Some companies have incredibly powerful brands – Forbes calculates the value of Apple’s brand, the most valuable in the world, at $145.3 billion. The value of the next two most valuable brands are much less, but still impressive (Microsoft at $69.3 billion and Google at $65.6 billion). Yet none of these three companies list this incredibly valuable asset - their brand - on their balance sheets. They’ve spent years to make these brands strong – why not record their value?The money measurement principle of accounting suggests that only items that have a certain defined value are tracked in the balance sheet, which is why brands don’t appear. But does that make sense? Forbes has clearly provided a value for these brands, and Forbes is a respectable publication – couldn’t the companies just list this value? 

Not really. First of all, the brand valuation provided by Forbes can fluctuate a lot from year to year. Apple’s valuation has changed by 17% in one year! If Apple tracked this in their Balance Sheet, they would need to make dramatic shifts in their equity from year to year as the value of their brand changed, and that doesn’t provide for very accurate or comparable accounting statements. Secondly, Forbes has nothing to lose by being wrong. If they’re off by a few billion dollars in brand valuation, it isn’t going to hurt the bottom line of Forbes. 

For this reason, valuations of brands are not counted in the balance sheet. However, if a company is acquired, the acquiring company may pay a considerable amount more than the accounting book value of the company, in part to purchase a valuable brand. In this case, the value will not change year-to-year, and the bottom line of the acquiring company will be hurt if they are wrong – so we can be reasonably certain that the value is correct. Now that there’s certainty to the value, this value can be tracked on the balance sheet, as part of the entry known as “goodwill” – a sort of catch-all account for all value that an acquisition holds above and beyond its basic book value (of which brands may only be one part).

Visit Forbes to see more powerful brands: http://www.forbes.com/powerful-brands/list/

I start everyday by doing a crossword puzzle, and I spend most of each day working on statistics (including supporting HBX CORe’s Business Analytics course). So I was excited when fellow crossword and data lover Saul Pwanson starting compiling a database of crossword puzzles published in various venues since 2003.A couple of weeks ago, puzzlemaker Ben Tausig (who edits the wonderful American Value crossword) noticed something interesting about some of the grids. A statistical analysis confirmed his suspicions: a significant number of puzzles published in USA Today or syndicated by Universal Crossword appeared to have been plagiarized. Interestingly, both the USA Today puzzle and Universal are edited by the same person, Timothy Parker.

Regular solvers know that it’s not unusual to see a specific word show up in multiple puzzles, even words like ETUI or ANILE that rarely show up anywhere else. However, the USA Today and Universal puzzles often contained long phrases that had appeared in previous puzzles. In some cases, almost the entire grid was identical to an earlier puzzle. Overall, more than one in six USA Today puzzles contained 25% or more material that had been published elsewhere. So did more than one in twenty of the Universal puzzles. For comparison, less than one in one thousand New York Times crosswords matched other puzzles that closely.

So far Parker, who is known as the most prolific editor in the crossword world, has denied any wrongdoing. However, the scandal continues to gain steam. Even the normally conflict-averse Will Shortz (editor of the New York Times crossword) has called this “an obvious case of plagiarism.” Interestingly, Parker has taken a sabbatical while his employer, Universal Uclick, investigates.

To learn more about the scandal and how crossword puzzles work, check out this great article by FiveThirtyEight: http://fivethirtyeight.com/features/a-plagiarism-scandal-is-unfolding-in-the-crossword-world/

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We all know that accounting is nothing but number crunching. Accountants simply add numbers and subtract numbers while drinking copious amounts of coffee. Just kidding. Go hug your accountant or your closest accounting student, because accounting is a challenging process of measuring, validating, and reporting financial information for an entity.

