Re:The Double-Entry Counting Method (2016)
by wenc on Tuesday July 28, 2020 @09:52AM
(#23975761)
I took accounting in high school, and then again in college for my minor in management.
I learned that in basic book-keeping on paper, the key really was just "classification"; that is, understanding what category an account was in (not immediately obvious for things like depreciation/amortization, etc). That determined the perspective from which things are seen, and so debit/credits became clear. However this method turned out to be really unwieldy to program on a computer (I even tried to build a double-entry book-keeping spreadsheet on Excel but failed). The author's method is far preferable and far more programmable -- I wish I had this insight in college.
At the basic levels, book-keeping is about a couple of things:
1) Recording transactions in a "journal"
2) Posting from said journal to "accounts" (Dt/Cr) = i.e. double entry accounting
3) Doing reconciliations (e.g. bank reconciliation) to make your accounts consistent with some third-party
4) Doing cash flow analysis
5) Preparing Income Statements and Balance Sheets, which is used to analyze a company's cumulative/current position.
Most accounting courses cover these steps (called "book-keeping") but real "accounting" is more than this: it's about getting insights from these numbers, by calculating useful ratios, KPIs etc.
The real insight from accounting is being able to deduce a company's strategy from their financial statements. Apparently this is one of the things Harvard Business School teaches in their MBA program that few schools do.
Also, if you read lots of SEC 10-k filings (like Warren Buffet does), the claim is that one should be able to put together a story of what a company is doing by looking at how it's managing its money, what it is investing in, and so on.
I learned that in basic book-keeping on paper, the key really was just "classification"; that is, understanding what category an account was in (not immediately obvious for things like depreciation/amortization, etc). That determined the perspective from which things are seen, and so debit/credits became clear. However this method turned out to be really unwieldy to program on a computer (I even tried to build a double-entry book-keeping spreadsheet on Excel but failed). The author's method is far preferable and far more programmable -- I wish I had this insight in college.
At the basic levels, book-keeping is about a couple of things:
1) Recording transactions in a "journal"
2) Posting from said journal to "accounts" (Dt/Cr) = i.e. double entry accounting
3) Doing reconciliations (e.g. bank reconciliation) to make your accounts consistent with some third-party
4) Doing cash flow analysis
5) Preparing Income Statements and Balance Sheets, which is used to analyze a company's cumulative/current position.
Most accounting courses cover these steps (called "book-keeping") but real "accounting" is more than this: it's about getting insights from these numbers, by calculating useful ratios, KPIs etc.
The real insight from accounting is being able to deduce a company's strategy from their financial statements. Apparently this is one of the things Harvard Business School teaches in their MBA program that few schools do.
Also, if you read lots of SEC 10-k filings (like Warren Buffet does), the claim is that one should be able to put together a story of what a company is doing by looking at how it's managing its money, what it is investing in, and so on.