Principles of Accounting - Free eBook in PDF Format

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Financial Performance eBook


Book Description - ISBN 978-1-62620-953-4 (32 Pages)
This free eBook explains all of the basic accounting concepts and terminology you will need to understand the three primary financial statements that appear in every organization's annual report and most internal monthly reports.

Chapter 1 - Accounting Concepts and Conventions
As a manager, you will usually be expected to understand simple financial reports and communicate effectively with financial people in your own organization. You may also be asked to contribute financial data about your own business unit.

Chapter 2 - Basic Accounting Concepts and Financial Statements
The basic principles of accounting are best understood by considering some simple businesses and how they might document their financial activities.

Chapter 3 - Cash Accounting
The main limitations of cash accounting are that: there is nowhere to show 'unpaid bills'; there is no way of seeing any historical trend in the figures; and no allowance is made for major purchases or asset acquisition.

Chapter 4 - Accrual Accounting
Accrual accounting is considered to be the standard accounting practice for most organizations, and is mandated for organizations of any real size. It provides a more accurate financial picture, but is more difficult to administer.

Chapter 5 - Basic Accounting Terms
Terms like 'revenue,' 'expenses,' 'gross profit,' 'depreciation,' 'bad debt,' and 'fixed assets' have precise definitions when used in business accounting. You need to understand exactly what is meant by accounting terms like these.

Chapter 6 - Revenue Recognition Principle
Revenue is something that is generated by the business in exchange for goods or services. It does not include things like bank loans or overdraft facilities. Any payment for a service or product in advance of any work being performed is a 'receipt.' It only becomes a 'revenue' item once work (on behalf of the customer) actually begins.

Chapter 7 - Matching Principle
The matching principle aims to minimize any mismatch in timing between when an organization incurs costs and when it realizes any associated revenue.

Chapter 8 - Example Income Statement
An income statement is an accounting of revenue, expenses, and profit for a given period. This can also be an internal document that can be used to make management decisions about almost any activity where you have a record of the money spent and the associated return.

You will learn:
  • The precise meaning of the essential accounting terms
  • The purpose of the income statement, balance sheet and cash flow statement
  • The differences between cash based and accrual based accounting
  • The 'revenue recognition' principle and the 'matching' principle
  • How depreciation, prepayments and bad debt are allowed for

I Was Never One for Finance...
Like any manager, my focus was on getting the best out of my team and improving the bottom-line of the company. As a result, I was constantly devising strategies and plans to enhance productivity and commitment. I was never one for finance. My aim was to make my team the best in the organization. Yet, at my position, I could no longer ignore the importance of accounting statements of the company. The people in finance kept trying to explain what the statements showed but I didn't learn too much from them. I realized I needed help and that I got from Free Management eBooks.

Their eBook on Accounting Principles takes the technical aspect out of financial statements and strips them down to their bare bones. For a non-accounting person like me, this is something very important. Now I have a clear idea of what the three major statements, i.e. the income statement, the balance sheet and the cash flow statement represent. Not only that, I can measure the performance of my team in terms of tangible numbers, something I previously used to overlook.

Perhaps the most important thing I realized was how the company spent cash. I never paid much attention to the spending and income simply because I didn't have the time or inclination for it. When I finally got around to seeing it, I saw the company wasn't in the best shape with regards to cash flow. We were spending much more than the cash we had on hand. After reading Accounting Principles, I started working in tandem with the accountants to find ways to curb the outflow of cash.

Six months on, I have been able to cut down cash spending by over 20%. This is an achievement for someone unfamiliar with even the basic accounting concepts before then. In the current economic climate, it is important for business managers to have a keen insight into the accounting aspect of their company. Maintaining a healthy cash flow balance is as important as retaining profitability. I learned my lesson and so should you.

At first, I thought that the eBook was too basic in terms of execution. It gave a primer on the main financial statements but didn't elaborate in much detail. This was something I felt was lacking in the eBook. It was later that I saw that Free Management eBooks had several more eBooks on finance and accounting Skills on their website.

Coming back to my experience, I also learned the meanings of a few basic, yet important accounting terms and principles. For instance, I had no idea what accrual based accounting was but I do now. Same goes for the revenue recognition and matching principles of accounting.