Most would say that accounting is the language of business, and without it, you can’t talk the talk. Just like any language, there are words that cause great confusion for those learning it for the first time. Here are a couple of accounting terms that disgruntle fresh-faced accounting students (as well as established accounting professionals):

Deferred Revenue

You see the word revenue and automatically think, ‘REVENUE, REVENUE, REVENUE! Money is immediately coming my way!’ Put on the breaks there, pal. What if I told you that Deferred Revenue is actually a liability, an obligation to pay? You saw the word revenue, but did you happen to see that word in front of it—DEFERRED? This means that you can’t claim any revenue just yet. Some people find it helpful to use the word ‘unearned’ as opposed to ‘deferred’ to make it clear that the revenue isn’t yet realizable.

Unearned/Deferred Revenue is a liability account that represents the obligation to provide goods or services to a customer in the future. Unearned/Deferred Revenue is recorded when a business receives a payment in advance from a customer, but the business has not yet delivered the good or provided the service. Once the business fulfills its obligation to provide goods or services, the liability is reduced and the revenue is recognized. Say it with me, ‘Unearned/Deferred Revenue is not a revenue account!’

Prepaid Expense

You see the word expense and automatically think, ‘EXPENSE, EXPENSE, EXPENSE! Wait, wait, is this similar to Deferred Revenue? Where the word ‘prepaid’ makes the word ‘expense’ behave differently?’ Yes, you got it! Prepaid Expense is in fact NOT an expense account, but rather an asset account.

A Prepaid Expense is an asset that represents the right to receive goods or services in the future. Some common examples are prepaid rent or prepaid insurance, where a company pays for rent or insurance in advance of the coming month or year. At the time of the payment, the transaction is recorded as an asset, and as time passes, the asset is reduced and the expense is recognized. Say it with me, ‘Prepaid Expense is not an expense account!’

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Want to learn the language of business and develop an essential understanding of financial accounting, business analytics, and economics for managers? You may be interested in HBX CORe, an interactive online program from Harvard Business School! 

 

Last week we featured part 1 of our list of economic relationships you need to know (found here). This week we are rounding out the list with three more key economic relationships:

3. Interest Rates Up, Investment Up: How does a business, household or country determine how much money to invest? There are a lot of factors that go into that decision, but probably no other factor is as important as the prevailing interest rate. Interest is the money received for lending one’s money to another party (or, from the opposite perspective, the money paid to a lender for the right to borrow). The interest rate is then the ratio of money paid as interest to the amount lent/borrowed, usually quoted as a percent (so if you pay $5 to borrow $100, the rate is 5%). As an investor, you want to look for the highest possible rate of return for your money. Thus, the higher the prevailing interest rates in your country, the higher will be your incentive to invest your money. As a result, when interest rates increase (as they did in the US recently), investment will typically go up.

4. Money Supply Up, Interest Rates Down: If interest rates determine investment, what determines interest rates? Well, in a way, the interest rate is the “price” of borrowing money and, in economics, prices are usually determined by quantities. Quantities of goods, quantities of services and, in the case of interest rates, the quantity of available money. Interest rates are largely determined by the supply of money in the economy. The more money there is available to firms and individual borrowers, the less banks and other lenders will be able to demand for the right to borrow that money. If a bank charges too much, potential borrowers can just go to another source to get money. This gives lenders the incentive to all charge around the same amount for access to that money. This relationship is what gives central banks so much power. A central bank, such as the U.S. Federal Reserve, has the legal right to print money and thus effectively controls the supply of money in the economy. If the Fed wants to stimulate the economy, like it needed to during the Great Recession, it can (effectively) lower interest rates by printing money, pumping money into the financial system and providing businesses the incentive to invest more. There’s more to it than that, but if you hear that the Fed plans to raise (lower) interest rates, just know that it’s doing so by decreasing (increasing) the supply of money.

