The art of accounting is taking a limited set of data to get an accurate description of how well a company is doing.
Definitions to understand.
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Understanding how the numbers are used and what are assumptions puts you in control of the decisions.
It consists of three main categories:
Different kinds of profit:
Accountants use accruals and allocations to attempt an accurate picture of the business for a month.
Financially intelligent managers understand the four distinct skill sets:
A good manager is aware of how both cash and profits affect a balance sheet. A balance sheet shows if a company is financially healthy.
The balance sheet answers the following questions:
Profit is not cash. A healthy business needs both profit and cash.
Inflows: Cash moving into a business
Outflows: Cash moving out of a business
Types of cash flow:
Financing a company: Getting a company the cash it needs to start up or expand.
Cash flow can be calculated by looking at the income statement and two balance sheets. When you know a company’s cash situation, you can understand what’s going on now, where the business is headed, and the priorities of senior management.
A balance sheet shows what a business owns at a particular time. A balance sheet always balances. Assets = liabilities + owners’ equity.
People's beliefs about their abilities have a profound effect on those abilities. Ability is not a fixed property; there is a huge variability in how you perform. People who have a sense of self efficacy bounce back from failures; they approach be in terms of how to handle them rather than worrying about what can go wrong.
Being an optimist almost always provides you only with advantages. Including in the financial field. While you might be facing lots of stressful days, as we all do, there is certainly room for more optimism, financially speaking. For instance, a good start could be to focus on actions that lead to the improvement of your financial health, rather than on how bad your financial reality looks like.
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