I was confused about the expenses which have to be accounted for yet where no money is being spent, like depreciation and bad debts. Let alone understand how they are shown in the accounts, I didn't have a clue why they were termed as expenses in the first place. The eBook doesn't explain this in too much detail but it did give me a solid idea of the concept behind adding these 'non-cash' expenses to the accounts. A little more detail on the concept will be helpful nonetheless.

I feel I have become a well-rounded manager after reading the eBook on Basic Accounting Principles. Now I am able to contribute towards one area of the business of which I previously had no knowledge of.
Miles Norton

Told Me Just Enough
There comes a point in your career when you realize that you really do need to understand this stuff. Thanks for providing such a short book that told me just enough to understand what the bean-counters are talking about without boring me too much.
Henry F

A Basic Book With Terms and Concepts Simply Defined
The word "accounting" has always been so scary to me. There are so many terms with such complex definitions. I did not believe that I could ever figure the basics out. I did not know where to start. If you simply search for accounting on the internet you will come up with endless books, articles, terms, and definitions. I did not even know where to look to come up with terms to research. I am to the point in my career where it's time to dive into the accounting world if I want to be promoted. Because I thought that accounting was so complex, I have always let others take over that aspect of the business.

I really needed a basic book with terms simply defined so that an average person, without an accounting background, could understand. Thankfully for my career, I have found it! This book is free and only 30 pages long. It does not get any more simplistic than that. Before this book, I could not tell you what an income statement, balance sheet, or statement of cash flow was. This book did an excellent job of defining each of those. If you need to learn even more about income statements, balance sheets, or statements of cash, there are specific books related to each of those found on the same website as this book. The book begins with income statements. Although it sounded really complex, it was actually very simple to understand. Using a business that I could understand as an example was a simple way of clarifying the details of an income statement.

First, the book explained the basic terms to start with. Revenue, expenses, and net income were all easily defined and then turned into an equation that I could understand. Revenue-Expenses=Net Income. The book then went on to describe cash accounting and accrual accounting. Cash accounting is simply recording the money when it is actually received or paid out from your bank account but should only be used by small businesses. Accrual accounting is used for most businesses. Accrual accounting uses invoice sent out as "sales" even if they have not been paid yet. It also considers expenses during the period, but not when it is actually paid out. Accrual accounting seems a little more complex to me, but because of this book I was able to comprehend it. The author goes above and beyond to define the term and then use and example to help you better understand it.

This book also helps you clearly decide which type of accounting you should be doing. If you have a simple small business you may go for cash accounting. Cash accounting has some limitations that are easily defined. Understanding the advantages and disadvantages can help you decide what type of accounting that you need to use. There is a section of the book that contains 14 terms that are used in basic accounting. Some of them I had actually heard of while others I had not. Either way, when I completed this book I was able to speak about each of these terms in an educated manner. I want to encourage anyone who needs to learn the basics of accounting to read this book. It is a simple book that is very easy to understand. If you need to read about the topic in depth they can be found on the website too.
Jay Pope


Working Capital Management - Unpleasant surprises are one thing you want to avoid or keep to a minimum, especially when it's to do with your responsibilities at work. Every manager relies on the contributions of others both inside and outside of his or her organization. Knowing how healthy your suppliers and customers are will help you to make the right decisions so that you perform your role successfully.

Understanding Assets and Liabilities - Knowing the difference between an asset and a liability is important for every member of management, mostly due to the fact that these are both used when putting together a 'Balance Sheet' for the company. While you may not be an accountant or even in the accounting department, knowing the difference will make it much easier for you to understand the normal, day to day affairs of your organization. Such knowledge can even make you more attractive when the time comes for you to be considered for a promotion… which can lead to higher pay and a more desirable title.

Importance of Understanding Accounting Terms - As a manager, you most likely have a drive to move forward in your career. You probably want more responsibility, more authority, a better position, and in the end… more pay. You may even want to climb to the top of the ladder! To achieve the recognition you deserve you need to be fluent in 'financial speak' so that you can converse with senior managers, CPA's and accountants at their level. It is essential that you know and can talk about the difference between 'net sales' and 'net income' is more important than you may think.

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