credit
- Prepaid assets is a contra-account. A debit to prepaid assets still increases PA, and credit
decreases. Cash is debited, prepaid assets is credited. Over time, prepaid assets is credited
(decreases), shows up as an expense on retained earnings.
Basic vs Diluted shares
Liability credits vs debits
- Credit is an increase, debit is a decrease
- for treasury stock: shown on the balance sheet statement as a negative number. More negative =
more treasury stock purchased. Treasury stock purchase is a debit to treasury stock SINCE
DEBITS DECREASE LIABILITIES
Gain on sale (in terms of net book value and sale price)
= sale price - net book value
Net PPE
= gross PPE - accumulated depreciation
- salvage value is irrelevant in this calculation
What happens to gross PPE / accumulated depreciation /net PPE: Sale of asset with gross
PP&E of $600 million for $500 million and useful life of 3 years and no salvage value.
Recorded a gain on sale of $300 million
- Gross PPE decreases by the value that you bought the asset for ($600 million)
- Gain on sale implies that the net PPE from this asset is only $200 million, meaning it has
depreciated by $400. This is subtracted from accumulated depreciation now since the asset is
sold
- Affect on net PPE is -600 + 400 so -200
Write-off of PPE effect on gross PPE / accumulated depreciation / net PPE: Write off of
asset with gross PP&E of $400 million. Asset was purchased 3 years ago with original
useful life of 4 years and salvage value of $200 million.
- Gross PPE decreases by 400
- accumulated depreciated decreases by 150
- net PPE is decrease of 250
- can also view it as net PPE decreases by the net book value of the asset (gross value - all
depreciation of the asset)
Gross PPE
- Decreases from sale of PPE or write offs. Important to track to calculate depreciation expense
Financial & Managerial Accounting | Real Practice
Problems + Answer Key
Basic EPS
(Net Income - Preferred Dividends)/(Weighted Average of Shares Outstanding)
numerator: net income to common shareholders. Shares outstanding are basic shares
Diluted EPS
[(Net Income - Preferred Dividends) + Convertible Preferred Dividends + Convertible Debt
Interest * (1-t)] / [Weighted Average Shares + Shares from Conversion of Preferred Shares +
Shares from Converted Debt + Shares from Issuable Stock Options]
Diluted Shares
- Total # of shares outstanding fluctuates as shares from other securities (options and preferred)
are converted or company repurchases shares
- § Diluted shares outstanding include the impact of dilutive security holders that expand their
share base, like stock option holders and preferred shareholders that can convert their preferred
shares to common stock
· Securities can be converted into common stock include:
o Stock options and warrants (right to buy shares at a predetermined price)
o Convertible preferred stock
o Convertible debt
Accrual accounting
- Revenues are recognized and recorded when an economic exchange occurs, while expenses are
recognized when the associated revenues are recognized, not necessarily when cash is
exchanged. By matching, this more accurately depicts company's operating results.
- When the product is sold, we then identify the cost. Even though you may have paid for the
product / COGS of product long before, only recognize these expenses in I/S when revenue is
generated
COGS
- Includes inventory used during the year
- Includes depreciation / amort of assets that relate to the production or manufacturing of goods
,- Even if you purchased 60M in inventory, but only use 40M in inventory, COGS is only 40
because of matching principle
Gains/ losses on sale of assets
- Reflected in the I/S. Usually as 'non-operating income / loss'
SG&A
- Includes depreciation / amort when the asset relates to operating expenses
EBIT
- Operating income. Income after COGS, operating expenses, any expenses tied to operations
Interest Expense
- Loan borrowing or principal paydowns are not captured in the interest expense on I/S. Only the
interest expense associated with loan borrowing is reflected in the I/S
Current Assets
- Assets that can be converted into cash within 12 months
Intangible assets
- frequently have an indefinite useful life
Retained earnings
- Net Income - Dividends
- Total company earnings or losses since inception less dividends
- Decreases from dividends, depreciation expense, loss on assets
-Is unaffected by share buybacks, capex, or debt repayments since these have nothing to do with
company's accumulated profits. Different parts of capital structure. Not impacted by financing
activities
- Adds or subtracts from cumulative value of the business. More profit serves a source of funds
so we can carry more resources
- used to reinvest in the business or pay down debt
Treasury stock within equity
- Contra account
- Repurchasing shares is a debit to treasury stock which decreases equity, reissuing treasury stock
is a Credit to treasury stock which increases equity
Asset debit vs credits
, - Asset increases = debit, decreases = credit
- Prepaid assets is a contra-account. A debit to prepaid assets still increases PA, and credit
decreases. Cash is debited, prepaid assets is credited. Over time, prepaid assets is credited
(decreases), shows up as an expense on retained earnings.
Basic vs Diluted shares
Liability credits vs debits
- Credit is an increase, debit is a decrease
- for treasury stock: shown on the balance sheet statement as a negative number. More negative =
more treasury stock purchased. Treasury stock purchase is a debit to treasury stock SINCE
DEBITS DECREASE LIABILITIES
Gain on sale (in terms of net book value and sale price)
= sale price - net book value
Net PPE
= gross PPE - accumulated depreciation
- salvage value is irrelevant in this calculation
What happens to gross PPE / accumulated depreciation /net PPE: Sale of asset with gross
PP&E of $600 million for $500 million and useful life of 3 years and no salvage value.
Recorded a gain on sale of $300 million
- Gross PPE decreases by the value that you bought the asset for ($600 million)
- Gain on sale implies that the net PPE from this asset is only $200 million, meaning it has
depreciated by $400. This is subtracted from accumulated depreciation now since the asset is
sold
- Affect on net PPE is -600 + 400 so -200
Write-off of PPE effect on gross PPE / accumulated depreciation / net PPE: Write off of
asset with gross PP&E of $400 million. Asset was purchased 3 years ago with original
useful life of 4 years and salvage value of $200 million.
- Gross PPE decreases by 400
- accumulated depreciated decreases by 150
- net PPE is decrease of 250
- can also view it as net PPE decreases by the net book value of the asset (gross value - all
depreciation of the asset)
Gross PPE
- Decreases from sale of PPE or write offs. Important to track to calculate depreciation expense