5. Economic Growth Up, Unemployment Down: As discussed, the amount of money in the economy plays a major role in determining interest rates. And interest rates largely determine how much businesses and households invest. Investment is crucial for a business to undertake new projects and be able to offer new products and services to consumers. But investment is only one part of the equation. To determine the overall “health” of an economy and the potential for individuals to buy their products, businesses also need to know how much domestic consumers, foreigners and the government are currently spending on goods and services. On the macro level, the amount spent on consumption, investment, government services and net exports (less imports) is known as gross domestic product (GDP). If spending on goods and services is not increasing (GDP is not growing) or has been decreasing (recession), it may not make sense for a business to bring a new product to market. And if that’s the case, businesses may not need as many workers to create such products. Thus, there exists a key link between GDP and unemployment. If GDP is growing, it’s more than likely that more workers are being hired to create products and services and thus unemployment will be declining.

Economics and finance is more complicated than the simple relationships described here, but these offer a rough depiction of how the decisions made by various actors play out in the real world to distribute resources and create an economy. As you hopefully see from these examples, economics and finance are largely influenced by human motivations. And by understanding humans, you just may be able to use those insights to improve your household, business or country.

Data is reshaping how problems are defined and how solutions are developed to address pressing social issues. With the evolution of data-collecting technologies and the ability to apply analytic methods in new areas, unique insights are advancing the common good through data.

These four initiatives use data analytics to bring about positive social impact:

Eliminating Medical Prescription Errors

MedAware uses analytics to search for unusual patterns in medical prescription and diagnosis data that would signal a prescription error. By searching for outliers, MedAware could potentially save lives while also reducing the medical costs associated with prescription errors.

Ensuring Equitable Working Conditions

Laborlink, powered by Good World Solutions, collects data from international factory workers using mobile phone technology. Empowering workers to report their working conditions, Laborlink collects real-time data about wages, safety, and worker satisfaction. Not only are companies better informed with Laborlink, but they can alter their practices based on this new source of data.

Saving Lives with Targeted Campaigns

DataKind, a community of data scientists and organizations, worked with data from the American Red Cross to identify counties in the US that would benefit from smoke alarm installation campaigns. The team’s work combined Red Cross data with other data sets to develop targeted recommendations for delivering the Red Cross program.

Driving Governmental Progress

In HBX’s home city of Boston, local officials are using data to drive government progress. From the data dashboard that hangs in the mayor’s office displaying critical citywide data, to monitoring the city’s trashcans to ensure timely collection, data is helping to build a stronger Boston.

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Interested in learning more about data analytics as well as economics and finance?

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Six HBX CORe participants share study tips to help incoming students get the most out of their learning experience.

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1. Supercharge your learning environment

I had three screens up when on the HBX platform: one for the closed Facebook group, one for the HBX platform, and one for taking notes (take lots of notes)!

 

What do you think of when you hear the word “economics” or “finance?” For many, words like these bring to mind complicated formulas and jargon, men in suits making irresponsible decisions with other people’s money, or bad memories of supply and demand graphs from college.

Fair enough. But economics and finance don’t need to be difficult. And you certainly don’t need to know a lot about either topic for you or your business to benefit greatly from them. Indeed, as a manager, employee, or policymaker, even a basic knowledge of economics and finance can be enough for you to make informed decisions that can result in increased profitability, smarter investment decisions, and better public policy.

Here’s a list of some key economic relationships for a business owner or policymaker to remember when making decisions:

1. Price Up, Demand Down: This relationship is the foundation behind those pesky demand curves you may have had to draw in Econ 101, but is absolutely necessary for any business to understand in order to make money. Luckily, it’s pretty easy to comprehend, so we can skip the graphs altogether. Here’s the chase: when a business increases prices, it will almost always see sales for its product or service fall. This is because consumers prefer to pay less for something than more for it (but you probably didn’t need to be told that), so fewer people will be able to afford the good. Price up, demand down. It’s common sense.

2. Price Up, Supply Up: This is the flipside to the previous relationship. When prices go up, consumers demand less, but, boy, would businesses sure like to supply more. Why would they not? If the product or service a business is supplying can command a higher price, it’s in the business’ best interest to supply more of it to make more revenue. So, price up, supply up. Like demand, its incentives at work here too.

