Accounting is Fun

The Language of Business

accountingman — Thu, 09 Jul 2009 22:15:53 +0000

Let’s take a break from our lessons and talk about business. Many people refer to accounting as “the language of business.” Technically they would be correct. Those financial statements (balance sheet, income statement, statement of cashflows etc.) are all written in the accounting language: I call this language accountantese.

I agree with the idea that accounting is the “technical” language of business. However, I think that real business is done by entrepreneurs not accountants. Accountants track and verify numbers and can tell you everything you want to know about the financial statements. But at the end of the day, it is the entrepreneurs who create something of value and offer it to the world. You tell me, who is the real business man?

The Basic Accounting Equation

accountingman — Tue, 30 Jun 2009 22:15:38 +0000

When I was deciding whether or not to become an accounting major, one of the things that helped me make my decision was that accounting, despite popular belief, doesn’t require much complex math. While it is true that you will need to be able to add, subtract, multiply, and divide; that is about all the math you need to become an excellent accountant. I ended up minoring in economics which required a bumload amount of calculus (bad idea!).

Anyways here is the basic accounting equation in all of its glory:

Assets = Liabilities + Owners Equity (A = L + OE)

I guess, I lied a little about the math part. You should know how to manipulate the above equation as well. For example: Liabilities = Assets – Owners Equity. You’re simply subtracting owners equity on both sides.
Enjoy the good math of accounting.

What about Non-Profits?

accountingman — Sun, 21 Jun 2009 22:14:27 +0000

Some people like to ask me, the accountingman, tough questions. Well it turns out that I have a lot of friends in non-profit organizations such as churches. They ask me about how their church accounting should be performed and if it is different than a normal company.

The truth is that accounting for churches or any non-profit is much different than for a normal business. The main reason is that when you donate money to a church, you have some say over where it is going (for example to help the poor, feed the sick, building a new building, etc). Churches have to keep track of all the different places the money is going so they set up little funds to do so. Here is a good article I’ve found on the subject of fund accounting.

Now I must admit that I’m not an expert in this area, and that is why I send you off to another place to learn. We are starting to get some good accounting resources on this page, hopefully in the future this can become your one stop shop for all accounting knowledge.

Accounting Definitions for Dummies

accountingman — Fri, 12 Jun 2009 22:13:49 +0000

Well I’m hoping that I don’t get a copyright infringement for the name of this post (for dummies). I’ve actually had problems with this in the past on the Internet. Some people rigorously protect their trademarks, and I suppose that is alright.

Anyways, accountants have come up with some very hairy definitions for assets, liabilities, and owners equity. I will teach a more intuitive approach to understanding these terms.

Assets = Good (most of the time)
Liabilities = Bad (most of the time)
Owners Equity = depends

If my accounting teachers could see those definitions, they would probably want to inflict bodily harm to me. So I had better adjust them a wee bit.

Assets are anything that will cause a probable future benefit. Some examples are trucks, buildings, land,

Liabilities are probable future obligations. In other words you owe money to someone.

Owners Equity is a little harder to define. Basically it is money that you and other investors have invested in the business. It also consists of your business’s retained earnings.

We’d better stop there for the day.

Debits and Credits

accountingman — Thu, 21 May 2009 12:58:35 +0000

Well, I’m feeling kind of bad about not posting about debits and credits in my first entry. In almost every basic accounting class, the first lesson involves some discussion on debits and credits and I don’t plan on failing to talk about it in my first lesson.

The basic idea is that all debit entries go on the left hand side and all credit entries go on the right hand side. I’ll use an example so you can see what I’m talking about. Let’s say you own a landscaping company. Any good landscaping company needs a lawnmower. So you decide to buy nice lawn mower for $200. Your journal entry would appear as follows:

Lawn Mower $200

Cash $200

Pretty great eh? You are on your way to becoming a full time accountant. Let’s just do another quick example for the fun of it. Let’s say you purchase a lawn mower with a payable (basically your company doesn’t have to pay the lawnmower business right away; you have an account with them).

Lawn Mower $200

Accounts Payable $200

Then you pay off your account, lets say 30 days down the road:

Accounts Payable $200

Cash $200

I’m telling you it is actually kind of fun to decide when things are a debit or a credit. A good site to help you classify debits and credits is dwmbeancounter.com. Good luck mastering this most basic accounting principle.

Welcome

accountingman — Tue, 19 May 2009 13:02:34 +0000

Welcome to my “Accounting is Fun” site. The truth is that accounting can be quite entertaining as long as you approach it with the right mindset. I guess it is similar to the idea that math can be fun when done correctly. Yes, I know it sounds sappy. I remember going to elementary school and every year the teacher would say “This can be fun or this can be boring, depending on your attitude.” At the time I seemed to think that no matter what, it was going to be boring. But as I’ve progessed in years and discovered a love for learning, I’ve realized that those elementary teachers were right: learning can be fun.

Anyways I plan on posting entries about some of the basics of accounting as well as offering resources to other sites that will have the information you are looking for. Thanks for visiting.