Accounting information is relevant (“accounting relevance”) when it is capable of making a difference in a decision. Suppose that you’re trying to decide what to eat for dinner: A hamburger? Or a salad? What information is relevant to your decision? The price of each meal, perhaps. And consider the number of calories, too. Do you have […]
Continue reading…
Accounting
When does accounting information have “predictive value?”
In accounting, information has predictive value when you can use it to form expectations about the future. Using the future to predict the past How should investors make decisions about loaning money to a company, or investing in its stock? High quality accounting information helps investors to make these decisions. When you think about it, investors really want […]
Continue reading…
What is the economic entity assumption?
The economic entity assumption is one of four assumptions underlying financial statements. It says that you can identify economic activity with a particular unit of accountability. Put another way, the economic entity assumptions says that certain transactions are “inside” a business, while other transactions are “outside” of the business. Suppose that you run a candy […]
Continue reading…
A simple accounting spreadsheet for Microsoft Excel
Click here to download the spreadsheet Click here for YouTube video explaining how to use the spreadsheet. Check out my new e-course, Accounting for Startup Businesses for 50% Off. Learn to do accounting using open-source software. I designed the spreadsheet for a simple business that does 355 transactions a year or less. If you do more […]
Continue reading…
Looking for new software, partner?
For you accounting software buckaroos out there, I thought you might be interested in this here Infographic: i © 2012 Red Wing Software
Continue reading…
What are expenses?
A penny saved… Expenses are the cost of producing revenues. The largest expense for most companies is something called cost of goods sold. This is the cost of buying or making the products that you sell. For example, if you buy vitamins for $10/bottle and sell them for $30/bottle, then your cost of goods sold […]
Continue reading…
6th Edition of My Book is Here!
Interpreting and Analyzing Financial Statements focuses on helping you to understand how to use financial statements. While we wrote it specifically for an introductory college accounting course, anyone interested in learning how to read and analyze financial statements should benefit from reading it.
Continue reading…
Opportunity costs explained
When faced with a decision, opportunity costs are the costs of foregoing income from choosing one alternative instead of another. For example, suppose that you are trying to decide whether to Go out for lunch in a restaurant today or Bring lunch and eat it at your desk. Lunch costs $2.00 to make. Lunch in […]
Continue reading…
Why you need to know accounting: Tools for businesses
Many people think that they should just leave accounting to the accountants. After all, you can always hire an accountant. In fact, every person in business should know and understand accounting because it is the very language of business. Doing business without understanding accounting is like trying to fix your car without tools, going to […]
Continue reading…
How to measure progress
What’s your goal? How can you measure progress towards meeting your goal? These are practical questions – not only does every business person need goals, but they also need to measure progress. I’ll give you a simple example. I’m blogging. My current goal is to get people to read my blog. I measure my performance […]
Continue reading…