accounting(10/0)
Double entry accounting with ledger CLI
If you’d asked me at the start of my MBA program what courses I’d enjoy most, accounting would not have made the top five. This book and an engaged professor (thank you Clarke!) launched accounting to my top three. Frampton and Robilliard’s Color Accounting revolutionized the way I conceive of the flow of capital. Their imagery and definitions exposed me to the fascinating business story that the movement of capital tells and how double-entry accounting documents that story with precision and simplicity.…
Why not giftcards
There’s misinformation swirling as the COVID-19 pandemic escalates. This is my small way to combat the spread with a topic I know something about. Gift cards won’t help restaurants with the impact COVID-19 has on their income today. If you want to support restaurants, buy takeout or send them a check. Here’s why. In accounting records, a gift card isn’t registered as income. This is because double-entry accounting will not register income for a service until the service has been performed.…
Accounting describes measurable value
If an asset may be measured reliably, it belongs to Accounting. The dollar amount in the bank is accountable, for it has an exact value at any point in time. Property value is accountable, for the market estimate of its value may be reliably calculated. The right to be reimbursed for services is accountable, for the value of those services may be measured. There are some assets which cannot be reliably measured and therefore do not belong to Accounting.…
Accounting is both story and science
Accounting standards are published internationally under IFRS (International Financial Reporting Standards), and in the U.S. under GAAP (Generally Accepted Accounting Principles). These standards comprise thousands of pages outlining every accounting scenario imaginable. Because of the incredible breadth of content, accountants often specialize in one area of IFRS, such as asset depreciation. An outsider may conclude that a business which follows these standards is mathematically perfect in the way it’s represented on paper - pure science.…
Accrual accounting is the most accurate
Two major types of accounting exist: accrual and cash accounting. One might say there’s really only one type, with cash accounting being a simplified version of accrual. Accrual accounting attempts to describe the financial story of a business at every point in time; not only when cash is received or expended, but when assets of all kind are affected. A payment for a future service is simply listed as income in cash accounting; only cash is recognized.…
Financial analysis raises operational questions
Financial analysis has fantastic potential to raise questions about the operations of a business, but alone it can conclude little. A glance at assets may reveal an imbalance in current assets vs current liabilities, but it cannot tell the story of how this came to be or what decisions brought this about. Another step deeper into the individual transactions may supply more light, but even then educated guesses are all that’s possible; it takes questions posed to the actors before answers can be fully complete.…
Adopt financial models with caution
Adopt the financial models of your industry peers, but don’t blindly accept that their accounts breakdown measures your business' true value. Few businesses have revolutionary financial models. Most are a slight variation on an existing financial model, or even an exact replica for a different market. A manufacturing business need not reinvent how it will record materials costs because it’s already standard practice to record these under COGS (cost of goods sold).…
Understand how financial accounts are related
Quality financial analysis depends on the analyst’s grasp of the interrelationship between accounts. A good financial analyst will look line by line through a business' balance sheet and find changes that prompt further inquiry. An example may be the amount of cash on hand. If cash on hand drops 80% this year, questions arise about where they cash went. Again, a marginal change in profit this year may warrant further investigation.…
Use the balance sheet to monitor health
The balance sheet shows a business' financial state at a point in time, while the income statement shows the operation of your business over a period of time. The two financial documents most widely used are the balance sheet and the income statement. The balance sheet lists the assets, liabilities, and equity of an entity at whatever snapshot in time it’s written for. The income statement shows how the assets were used over a defined period.…
Use the income statement to refine value creation
The balance sheet shows a business' financial state at a point in time, while the income statement shows the operation of your business over a period of time. The two financial documents most widely used are the balance sheet and the income statement. The balance sheet lists the assets, liabilities, and equity of an entity at whatever snapshot in time it’s written for. The income statement shows how the assets were used over a defined period.…