Chapter 1. Accounting: The Language of Business, Investing, Finance, and Taxes

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.