Check out part 2 of our list here!

How much are you willing to pay for the right to pollute? If you drive into work like I do, maybe you would be willing to pay quite a lot. In reality, most individuals do not directly pay for the right to pollute. Instead we pay via the price of oil, coal, natural gas, and electricity.

In some cases individuals are paid to not pollute as with subsidies and tax rebates given to households that install solar panels as a form of clean energy. In light of the recent climate talks in Paris, we are taking a closer look at pollution markets and their role in today’s climate.

In many industries, the idea of paying for the right to pollute is increasingly prevalent. There is world-wide agreement on the need to limit pollution, specifically by reducing carbon emissions, but there is no such agreement on the policy or mechanism to do so.

One mechanism that has been used in the past is the creation of a pollution market, also known as cap-and-trade. In this system, companies are allotted a pollution allowance and then are allowed to trade those allowances with other companies. In this way, the market decides how much a pollution allowance is worth and distributes these allowances efficiently among all companies.

The major benefits of a pollution market are that the market creators, governments, or international organizations decide the total amount of pollution they wish to allow but do not have to figure out how to most efficiently distribute these allowances. Pollution markets have been in use since George H. W. Bush implemented them in 1990 to curtail sulfur dioxide emissions and the resulting acid rain.

More recently, there was a loud call from industry leaders for a cap-and-trade system to be discussed at the Paris climate talks. On the other hand, some argue that a cap-and-trade system is outdated and won't work in today's economy.

What do you think? You can read more at Marketplace here.

Materiality. Can you use it in a sentence please? No, it’s not related to the accumulation of physical wealth or some obsession with material possession. That’s materialism. Materiality is a key accounting principle utilized by accountants and auditors as they create a business’s financial statements.

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Materiality: an accounting principle which states that all items that are reasonably likely to impact the decision-making of investors must be recorded or reported in detail in the financial statements of the business.

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Why does it matter? In essence, materiality is related to significance. Is some transaction or business decision significant enough to warrant reporting to investors or other users of the financial statements? If it is, we say that the information is “material” to the business.

What’s considered to be material will differ based on the size and scope of the firm in question. For example, while a small mom and pop grocer may need to record a small expense for promotional coupons, Whole Foods may not need to record a large one for a similar customer offer. It’s all relative.

Material items can be financial (measurable in monetary terms) or non-financial. So a business might need to report a pending lawsuit to the same degree it reports its revenues. Indeed, of late there has been a big push to include more non-financial material information in financial statements.

For example, with a bigger investor focus on sustainability nowadays, a business might want to include information related to its environmental, social, and corporate governance (ESG) practices to assure shareholders that the business itself is a “green investment.” In fact, as Professor Robert G. Eccles discusses in a recent HBR article, there has even been talk of creating new accounting standards to better measure material information related to sustainability.

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Interested in learning more about materiality and other topics in finance, economics, and business analytics?

Will you be shopping with the masses or breathing in the crisp fall air outdoors? REI, an outdoor gear company that is also the United States' largest consumer cooperative, is opting out of Black Friday for the second year in a row and encouraging its customers to #OptOutside.

The company is a great example of a retailer that has cracked its consumers’ “job to be done” – to create a retail experience that’s more about a shared community that stands for integrity, transparency, and a love of the outdoors than it is about simply shopping for product. REI has translated this purpose into everything from its product offerings to its promotional strategy.

An estimated 2.7 million people are opting outside this year and at least 275 other organizations, including Google, Subaru and the National Parks Service have joined in on the campaign. For REI's consumers, the Friday after Thanksgiving will be spent outdoors, not inside waiting in line for the next doorbuster sale. Will you be hitting the trails with REI's customers this year?

To learn more, check out Why REI Is Opting out of Black Friday Again This Year from Fortune.com.