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Background: I'm a qualified accountant, and have taught courses on accounting and finance. My thoughts on OP: I read through the first two parts of the first
by rahimnathwani 5y ago
Background: I'm a qualified accountant, and have taught courses on accounting and finance.
My thoughts on OP:
I read through the first two parts of the first course on this site:
- Part 1 Introduction to Accounting Basics, A Story for Relating to Accounting Basics
- Part 2 Income Statement
Based on what I read, I could not recommend this. You could get to the end of the 'income statement' part, without encountering any definition of 'profit', which is the very thing that the income statement is meant to show.
If you want a solid introduction to accounting, I'd recommend Frank Wood's book "Business Accounting 1". You don't need the latest (15th edition). The principles haven't changed. I used the 10th edition: Business Accounting Volume 1 https://www.amazon.co.uk/dp/0273681494/ https://www.amazon.co.uk/dp/0273681494/
- wutangson1 5y agoYour comments throughout the thread are insightful & actionable. Yet, I will say that accountingcoach.com is the online resource that provides reliable and clear definitions & explanations for accounting terms. At least in the US when trying to figure out what is required of US GAAP, for example, accountingcoach.com provides clear definitions to differentiate between direct costs, manufacturing overhead, operating expenses, and inventoriable costs in general. This is in contrast to a lot of other online sources- including articles written by CPAs or accountancy websites!- where the writing is either too tortured to learn from or outright wrong!
- rahimnathwani 5y agoThanks for this perspective. It's helpful to hear from someone who has used the site for more than 5 mins :) From what you've written, it sounds like a good/great reference resource for specific topics, once you already know the basics/fundamentals. But, based on a 5 min look at the first two pieces of content in the 'accounting basics' section, I didn't think it would be good for someone who wants to learn accounting from zero. Of course, I may be wrong, as I sampled less than 1% of the content.
- tomnipotent 5y agoI do not believe that either GAAP or IFRS has a standard definition for "profit". Even GAAP under 703(a) refers to it as net income (and several other related numbers like gross profit).
- rahimnathwani 5y agoYes profit is the same as net income. But you wouldn't know that if you read those two sections of the text. They use the word 'profitability' several times, without ever defining it. Right at the end of part 2 (income statement), they say this: "The difference (or "net") between the revenues and expenses for Direct Delivery is often referred to as the bottom line and it is labeled as either Net Income or Net Loss." The above is true, but it's kind of hard to grasp for someone whose only exposure to accounting is this site. And the previous sentence again refers to 'profitability' without being explicit that 'profit' and 'net income' are the same thing.
- nightski 5y agoIf you go to the actual section on financial statements/income statement it breaks it down much further which is what I would expect.
- rahimnathwani 5y agoWhich part of which section? (I only looked at section 1, parts 1 and 2.)
- Closi 5y agoWell, net profit is the same as net income. Gross profit is different.
- xboxnolifes 5y agoThe point isn't about whether they are the same or not. The point is the the teaching material isn't very clear on the terminology used.
- rahimnathwani 5y agoIf you're a mathy person, you might find this brief explanation is enough to get going. Where I say 'you', I mean 'your company', not you personally. * Assets: things you own (e.g. tractor, money in bank, money owed by customers) * Liabilities: things you owe (e.g. unpaid supplier bills, loan owed to bank) * Assets and liabilities are both measured in a single currency (e.g. $). * Equity (aka 'book value'): A measure of the value of the company. Calculated as Assets minus Liabilities. Two ways to write the equation above: * Equity = Assets - Liabilities * Equity + Liabilities = Assets Equity changes in response to (i) company operations, and (ii) financing activities. Financing activities are things like: - selling new shares - buying back shares (or paying dividends) - borrowing money (bank loans, or issuing bonds) If there were no financing activities in the period, then profit is the derivative of equity with respect to time. It's a measure of the change in (book) value over a period. If book value went up, you made a profit. If book value went down, you made a loss. (Of course, book value would also go up if you just sold some shares, and profit doesn't count those changes, as they're just financing activities.)
