Moscow Institute of Physics and Technology

Core Concepts of Accounting – Numbers and People

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Course 3 of 5 in the Specialization Understanding Modern Finance

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.

From the lesson

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.

Introduction3:38

Meet the Instructors

Konstantin Kontor
Director and Professor of Finance and Strategy
American Institute of Business and Economics (AIBEc)

My name is Konstantin Kontor.

I am director and professor of finance at

the American Institute of Business and Economics in Moscow.

And now, I'm offering to you my course in accounting.

The third course in

the financial series of our specialization understanding more than finance.

Well, strictly speaking, this is not a course in accounting.

You can say, "How come?"

Well, it's rather a set of chapters in accounting that are

instrumental in our proper application of

valuation procedures and value creating strategies.

Well, it seems to be an offensively pragmatic approach.

Well, we pursue it not because we have to

explore the limitless area over a limited amount of time.

Rather, we just pursue a different goal.

As always in this specialization,

we pursue understanding mainly instead of

going deeper in the details of financial procedures and financial statements.

We see how the internal links and the ways these things are being

prepared influence the final result in the valuation of the investment projects.

And on this path,

we identify or discover if you will some interesting things.

First of all, we see that financial accounting allows us to better

forecast the future cash flows and the analysis of financial statements not

only provides data for the inputs and valuation but also

signals some performance trends that sometimes

are even more important than the inputs themselves.

We study managerial accounting and we see that the analysis of costs allows us to better

understand what are the value drivers

that contribute to the utmost value of investment projects.

We also see that managerial accounting studies

the behavior of people who are key in these projects.

And there are certain ways to quantify

these processes and we see that it is the coordination,

communication and some other important areas that allow us to increase the probability

of converting nice forecasts into actual nice bottom line.

As always in my courses,

we focus on what adds value to

your careers both in finance and accounting and well beyond.

And here this is the understanding or the cause and effect links,

these processes of coordination,

this revealing the interaction between people and numbers

that is actually important and instrumental in progress seeing.

As a nice by-product,

most of the things that we study in

managerial accounting can be easily applied in the vast area of

project management not only in budgeting but

also in the implementation and quality control and others.

And we do so without overemphasizing

control over emphasizing control ability if you will without scaring off people.

Instead we get them involved in these processes.

Well, I invite you all into the journey over the land of financial statements,

costs, and budget numbers. Good luck.