I believe that accountants are the unsung heroes of civilization. Accountants are the people who know how the money works.
If you have an accountant, you may have noticed that they aren’t very interesting to talk to, at least not about their work. They don’t want to say anything that might get them in trouble. And most of what they do is so dull it can’t be made exciting anyway. It’s like listening to someone describe their job as “pushing colored bits of paper around on a desk.”
But without accountants, there would be no civilization. Accountants make civilization possible by keeping track of who owes what to whom, and making sure everyone pays up on time. Without double-entry bookkeeping, there wouldn’t be enough money to pay for all the stuff that makes civilization worthwhile in the first place.
It is very important for your accountant to keep your books in order and know what is happening with your money.
Accounting is about keeping your books in order so you can figure out what is happening with your money.
The way to think about accounting is to imagine keeping track of your money while playing a game of poker. You have one pile of chips that represents your money. As the game progresses you need to keep track of the chips in order to know how much you have left.
If you are holding a pair of sevens, it’s not enough to remember that you have seven chips. You also need to know that there are no other sevens in the pile, because if there were then there would be some chance that an opponent could make you “fold”, which would leave you with nothing. So in addition to knowing how many chips you have, you also need to know what other kinds of chips are in the pile.
This chip-counting strategy is something an expert player does subconsciously. An expert player can look at her hand and quickly calculate whether she has a good chance of winning the pot, and she can do this for every hand on the table at once. She knows how many chips everyone has and roughly how good their hands are, and she can add these things up in her head and see where each hand stands.
Keeping your books in order is a good habit to get into, not just as a matter of book-keeping but as a way to keep track of what you do with your money. You can also use it as a tool for planning your future.
The simplest form is just an expense report, listing each expense and its category: food, rent, gas, etc. This is good for understanding where your money goes. The details are up to you — sometimes you might want to get fancy, but often the simpler the better. Simple reports are easier to stick to every week, which makes it easier to remember what you are doing.
The second form is a budget. Budgets are usually more complicated than this — they include things like estimates for future expenses or income — but the principle of comparing actual income and expenses stays the same.
When you’re young, it’s hard to see just how expensive it is to live in New York. After all, it’s not so bad if you can split the rent with three roommates. You can manage if you skip the $200 restaurant meals, $8 beers and $3 lattes.
But at some point you decide you want to live by yourself. Suddenly every dollar counts. If you live in New York long enough, eventually a roommate will steal from you. It happens a lot more often than you’d think, and usually it’s the nicest person who does it.
You can prepare yourself for this by keeping your books in order. You’ll want records of every rent check you write—who to, what apartment number. If your roommate moves out without paying his share, you’ll have a record of that too.
Treat your debit card like a credit card: never pay cash for anything unless it’s under ten dollars. Keep track of everything that goes on your debit card—people forget things when they swipe their debit cards—and check those statements carefully every month after they arrive in the mail.
The first step to taking control of your financial situation is keeping good records. If you have a lot of transactions, there are programs that can do this for you.
If you don’t have a lot of transactions, a simple notebook should suffice. Put a record of every transaction in a column on the right hand side of each page.
You don’t need to be an accountant to maintain your financial health. You can do it yourself, with a little effort, and no more cost than the price of this book.
One of the most important things for a business to know is how much money it has. And one of the most important things for a business to be able to do is to change that number.
The need to be able to change it – “flexibility” – can seem an obvious point, so obvious as not to need saying. But sometimes people who understand the need for flexibility nevertheless balk at actually using a flexible system, or complain about a system’s lack of flexibility when they really mean its lack of simplicity.
One example is the now-obsolete register-based computer systems that were once widespread in bookkeeping processes. Back then, those systems had been designed by people with no real interest in accounting, and as a result they gave you an answer that was accurate but useless: they were unable to tell you what you needed to know. And yet even after those systems became obsolete, I found accountants who were reluctant to give up on them, because their existing training had not prepared them for any other approach.
What they wanted was a computer system that would allow them to perform their familiar procedures using keystrokes instead of physical movements – which would have meant more work for them but would also have enabled the firm’s bookkeeper.