The concept of accountancy is a mystery to many people but this book seeks to inform the uniformed and will certainly enhance the readers understanding of the basics of business accounting. It covers everything from evaluating profit margins, setting budgets to writing financial reports in a straight forward and concise manner.
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Productivity professionals will certainly acquire knowledge from reading this book that will serve them well in improving the efficiency of the organisation. Skip to Content. Trying to read down a jagged column of numbers that are not right-aligned would be asking too much; the reader might develop vertigo. Really big businesses round off to the nearest million and drop the last six digits. However, this gives a false sense of precision. Accounting for business transactions cannot be accurate down to the last dollar; this is nonsense.
The late Kenneth Boulding, a well-known economist, once quipped that accountants would rather be precisely wrong than approximately correct. This is about as carried away as accountants get in their work — a double underline. Instead of a double underline for a bottom-line number, it may appear in bold. Some need to break across two lines of text. Well, perhaps I get more pumped up about accounting than you. So, one question you may have is this: Do I really have to read every sentence in the book?
To be honest, you can skip the paragraphs marked with the Technical Stuff icon. You can simply leapfrog over these sections without missing a beat. If you have time, you can return to these topics Introduction later. Also, the sidebars in the chapters are interesting, but not essential for understanding the topics at hand.
For instance, consider the income statement example in the previous section. You should understand that the bottom-line profit is the amount remaining after all expenses are deducted from sales revenue. Foolish Assumptions Although I assume that you have a basic familiarity with the business world, I take nothing for granted regarding how much accounting you know.
I have written this book with a wide audience in mind. I could put others in the above list. But I think you get the idea that many different people need to understand the basics of accounting. Perhaps someone who leads an isolated contemplative life and renounces all earthly possessions does not need to know anything about accounting.
How This Book Is Organized This book is divided into parts, and each part is further divided into chapters. The following sections describe what you can find in each part. Part I: Opening the Books on Accounting In Chapters 1 and 2, I introduce the three primary business financial statements gradually, one step at a time. Rather than throwing you in the deep end of the pool, hoping that you learn to swim before drowning in too many details, I make sure you first learn to float and then move on to some basic Introduction strokes.
follow site The information for financial statements comes from the bookkeeping system of the entity. So, in Chapter 3, I offer a brief overview of bookkeeping and accounting systems. You could jump over this chapter, if you must. But I recommend at least a quick read. In Chapter 7, I explain that businesses are not in a straitjacket when it comes to deciding which accounting methods to use for recording their revenue and expenses.
They can select from two or more equally acceptable methods for recording certain revenues and expenses. The choice of accounting methods affects the values recorded for assets and liabilities. Part III: Accounting in Managing a Business To start a business and begin operations, its founders must first decide on which legal structure to use.
Chapter 8 explains the legal entities for carrying on business activities. Each has certain advantages and disadvantages, and each is treated differently under the income tax law. Chapter 9 explains an extraordinarily important topic: designing an accounting report template that serves as a good profit model, one that focuses on the chief variables that drive profit and changes in profit.
A hands-on profit model is essential for decision-making analysis. A manager depends on the profit model to determine the effects of changes in sales prices, sales volume, product costs, and the other fundamental factors that drive profit. In Chapter 10, I discuss accounting-based planning and control techniques, through the lens of budgeting.
Managers in manufacturing businesses should be wary of how product costs are determined, as Chapter 11 explains. The chapter also explains other economic and accounting cost concepts relevant to business managers.
Next I discuss how investors and lenders read financial statements see Chapter Business managers need more information than is included in an external financial report to investors and lenders. In Chapter 14, I survey the additional information that managers need. I close this part of the book with a chapter that explains audits of financial statements by CPAs and the very serious problems of accounting and financial reporting fraud see Chapter If there were no Enrons in the world, things would be a lot simpler.
I hate to say it, but the next Enron is just waiting to happen. Chapter 16 reviews ten important ways business managers should use accounting information. Chapter 17 gives business investors handy tips for getting the most out of reading a financial report — tips on how to be efficient in reading a financial report and the key factors to focus on. Glossary The accounting terminology in financial statements is a mixed bag. Sometimes it must seem like accountants are speaking a foreign language. I must admit that accountants use jargon more than they should.
In some situations accountants resort to arcane terminology to be technically correct, much like lawyers use arcane terminology in filing lawsuits and drawing up contracts. Where I use jargon in the book, I pause and clarify what the terms mean in plain English. Also, I present a helpful glossary at the end of the book that can assist you on your accounting safari. This glossary provides quick access to succinct definitions of key accounting and financial terms, with relevant commentary and an occasional editorial remark. This is better than your average glossary.
Introduction Icons Used in This Book This icon points out especially important ideas and accounting concepts that are particularly deserving of your attention. The material marked by this icon describes concepts that are the undergirding and building blocks of accounting — concepts that you should be very clear about and that clarify your understanding of accounting principles in general. I use this icon sparingly; it refers to very specialized accounting stuff that is heavy going, which only a CPA could get really excited about.
However, you may find these topics important enough to return to when you have the time. Feel free to skip over these points the first time through and stay with the main discussion. This icon calls your attention to useful advice on practical financial topics. It saves you the cost of buying a yellow highlighter pen. This icon is like a caution sign that warns you about speed bumps and potholes on the accounting highway. Taking special note of this material can steer you around a financial road hazard and keep you from blowing a fiscal tire.
In short — watch out! You might start with Chapters 4, 5, and 6 which explain the three primary financial statements of businesses, and finish with Chapter 13 on reading a financial report. You might jump right into Chapters 9 and 10, which explain the analysis of profit behavior and budgeting cash flows. The book is not like a five-course dinner in which you have to eat in the order the food is served to you. In this part, you find out why. Accounting is equally vital in managing the business affairs of not-forprofit and governmental entities. From its accounting records, a business prepares its financial statements, its tax returns, and the reports to its managers.
In financial reports to investors and lenders, a business must obey authoritative accounting and financial reporting standards. If not, its financial reports would be misleading and possibly fraudulent, which could have dire consequences.
Bookkeeping — the record-keeping part of accounting — must be done well to ensure that the financial information of a business is timely, complete, accurate, and reliable — especially the numbers reported in its financial statements and tax returns. Wrong numbers in financial reports and tax returns can cause all sorts of trouble. A ccounting is all about financial information — capturing it, recording it, configuring it, analyzing it, and reporting it to persons who use it.
But I talk a lot about how accountants communicate information in financial statements, and I explain the valuation methods accountants use — ranging from measuring profit and loss to putting values on assets and liabilities of businesses. As you go through life, you come face to face with accounting information more than you would ever imagine. Accounting information is presented on the assumption that you have a basic familiarity with the vocabulary of accounting and the accounting methods used to generate the information.
In short, most of the accounting information you encounter is not transparent.