- antaviana 5y agoAFAIK, borrowing money does not change Equity, because it increases Assets (more money in the bank) and Liabilities (more debt) by the same amount so Equity stays the same.
- xbryanx 5y agoWhere are you borrowing this money without any interest? "Money you borrow" and "cost to borrow that money" are rarely the same value.
- dragonwriter 5y agoNormal interest that will be charged if the debt is not paid off is initially neither an asset or liability, it is an expense as it is charged.
- rahimnathwani 5y ago
- teh_klev 5y ago> Frank Wood's book "Business Accounting 1" Pretty sure that was the book I grudged most having to pay for when I was at college in 1986. I truly despised accounting ;) Three years later and I end up writing code to extend dbFlex and supporting Pegasus accounting software, go figure :)
- tomcam 5y agoI feel you. One of the classes I failed during my brief time in college was symbolic logic. But I was a music major so who cared. A few years later I taught myself to program, and of course C & assembly were filled with Boolean operations and truth tables...
- rahimnathwani 5y agoI found it in 2005 or 2006, a year or two after my MBA, and a few months after I started studying for professional accountancy exams. I wish I'd found it earlier. It was more in-depth than the MBA material on financial reporting, and was presented more logically than the study guides I'd been using.
- teh_klev 5y agoI think it was variances that tipped me over the edge. However what little latent knowledge I managed to stash away in my brain seemed to stand me in good stead later on. I guess another thing that stuck and thought was actually useful as a student was how to reconcile my bank account and cheque book.
- boppo1 5y agoAny advice for intermediate or advanced accounting? I studied finance in school, so I'm confident it the broad-strokes basics, but getting into deeper stuff is still intimidating.
- rahimnathwani 5y agoI'm not sure of your starting point or your goals, but maybe: 1. Wood's Business Accounting 2 2. Some of the CFA study materials 3. Some of the 10kdiver threads: https://10kdiver.com/twitter-threads/ https://10kdiver.com/twitter-threads/ 4. Books about financial fraud (that talk about incorrect ways to do accounting). 5. IFRS standards for your industry. 6. Googling 'Accounting for X', where X is something to do with your industry (e.g. 'virtual goods' or 'unpaid loan interest').
- boppo1 5y agoThanks!
- rahimnathwani 5y agoOne more thing - I think it's enlightening to, at least once, build financial statements from a set of transactions, and then to dig back from the summary, to the original transactions, i.e. 1. Export all the transactions from your accounting software (from the start of time, to the end of last month). 2. Export the chart of accounts from your accounting software. 3. Load these into two separate tabs in Excel. 4. Add a column to #1, that maps the account to the relevant account type (e.g. 'assets') and statement (BS or P&L), using #2 as a lookup table. 5. Create a pivot table from #1, to create a balance sheet. 6. Create another pivot table from #1, but this time use time (month or year) as a dimension. 7. See if you can relate some of the balance sheet and P&L values from your spreadsheet, with the values on the statements produced by your accounting software. 8. Assuming they match, go back to the balance sheet pivot table and double-click on one of the non-zero values. You will see a history of every transaction that changed that account.
- solatic 5y ago> Based on what I read, I could not recommend this. You could get to the end of the 'income statement' part, without encountering any definition of 'profit', which is the very thing that the income statement is meant to show. The thing is, that while cash is a matter of fact, profit is a question of opinion. This is a fundamental truism in accounting. You cannot really teach how accounting allows you to express your opinion until you first understand which facts you have to work with.
- rahimnathwani 5y agoIf that's the case, it seems even more strange to have the first two parts of the first section repeatedly refer to 'profitability'. But I don't agree that you have to start with facts. I think you can start with the account equation, then go on to types of asset/liability/equity, and only then move on to concrete examples of transactions, and how they impact the balance sheet. And then you compare two snapshots of your balance sheet to show what profit is. You can do all this with concrete examples with virtually no risk (e.g. a lemonade stand where people pay cash before they are served, with almost no equipment to depreciate, no long-lived inventory etc.).
- arbuge 5y agoThis brings back memories. We Frank Wood's BA1 to learn accounting at O-Level back in the late 80s in Malta! I wonder what edition that one was...