They say accounting is the language of business, and perhaps like any language there are accents and dialects – quirks that bring variation and the chance to improvise.
We have a preconception of accounting as a cut-and-dry mirror image of one’s financial reality. Not so! There is ample room for – shall we say – interpretations that can help put one’s best foot forward.
Imagine you have a company truck that is in the shop for repairs. Do you classify the work being done as an ordinary repair or an extraordinary repair? If the former, that is an expense you record that takes money out of the office coffers. If the truck is undergoing an extraordinary repair, you are extending the life of a company asset…and the amount of company assets increases as a result.
Which would you prefer to have on your financial sheets: a bigger asset balance or a bigger liability balance via accounts payable? And yet, which is more representative of that auto repair?
This is just one example of the many daily decisions an accountant must make. Obvious are the roles that ethics and sound judgment play in this profession. These decisions don’t operate in a vacuum either: more than a few problems have been created from tensions between controller and CFO, bookkeeper and CEO.
When done well, the accountant provides information that sustains the business. Without that information, the CEO cannot make sound decisions. The business has no idea how many assets it owns and how much it owes. Since it has no idea how much it owns, it has no way to protect those assets against theft and loss.
Some Thoughts About Learning Accounting
In my experience, accounting is one of those skills that you can’t only read about and expect to learn. You can read about carpentry for years and yet learn more about the trade operating a bandsaw for an afternoon. Just so with accounting.
You need to do bookkeeping entries; you need to transfer those to T-accounts and to the general ledger. You make adjusting entries and go through the closing process. These things are not necessarily hard to do – you begin doing them in your first week of accounting class – but you have to do them to begin to understand them.
I’m familiar with the approach Rogers takes in this semester’s text. For many years I tried to read highly-condensed descriptions of assets, liabilities, and the various financial statements. But those lessons never seemed to stick. It was only after I took a couple of basic accounting classes at the local community college that I began to see the interrelationships between the financial statements.
These classes did not have a radical approach. They simply dwelled longer on each topic and broke down the larger topics into smaller digestible subtopics. For me this turned out to the missing part that had kept me from progressing like I had wanted to in accounting. Sometimes you only become aware of such a thing after the fact.
In any case, the more I learn about accounting, the more practical value it reveals. I’m glad I decided to take these courses before I started a business, and I think that knowledge will only help in the future.