Generally Accepted Accounting Principles question
You recognize expense when you sell the hot dog. When you pay for the buns you have inventory, which is an asset. When you sell the hot dog - you have cost of goods sold, which is the expense. Expense principle says that you recognize expense when you use the product. You use the buns when you actually sell the hot dog, not before. The matching principle is also honored because you recognize expense of the buns at the time of recognizing revenue of the hot dog.
"I'll answer your question, but first a comment about your intended strategy.  Buying government bonds in a retirement account is probably not a good idea.  Government bonds (generally) are tax advantaged themselves, so they offer a lower interest rate than other types of bonds.  At no tax or reduced tax, many people will accept the lower interest rate because their effective return may be similar or better depending, for example, on their own marginal tax rate.  In a tax-advantaged retirement account, however, you'll be getting the lower interest without any additional benefit because that account itself is already tax-advantaged. (Buying bonds generally may be a good idea or not - I won't comment on that - but choose a different category of bonds.) For the general question about the relationship between the Fed rate and the bond rate, they are positively correlated.  There's not direct causal relationship in the sense that the Fed is not setting the bond rate directly, but other interest bearing investment options are tied to the Fed rate and many of those interest-bearing options compete for the same investor dollars as the bonds that you're reviewing.  That's at a whole market level.  Individual bonds, however, may not be so tightly coupled since the creditworthiness of the issuing entity matters a lot too, so it could be that ""bond rates"" generally are going up but some specific bonds are going down based on something happening with the issuer, just like the stock market might be generally going up even as specific stocks are dropping. Also keep in mind that many bonds trade as securities on a secondary market much like stocks.  So I've talked about the bond rate.  The price of the bonds themselves on the secondary market generally move opposite to the rate.  The reason is that, for example, if you buy a bond at less than face value, you're getting an effective interest rate that's higher because you get the same sized incremental payments of interest but put less money into the investment.  And vice versa." "I'm a senior majoring in accounting and management information systems. Here is a question I answered a while back about financial statements and employee retention. In the answer that I provided at the bottom it was to assess a company's ability to pay by use of ratios. Likewise, similar accounting methods need to be understood and implemented when assessing stocks(which is where I believe Mr. Buffet was going with this). As we can see the severity of the questions decreases, but if you can not answer question 3 then you should study accounting principles.   So how much is enough just to get started? You will never have enough knowledge to start, period. You will have to continuously be learning, so start sooner than later.  However you need neither economics or accounting knowledge if you were to learn technical analysis, many doubt the workings of this technique, but in my experience it is easier to learn and practise. A comment on @Veronica's post.  Understanding economics and accounting are fundamental. Analysis, seeing trends, and copying are instinctual human traits that helped us evolve (we are very good at pattern recognition). Taking an intro economic and accounting course at a local community college is an excellent place to start when breaking the mold of pattern-thinking. You have to be critical in understanding what elements move a company's A/R in the statement of cash flows. Read. Literally, don't stop reading. Latest edition of of Kesio's accounting principles? Read it. Cover to cover. Tax policies on Section 874, 222, 534? Read it.  Take a class, read a book, ask questions! Good Luck, ""Welcome to [the] Science [of Business], you're gonna like it here"" - Phil Plait" There is no difference between more shares of a relatively cheaper stock and less shares of a relatively more expensive stock. When you invest in a stock, the percentage increase (or decrease) in the share price results in gains (or losses). This is a fundamental concept of investing. Your question suggests that you would benefit from further research before investing your money. Trading real dollars can be difficult without a strong understanding of the principles involved. Investing your money without a good knowledge base will likely be stressful and could have a discouraging effect if it doesn't go well. Before you open an investment account, read up on investing fundamentals, particularly mutual funds as those can be a great place to start as a new investor. There are many sources of information including books, websites such as http://investor.gov/investing-basics and this website. Don't skip the sections on taxes, as those matter just as much and sometimes more than the simple buying and selling. You might look at tax advantaged accounts, such as 401k's, IRA's, etc.  It shouldn't take long but it will be one of the most important things you do as a beginning investor. Everyone has to start here. Understanding the vocabulary and concepts will likely save you time and money throughout your investing life. "A simple way to account debt forgiveness of your receivables is to utilize a ""Bad Debt"" expense account. Take the following two examples: If you are only forgiving a portion of the principle, another popular term used is Principle Reduction as the expense account." "What you are describing is a Chart of Accounts.  It's a structure used by accountants to categorise accounts into sub-categories below the standard Asset/Liability/Income/Expense structure. The actual categories used will vary widely between different people and different companies.  Every person and company is different, whilst you may be happy to have a single expense account called ""Lunch"", I may want lots of expense accounts to distinguish between all the different restaurants I eat at regularly.  