12 November 2021

Accounting Is Not Just for Accountants

People who use accounting information should know the basic rules of play and how the financial score is kept, much like spectators at a football or baseball game. The purpose of this book is to make you a knowledgeables spectator of the accounting game.

Let me point out another reason you should know accounting basics- I call it the defensive reason. A lot of people out there in the cold, cruel financial world may take advantage of you, not necessarily by illegal means but by withholding key information and by diverting your attention from unfavorable aspects of certain financial decisions. These unscrupulous characters treat you as a lamb waiting to be fleeced. The best defense against such tactics is to know some accounting, which can help you ask the right questions and understand the financial points that con artists don't want you to know.

Accounting Is Not Just for Accountants

One main source of accounting information is in the form of financial statements that are packaged with other information in a financial report. Accountants keep the books and record the financial activities of an entity (such as a business). From these detailed records the accountant prepares financial statements that summarize the results of the activities.

Financial statements are sent to people who have a stake in the outcomes of the activities. If you own stock in General Electric, for example, or you have money in a mutual fund, you receive regular financial reports. If you invest your hard-earned money in a private business or a real estate venture, or you. save money in a credit union, you receive regular financial reports. If you are a member of a nonprofit association or organization, you're entitled to receive regular financial reports.

In summary, one important reason for studying accounting is to make sense of the financial statements in the financial reports you get. I guarantee that Warren Buffett knows accounting and how to read financial statements. I sent him a copy of my How To Read A Financial Report (Wiley). In his reply, he said he planned to recommend it to his "accounting challenged" friends.

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