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Zusammenfassung von Accounting Made Simple

Name: Accounting Made Simple
Rating: 4.5 (116 reviews)
Author: Mike Piper

Mike Piper

Accounting Explained in 100 Pages or Less

4.5 (116 Bewertungen)

14 Min.

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'Accounting Made Simple' by Mike Piper provides a basic understanding of accounting topics, such as financial statements, debits and credits, and cash flow. It's a great introduction for beginners or non-financial professionals looking to improve their knowledge in the subject.

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What’s in it for me? Learn the fundamentals of accounting.

Have you ever looked at your accounts – a cash flow statement, for instance – and thought you were looking at hieroglyphics? Or thought, “If only there was an English-Accounting dictionary, maybe more of us would have an idea about what’s going on in our financial statements?”

You’re not alone. These blinks tackle the most basic accounting fundamentals. Why do you have to know them? Because accounting is arguably the most important source of information in business. It records, analyzes, plans and, in the end, controls your business transactions.

After all, if you know how to decipher the basics of accounting, you’ll know the real story of your business – how healthy it is and where you could be spending or saving more money to help it grow.

In these blinks, you’ll find out

what a lemonade stand's balance sheet looks like;
how to compare Google’s profits with your own; and
how to calculate equity in your home.

A basic accounting equation measures a company’s financial position using assets, liabilities and owner’s equity.

Accounting can seem impenetrable and mysterious. But it’s no dark art. In fact, a balance sheet follows a clear logical order. You just need to know how to decipher it.

Let’s start with the fundamentals: An accounting equation measures financial position using assets, liabilities and owner’s equity.

Here’s a refresher on what those terms stand for:

Assets: Everything a company owns, such as properties, inventory and cash.
Liabilities: All the company’s debts, such as loans.
Owner’s Equity (also called Shareholder’s Equity): The difference between the two, meaning the company’s ownership of assets, after paying off liabilities.

The accounting equation states that, no matter what, the following will be valid: Assets = Liabilities + Owner’s Equity. You can also write the equation like this: Assets - Liabilities = Owner’s Equity.

This equation is applicable for any kind of company, big or small. Imagine you run a lemonade stand. Your assets are: lemonade, the stand, cups and uniforms – worth $100 in total. You took out $60 worth of loans from your sister and your mom – those are your liabilities. So here’s how we would figure out the Owner’s Equity: Assets ($100) - Liabilities ($60) = Owner’s Equity ($40).

You could use the same equation to measure your financial position when buying a home. If you want to purchase a property for $300,000, you probably wouldn’t pay it all up front. You might take a mortgage for $230,000. That means your home equity would be calculated as: $300,000 assets - $230,000 liabilities = $70,000 equity.

And a few years later, once you’ve paid off $30,000 of the mortgage, your home equity would be: $300,000 assets - $200,000 liabilities = $100,000 equity.

One thing to remember about assets and liabilities is that your asset might be someone else’s liability, and vice versa. For instance, in the scenario above, the mortgage is your liability. But it’s the bank’s asset.

The accounting equation forms the basis of your balance sheet.

As we’ve just learned, the accounting equation is fundamental. But it serves a more important role as well. It forms the basis for your balance sheet.

Your balance sheet is your core financial statement. Building on the accounting equation, it uses assets, liabilities and owner’s equity to show your firm’s financial position at any given point in time.

The income statement tracks a company’s financial performance over a specified period of time.

We’ve mastered accounting equations and balance sheets. Next up: the income statement. Unlike a balance sheet, which shows financial accounts at any given moment, the income statement tracks your company’s financial performance over a specified period of time – the course of a year, for instance.

This document is organized in a straightforward way: you take what you’ve earned (revenue) and subtract what you’ve spent (expenses). Now you see why it’s often called a profit and loss (P&L) statement.

The cash flow statement records a firm’s inflows and outflows of cash.

You’ve surely heard this term before: The cash flow statement. But what is it? Well, it’s a simple accounting document that records inflows and outflows of cash. It’s important to have one of these statements in addition to an income statement, since there’s often a lapse between when an income or expense item is recorded and when the cash actually moves in or out of the firm’s accounts.

Imagine your company performs a marketing service in September, but the client doesn’t pay until the beginning of October. That sale would appear in both your P&L statement and your balance sheet as early as September, but since the actual payment won’t arrive in your bank account until October, you wouldn’t include it on September’s cash flow statement.

Calculate financial ratios to analyze your firm’s financial health.

Once you’ve created all of these different accounting statements, you have to analyze them. One way of doing that is to learn how to calculate ratios that speak to a company’s financial health.

Liquidity ratios are the first to consider, because these indicate how easily a company can meet its short-term financial obligations. A rule of thumb: the higher the ratio, the better.

Accountants record every transaction using a special double-entry system.

You’re almost ready to prepare your financial statement. But first, let’s review the Generally Accepted Accounting Principles (GAAP), a set of best practices that are followed by many countries, including the United States.

The single most important aspect of GAAP probably has to do with double-entry accounting and its accompanying system of debits and credits.

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Worum geht es in Accounting Made Simple?

Accounting Made Simple (2013) provides a brief introduction to the fundamentals of accounting, illustrating how to read the most important financial statements and draw a conclusion about the numbers. It also outlines the double-entry ledger system, a hallmark of accounting best practices.

Wer Accounting Made Simple lesen sollte

Small business owners curious about the fundamentals of accounting
People who want to be able to read and understand a financial statement
Anyone who wants to know about the basic aspects of accounting

Über den Autor

Mike Piper is the author of eight finance books, as well as the popular blog, Oblivious Investor. A certified public accountant, Piper has published articles in The Wall Street Journal, Money and Forbes.

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