Finance and Accounting for Lawyers, 2nd Edition
September 2020 Hardcover
Brian Brinig
Business Valuation Resources, LLC
The 2nd edition of this textbook serves as an introductory text for attorneys working with accounting and the business valuation world. It is the textbook used for a law school course of a similar title.
The principles of accounting and finance directly extend to contract issues, torts, business and securities matters, taxation issues, partnership disputes, gift and estate matters, to name only a partial list. These areas of jurisprudence are often based significantly on substantive financial questions, and their measurement can be the heart of the entire matter. The application of broad accounting principles to countless business transactions requires an understanding of the objectives of financial reporting and the needs of the users of financial information.
Contrary to popular belief, accounting is not a mathematical formula or calculation, but rather an organized system that logically summarizes business transactions into useable information that is meaningful to management, creditors, business investors and other stakeholders. This text takes readers through the system of accounting and the development of financial statements. Complexities and limitations of accounting information are explored, culminating in a study of ratio analysis of financial statements to glean relevant insights. The objective of this introductory study of accounting is to provide a broad, workable knowledge base that will facilitate the use of accounting information as it relates to the practice of law.
The finance and valuation chapters present concepts and calculations of simple and compound interest, present value and annuities. In the area of business valuation, the reader is exposed to Revenue Rulings 59-60 and 68-609, two seminal rulings on business valuation issues as well as a complete example and explanation of a small business valuation analysis.
Additional Details
Highlights of this expanded and updated text include:
- Three chapters on damages covering definitions, legal concepts underlying damages analyses and classifications of damages (general, special, economic, non-economic and punitive)
- A chapter devoted to personal economic loss calculations and another focuses on commercial damages
- A chapter dedicated to determining personal income
- A chapter on opinion evidence and expert testimony with consideration of the legal privileges applicable to experts and techniques for taking effective expert depositions and cross-examining experts at trial
Table of Contents
About the Author
Brian Peter Brinig, JD, CPA
Chapter 1. Accounting, Finance, and the Law
Introduction
A Quick History of Accounting
Introduction to Finance
Finance, Accounting, and the Law
Chapter 2. Accounting: An Introduction
Introduction
Overview
The Accounting Process
Generally Accepted Accounting Principles
Limitations of Accounting Information
Conclusion
Chapter 3. Double Entry Accounting System
Introduction
The Transaction
The Account
Debits and Credits
Double Entry Accounting System
Recording a Transaction
Posting to the General Ledger
Preparing the Trial Balance
Finalizing the Bookkeeping Process and Preparing Financial Statements
Preparing Financial Statements
Closing the Books
Further Discussion
Proprietorships Versus Corporations
The Relationship Between the Balance Sheet and the Income Statement
Conclusion
Chapter 4. Accrual Accounting
Introduction
Accrual Basis Accounting
The Realization Principle—The Theory Behind Revenue Recognition
The Matching Principle—The Theory Behind Expense Recognition
Violating the Realization Principle and the Matching Principle
Cash Basis vs. Accrual Basis
Accounts Receivable and Revenue Recognition
Converting From Cash to Accrual and From Accrual to Cash
Accounts Payable and Expenses
Prepaid Items and Deferred Revenue
Another Deferred Item—Taxes
Conclusion
Chapter 5. Fixed Assets and Depreciation
Introduction
Accounting for Fixed Assets
The Concept of Depreciation
The Mechanics of Depreciation Accounting
Methods of Depreciation
GAAP Versus IRS Depreciation
Gains and Losses on the Sale of Fixed Assets
Natural Resources and Depletion
Intangible Assets and Amortization
Conclusion
Chapter 6. Inventory Accounting and Cost of Goods Sold
Introduction
The Business Cycle as It Relates to Inventory
Inventory—The Basics
Two Types of Inventory Accounting
Methods of Costing Ending Inventory Under the Periodic Method
Comparison of the Differences in Methodologies
Errors in Inventory Accounting
Inventory in Manufacturing Companies
Conclusion
Chapter 7. Financial Statement Analysis
Introduction
Concepts for This Chapter
Methods of Financial Statement Analysis
Analysis of Financial Statements
Profitability Ratios
Solvency, Liquidity, and Leverage Ratios
Management and Activity Ratios
Conclusion
Chapter 8. Determining Personal Income (With Emphasis on California Family Law)
Introduction
Statutory Definitions of Income
Financial Definition of Income
Why Income Determination Is Confusing
Accrual Versus Cash Basis Accounting
Categories of Income
What Is Not Income
Income to the Individual
Income From the Ownership of a Business
The Difficult Problem of Income for Support
California Case Law of Income
The Lawyer’s Job: Arguing For or Against an Item of Income
Conclusion
Chapter 9. Introduction to Finance: The Time Value of Money
Introduction
Wealth, Capital, and Money
The Time Value of Money: Interest
Definition of Terms for This Chapter
Simple Interest
Compound Interest and the Time Value of Money
The Concept of Present Value
Regular Mortgage Loan Calculations
Advanced Mortgage Calculations
The Amortization Worksheet (BA II Plus Guidebook, Pages 21, 23, 25, and 26)
Ordinary Annuities (BA II Plus Guidebook, Pages 21-43)
Conclusion
Chapter 10. General Principles of Appraisal and Valuation of Businesses
Introduction
General Principles of Appraisal
Approaches to Determining Value
Standards of Value
Premise of Value
Valuing Small Businesses
Overview of the Business Appraisal Process
Possible Methods of Valuing a Business
Capitalization of Excess Earnings Method
Balance Sheet Review (Determination of Net Tangible Assets)
Adjustments Generally Required in the Analysis
Tax Consequences of Adjusting
Income Statement Review
Example: ACME Industries Inc.
Excess Earnings Analysis
Conclusion
Chapter 10, Appendix A. Sample Appraisal Report
Chapter 10, Appendix B. IRS Revenue Rulings
IRS Revenue Ruling 59-60
Revenue Ruling 68-609
Chapter 11. Damages
Introduction
Definition of Damages
Legal Concepts Underlying Damages
General Classifications of Damages
Specific Subcategories of Damages
Classifications and Categories of Damages
Spectrum of Damages Calculations
Damages in Contracts
Financial Concepts Underlying Damages Analyses
Conclusion
Chapter 12. Personal Economic Losses
Introduction
Different Types of Losses
Other Important Issues in Personal Economic Loss Calculations
Lost Earnings/Lost Earnings Capacity Analysis
Lost Earnings and Lost Earnings Capacity Distinguished
Conceptual Framework of a Lost Earnings Capacity (LOE) Analysis
Graphic Presentation of a Lost Earnings Capacity Analysis
Calculating a Plaintiff’s Lost Earnings Capacity
Mitigating Earnings
Loss of Household Services
Medical, Life Care, and Other Expenses
Conclusion of Example
Personal Consumption
Conclusion
Chapter 12 Appendix. Discount Rate Calculations
Net Discount Rate Method (NDR)
Chapter 13. Commercial Damages
Introduction
Damages From Breach of Contract
Commercial Damages From Torts
Lost Profits as Damages
Calculating Lost Profits Damages
Discounting Future Lost Profits
Another Issue: Date of Valuation
Conclusion
Chapter 14. Opinion Evidence and Expert Testimony
Introduction
Opinion Evidence
The Attorney’s Role Versus the Expert’s Role Generally, and the Financial Expert Specifically
Legal Privileges Relating to Expert Witnesses
Using and Opposing Experts in Litigation
Taking Effective Expert Depositions
The Effective Expert Deposition
Eliciting Opinion Evidence at Trial
Cross-Examination
Conclusion
Look Inside the Guide
