The purpose of THE ACCOUNTINATOR is to teach you to do your own accounting – quick, cheap, and easy.
But what is accounting? Why do you need to know it? How should you learn it?
|P ã e s * B r e a d sby Renata Diem, on Flickr|
What is accounting?
I’ll start with a simple story. Suppose Mom gives Jack three dollars to go to the store and buy some bread. Jack rides his bike to the store, buys some bread, and gives it to Mom, with some change. Jack took responsibility for spending the three dollars on bread. He had the authority to buy bread for Mom. And now (here’s the accounting) he shows her that the bread cost $2.75, and here is $0.25 change. The accounting here is that Jack showed Mom that he did his job properly.
Now replace Mom with a corporation’s shareholders. Take Jack out of the story, and replace him with corporate managers. No more fetching a loaf of bread, either. Instead, run a multi-million dollar corporation. Managers run the corporation on behalf of the shareholders. Here is accounting at its most sophisticated. Just like Jack did for Mom, the corporate managers must report their performance to shareholders, that they did their job properly.
|Bernard Madofffrom Wikipedia|
Let’s plug-in a different scenario. Replace Jack with Bernard Madoff (gulp!). Replace Mom with Madoff’s sucker investors. Instead of buying bread, the business is investing. Bernard Madoff owes his investors an accounting that he did his job properly. He faked that, and therefore we have a big mess.
|taxi Parisienby roger.salz, on Flickr|
Accounting is the language of business. This is how we talk about business transactions, profits, assets, and liabilities. This is how we measure financial liquidity and productivity. If you don’t know accounting, you don’t know the language of business, and you’re as helpless as an American tourist who can’t speak French in a taxicab in Paris. You don’t know the language, you probably won’t get where you want to go, and if you do, it will probably cost you a whole lot more, and take you a whole lot longer, than it should.
Business cannot function without accounting. People can’t loan money or invest in other peoples’ businesses. Without reliable accounting, every business is run by Bernard Madoff. The only safe place for your money is in your mattress.
Why should you know accounting?
There are numerous stories of well-intentioned and well-run start-ups that ultimately couldn’t reach their goals because they neglected their accounting. Take GroupOn. When GroupOn wanted to go public,
SEC paperwork (caused by inadequate accounting) delayed the process by five months, while the company filed eight different amendments to its SEC Registration Statement. By the time it was ready to go public, investors were frustrated and concerned about the company’s prospects.
More importantly, a sound accounting system is designed to help you understand the intricacies of your business. Who owes you money? Who do you owe money to? When do you earn the most revenues? Which products are most profitable? Being new to the blogosphere, I constantly read about Search-Engine-Optimization. I am totally clueless. But I can’t properly market and monetize this website without first learning the details of SEO. Likewise, you can’t properly run your business and maximize your profits without a working knowledge of accounting. It is the language of business. If you don’t know the language, you can’t conduct business.
How should you learn accounting?
Follow THE ACCOUNTINATOR. Every day, I give you an important fact or two to learn. It could be about taxes or bookkeeping, or productivity, or even personal finance. My goal here is not to turn you into a CPA. It is to help you understand accounting well enough to run your business better and to pay less taxes.
No website can substitute for a professional accountant. Regrettably, there are some accounting situations that I can’t explain in 300-words-or-less. If you’re getting auditing by the IRS, you probably need a professional accountant or tax lawyer. If you need audited financial statements to get a loan, then you will need to hire a Certified Public Accountant. There are many accounting situations, like estate planning, where a fool would be his own accountant. You can save a lot of money by hiring a well-qualified person.
|Mark HoltzmanTHE ACCOUNTINATOR|
And who am I? I am an overly enthusiastic accounting professor. I grew up on Long Island, New York. I have an accounting degree from Hofstra University, in Hempstead, NY. After graduating Hofstra, I joined Touche Ross & Co., which is now part of Deloitte, and got promoted to Senior Auditor in their New York Office. Here also I earned my Certified Public Accountant designation. Next, I earned my PhD in Accounting at The University of Texas at Austin (Go Horns!), where I wrote my doctoral dissertation about earnings management in the oil and gas industry. After that, I returned to Hofstra University as an Assistant Professor of Accounting. Today I am an Associate Professor and Department Chair of Accounting at Seton Hall University, in South Orange, New Jersey. I’ve published articles in the CPA Journal, Journal of Accountancy, Research in Accounting Regulation, and the Accounting Historians’ Journal. I co-authored the book Interpreting and Analyzing Financial Statements (5 ed) with my friend and colleague Prof. Karen Schoenebeck.