Companies will often change their chart of accounts over time as they decide they want to capture more (or less) detail on where a particular type of Expense is really being spent. All of this makes any attempt to create a standard (in the strict sense) rather futile.  I have worked at a few places where discussions about how to structure the chart of accounts and what referencing scheme to use can be surprisingly heated!  You'll have to come up with your own system, but I can provide a few common recommendations: If you're looking for some simple examples to get started with, most personal finance software (e.g. GnuCash) will offer to create an example chart of accounts when you first start a session." "I would suggest you forget everything you learned in economics. The only applicable knowledge is Accounting 101.  Step 1: An accrual basis financial statement. There is no step 2 if you don't do this. Most small business do everything cash basis. Simpler, cheaper but useless for analysis. You would get better answers from the local fortune teller than a cash basis statement.   Make one change from the general rules. If you have debt or are paying interest for inventory include that in your cost of sales. This is actually proper but the rule is little known and often ignored. Interest on debt up to the amount of inventory is a cost of inventory.  Step 2: Gross profit. If you seem to be working hard and still losing money it may be because you are selling products for less than they cost you. In this case the more you sell the more you lose. So suggestions like advertising or doing anything to increase sales are actually destructive.  Step 3 Price products at the level necessary to turn a profit at current sales and overhead. 'When we have enough sales we will make a profit"" is the philosophy of a start up business. It is toxic for a going concern.  Step 4 If sales are unsustainable at the price that produces a profit have the courage to sell or close the business. I have seen people waste their lives on futile endeavors just because they can't make that tough decision.  Finally Step 0: Ignore all other suggestions but this. They are well meaning but ill informed. To reiterate, growing sales while losing money on every transaction is a huge mistake. Trends, books, charts and graphs, analytics and market research are the tools of con-men and fortune tellers. Business is arithmetic and nothing more or less.  FYI if I don't get at least one upvote, this is the last time I am giving my valuable professional advice away for free on reddit. Folks will have to rely on the suggestions of their fellow college kids." "A bit strange but okay.  The way I would think about this is again that you need to determine for what purpose you're computing this, in much the same way you would if you were to build out the model. The IPO valuation is not going to be relevant to the accretion/dilution analysis unless you're trying to determine whether the transaction was net accretive at exit. But that's a weird analysis to do. For longer holding periods like that you're more likely to look at IRR, not EPS. EPS is something investors look at over the short to medium term to get a sense of whether the company is making good acquisition decisions. And to do that short-to-medium term analysis, they look at earnings.   Damodaran would say this is a shitty way of looking at things and that you should probably be looking at some measure of ROIC instead, and I tend to agree, but I don't get paid to think like an investor, I get paid to sell shit to them (if only in indirect fashion). The short answer to your question is that no, you should not incorporate what you are calling liquidation value when determining accretion/dilution, but only because the market typically computes accretion/dilution on a 3-year basis tops. I've never put together a book or seen a press release in my admittedly short time in finance that says ""the transaction is estimated to be X% accretive within 4 years"" - that just seems like an absurd timeline.  Final point is just that from an accounting perspective, a gain on a sale of an asset is not going to get booked in either EBITDA or OCF, so just mechanically there's no way for the IPO value to flow into your accretion/dilution analysis there, even if you are looking at EBITDA/shares. You could figure the gain on sale into some kind of adjusted EBITDA/shares version of EPS, but this is neither something I've ever seen nor something that really makes sense in the context of using EPS as a standardized metric across the market. Typically we take OUT non-recurring shit in EPS, we don't add it in. Adding something like this in would be much more appropriate to measuring the success of an acquisition/investing vehicle like a private equity fund, not a standalone operating company that reports operational earnings in addition to cash flow from investing. And as I suggest above, that's an analysis for which the IRR metric is more ideally situated.  And just a semantic thing - we typically wouldn't call the exit value a ""liquidation value"". That term is usually reserved for dissolution of a corporate entity and selling off its physical or intangible assets in piecemeal fashion (i.e. not accounting for operational synergies across the business). IPO value is actually just going to be a measure of market value of equity." "I'm assuming you're operating on the cash basis of accounting, based on your comment ""Cash, I think that's the only way for a sole propriator (sic)"" Consider: There are two distinct but similar-name concepts here: ""paid for"" (in relation to a expense) and ""paid off"" (in relation to a debt).  These both occur in the case you describe: Under the cash basis of accounting, when you can deduct an expense is based on when you paid for the expense, not when you eventually pay off any resulting debt arising from paying for the expense. Admittedly, ""cash basis"" isn't a great name because things don't solely revolve around cash. Rather, it's when money has changed hands – whether in the form of cash, check, credit card, etc.  Perhaps ""monetary transaction basis"" might have been a better name since it would capture the paid-for concept whether using cash or credit.  Unfortunately, we're stuck with the terminology the industry established."