Now that you know “Why Accounting is Difficult to Learn”, let’s think about how to learn accounting for non-accountants.
Objective to learn Accounting for Non-Accountants
1. Understand Balance Sheet, Profit and Loss Statement, Cash Flow Statement
Financial condition is essential for business professionals because this is the foundation of understanding business. Companies must continue business based on going concern concept. If companies cannot adapt to the external business environment, it ‘s hard to survive in the competitive market. We need to know how much assets companies invested to earn a profit. Also the relationship between Asset, Liability and Equity. How you source Assets, what type of Assets you own shows the financial health of companies. You need to be able to read and understand Balance Sheet, Profit and Loss Statement, Cash Flow Statement. We want to make sure business strategies that senior executives presents are aligned with the financial conditions of the company. Strong leadership from management with economic fact builds the trust not only for external shareholders but also to employees to commit to working and generate value to customers and society. We provide related blog post below.
2. Profitability, Efficiency and Stability
When we say we want to analyse financial conditions of companies, we need to assess from the following points. How much profit did you make from business activities? What are the Assets you need to gain revenue? How healthy is your company to avoid bankruptcy? These are basics of financial analysis which you can find in any accounting lessons. However, the point is not only memorising the calculation formula but also to explain reasons for the ratio and conditions of the company.
3. Understand Industry Characteristics
Each company perform a different type of business activities depending on the industry. Based on the nature of the industry, the point you need to focus on will be different. For example, the manufacturer requires massive investments in machines and factories to manufacture products. On the other hand, service business may not need a huge amount of Fixed Assets but may take longer lead time to book revenue as it is required to complete the service to book sales. Whole sellers consist more inventories in assets because they need various product line-ups to fulfil the demand. Analyzing the characteristic of the industry is an important factor for understanding the financial conditions.
4. Compare Financial Conditions Among Companies
What you want to know about company’s financial conditions is the position against key competitors in the market. Benchmarking is one of the essential skills you need to be able to perform financial analysis. If you can present your opinion on business strategies with financial facts, this will make your analysis realistic. Showing quantified fact will make it easier to convince your management or stakeholders and get the buy-in of your presentation.
6 Steps To Learn Accounting For Non-Accountants
These are the five steps to learn Accounting for non-Accountants.
By following these steps, you will be able to achieve the objective above.
In most accounting training, they will take more time in the bookkeeping, journal entries, creating trial balance, and financial statements.
Less time will be spent to understand the concept of Balance Sheet and Income statement. (Remember, how to create financial statement is not your ultimate goal as non-accountant.)
You will need to focus more time rather than the memorising the journal entries for each business activities.
1. Start from Balance Sheet Concept
You should always start from balance sheet concept as this is the key to understanding the assets you will use to perform business. Don’t rush to learn Profit and Loss Statement until your understanding of Balance Sheet is clear. Spend more time to learn what is Assets, Liability and Equity. Give some examples of why we need to classify in this three concept. The more you understand the concept of the Balance Sheet, you will know key points to review Balance Sheet to perform financial analysis in the later stage. You can learn 9 Tips For Reading Balance Sheet and start your learning now.
2. Understand Why Balance Sheet is not enough (=Why you need Profit and Loss Statement)
Next step is to realise that if you only had Balance Sheet, you don’t have enough information to know about how well the business is performing. You may already have an image of Profit and Loss Statement. We recommend taking more time to feel the necessity of profit and loss and also the linkage between Balance Sheet. Most cases you will learn Balance Sheet and Profit and Loss Statement at the same time. This makes it complicated as most teachers will teach it as a rule rather than what it means.
3. Importance of Cash
Before you learn about Cash Flow Statement, you need to know about the importance of Cash management. Most people know what Cash is, but do you know why companies need to ensure that Cash Flow is positive? Can you explain why companies struggle to manage cash although we all recognise the importance? Can you tell how Cash impacts businesses and how bankruptcy occur although companies are making Profit? Learn the critical issues to manage cash and what are the key points to review Cash Flow Statements.
4. Visualise Accounting Process from Business Activities
Once you understand the financial statements, we do agree that you need to learn how to create financial statements. In most of the accounting training, there are examples of business activities to understand what type of journal entries to create. We think there is a huge gap regarding general accounting process we see in our organisation against the traditional way of book keeping. Also, we use IT system to record journal entries, where traditionally we used accounting books (paper) to record financial records. Surprisingly, our accounting course still teaches us Accounting based on the traditional way to book Accounting records. For example, most company’s have different roles and responsibilities in each organisation to perform business activities. Image based on actual business operations is much more practical and easier to understand because it is much more close to the actual business process you see in business.
5. Business Model and Financial
Learning a business model for the major industries are important to support you understand the characteristic of the industry. Manufacturers, Traders, Retail and Distributions, and Service industries will have certain similarities regarding financial statements according to the business model. You can pick one or two industries you are interested, and understand the business model. Understand the financial impact it may have according to the company so that you know which ratio to focus on when you perform financial analysis.
6. Practice Financial Analysis
When we learn about financial ratios, we memorise the calculation formula because there are exams at the end of the training course where they ask you to calculate financial ratios. You do not have to memorise the formula, because when we use them at work, we can look up the calculation method anytime. It is more important to be able to explain why you choose the ratio to analyse the business performance and the observation you have based on the calculated figure. Ask yourself why you need this financial ratio to justify the logic? Why do you think the business performance is more or less than what you expected? Practice to perform quick analysis by using the financial statements. The majority of the companies financial statement are available on their corporate websites. Then you will get the point how to apply financial analysis in your business.