Accounting is an Accrual Profession

You can't talk about bean without hearing the word accrual. Sorry for the bad pun (couldn't resist).

In accounting, the bean counters try to make information forward-looking and incorporate into the financials all of a company's assets and liabilities.

Often this forward-looking concept is achieved through someone's best guess because they have only past experience or incomplete information. So when you hear the word accrual often the word best guess comes to my mind.

We'll explore this more, but for now, just think accrual = best guess.

An accrual Idea

So accounting is simple--well, or should be simple. Like all things, it is often muddled with overly-complex words and veiled concepts to obscure one thing--the truth. That's another discussion.

But as long as you know the fundamental underpinnings, the rest is just fluff. So what you may ask is that?

Here it is: Accounting helps you know what resources to use in the future (balance sheet), how you've been doing for a certain period of time (income statement), and where all our money has been going/coming from (cash flows).

Simple enough. Let's not be intimidated by all the big words (often a compensating mechanism) and information overload.

We'll explore bean counting and discover it's actually pretty useful (dare I say--cool).

Beans 1.01: Why Do I Care?

Bean counting has a stigma for being boring, but once you realize that it's a tool to help you accomplish your dreams, then how could you not be excited to learn more about it? Think of it as a skill with which you can do whatever you like. For me accounting is not boring because it's a means to accomplish my Free MBA Dream. Once you realize this, the rest is all tasty bean flavored cake.

So let's start with the purpose. Accounting helps you answer two important questions: (i) how is the business doing, and (ii) what resources do we have to get where we need to be? That simple, anything else is just extraneous.

As we continue through our survey course in accounting 101, we'll focus on the ideas. Once you know the concepts, it's just a matter of layering fancy terms on top of what you know.