In This Chapter
Realizing how accounting is relevant to you
Grasping how all economic activity requires accounting
Watching an accounting department in action
Shaking hands with business financial statements
Mama, should you let your baby grow up to be an accountant?
Accounting is all about financial information — capturing it, recording it, configuring it, analyzing it, and reporting it to persons who use it. I don't say much about how accountants capture, record, and configure financial information in this book. But I talk a lot about how accountants communicate information in financial statements, and I explain the valuation methods accountants use — ranging from measuring profit and loss to putting values on assets and liabilities of businesses.
As you go through life, you come face to face with accounting information more than you would ever imagine. Regretfully, much of this information is not self-explanatory or intuitive, and it does not come with a user's manual. Accounting information is presented on the assumption that you have a basic familiarity with the vocabulary of accounting and the accounting methods used to generate the information. In short, most of the accounting information you encounter is not transparent. The main reason for studying accounting is to learn its vocabulary and valuation methods, so you can make more intelligent use of the information.
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 knowledgeable spectator of the accounting game.
NOTE
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.