Accounting Made Simple

My startup team had just finished incorporating Fanhouse, and along comes the need for corporate bookkeeping. Even though the company is in its infancy and no real accounting work need be done other than noting down some simple revenue and expenses on a single-entry journal, I wanted to learn how the end of year books would be made and just how money in a corporation really worked. This book is 100 pages, super simple, dense enough to show the point yet not complicated at all. It goes through the three statements: balance, income, and cash flow, and what they work for and examples of each. It goes through GAAP, which is the accounting standard that all public companies are held to, which is not very relevant to us because we’re not a public company (and also tech companies often don’t have the same line items as companies having physical sales); still, learning about GAAP encapsulates a lot of good concepts such as accrual over cash accounting, what credits and debits really mean, and relevant financial ratios just for fun.

The most important point that I learned was the standard three statements and what they did. I learned that the balance sheet kept a snapshot of all the current assets, liabilities, and equity of the company at some certain point in time. What it doesn’t show is how those change over a period of time, and so the other two statements, the income and cash flow statements, show the delta of the financial state of a company, analogously the “video” to the balance sheet’s “snapshot” view. The income statement consists of total revenue and expenses over the period of time, while the cash flow statement shows all the inflow or outflow of cash, which can overlap with income statement but also include things that don't go on the income statement like loans, which is a cash inflow that is neither a revenue nor an expense. Although the concepts are elementary, it’s a good foundation and I’ll probably have to learn in more depth when the need arises.