Accounting Made Simple: Summary Review

This is a summary review of Accounting Made Simple containing key details about the book.

What is Accounting Made Simple About?

Accounting Made Simple is a guide to basic accounting. Written with business app development in mind, the author discusses some of the most common accounting processes, including assets, multiple accounts, journaling, posting, inventory, and payroll.

Who is the author of Accounting Made Simple?

Mike Piper is the author of several personal finance books and the popular blog Oblivious Investor.

How long is Accounting Made Simple?

  • Print length: 114 pages

What genre is Accounting Made Simple?

Business, Finance, Accounting

What are the main summary points of Accounting Made Simple?

Here are some key summary points from Accounting Made Simple:

  • Takeaway 1: An accounting equation measures how healthy your finances are: Assets = Liabilities - Equity. Or, if you want to know your equity, or how much you truly own/have: Assets - Liabilities = Equity
  • Takeaway 2: The balance sheet is the complete list of assets, liabilities, and equity and outlines your personal or company's financial health
  • Takeaway 3: An income statement tracks financial performance over time, usually a financial year or quarter, and outlines total income after subtracting total expenses from gross profit.
  • Takeaway 4: The cash flow statement records outflow and inflow of cash and differs from an income statement by outlining a company's financial health in current circumstances, not over a set time period. It combines operating activities, investing activities, and financing activities to check for positive or negative cash flow.
  • Takeaway 5: Ratios are used to analyse the above statements. They are a fast way of knowing whether your company or business is running efficiently and is profitable.
  • Takeaway 6: Accountants use a double-entry data system to record financial activity. If you were to buy a desk for $200, you would record that as -$200 in your personal bank account. But, accountants would record that as both a debit and a credit - $200+ in assets and - $200 in cash. All of these are recorded in the general ledger, which is used to create financial statements.

What are good quotes from Accounting Made Simple?

“For every transaction, a journal entry must be recorded that includes both a debit and a credit. Debits increase asset accounts and decrease equity and liability accounts. Credits decrease asset accounts and increase equity and liability accounts. Debits increase expense accounts, while credits increase revenue accounts.”

“Accumulated Depreciation is what’s known as a “contra account,” or more specifically, a “contra-asset account.”

“Intangible assets are real, identifiable assets that are not physical objects.”

“time. The trial balance is typically prepared at the end of a period, prior to preparing the primary financial statements. The purpose of the trial balance is to check that debits—in total—are equal to the total amount of credits. If debits do not equal credits, you know that an erroneous journal entry must have been posted. While a trial balance is a helpful check, it’s far from perfect, as there are numerous types of errors that a trial balance doesn’t catch. (For example, a trial balance wouldn’t alert you if the wrong asset account had been debited for a given transaction, as the error wouldn’t throw off the total amount of debits.) Chapter 8 Simple Summary For every transaction, a journal entry must be recorded that includes both a debit and a credit. Debits”

“The goal of GAAP is to ensure that companies’ financial statements are prepared using a consistent set of rules and assumptions so that they can be compared to those of another company in a meaningful way.”

“Prepaid Rent is an asset account. Over the course of the three months, the $4,500 will be eliminated as the expense is recorded. Assets caused by the prepayment of an expense are known, understandably, as “prepaid expense accounts.”

“The benefit of the additional accounting accuracy is far outweighed by the hassle involved in making insignificant depreciation journal entries year after year.”

“Assets = Liabilities + Owners’ Equity”

“The statement of retained earnings acts as a bridge between the income statement and the balance sheet. It takes information from the income statement, and it provides information to the balance sheet.”

“XYZ Consulting takes out a loan with its bank. The loan will not appear on the income statement, as the transaction is neither a revenue item nor an expense item. It is simply an increase of an asset (Cash) and a liability (Notes Payable). However, because it’s a cash inflow, the loan will appear on the cash flow statement.”

“Liquidity ratios are used to determine how easily a company will be able to meet its short-term financial obligations.”

― Mike Piper, Accounting Made Simple
 

What are the chapters in Accounting Made Simple?

Chapter 1: Accounting Equation
Chapter 2: Balance Sheet
Chapter 3: Income Statement
Chapter 4: Statement of Retained Earnings
Chapter 5: Cash Flow Statement
Chapter 6: Financial Ratio
Chapter 7: What is GAAP?
Chapter 8: Debits and Credits
Chapter 9: Cash vs. Accrual
Chapter 10: The Accounting Close Process
Chapter 11: Other GAAP Concepts & Assumptions
Chapter 12: Depreciation of Fixed Assest
Chapter 13: Amortization of Intangible Assests
Chapter 14: Inventroy & CoGS

Is Accounting Made Simple worth reading?

The majority of customer reviews on leading review sites are positive. Here's what some reviewers had to say about the book:

"Very simple book on the basic fundamentals of accountng. Short, easy introduction to the topic that's easy to digest. It allows to get an overview of the subject and will prime you for anything more in-depth to follow."

* Key sources: LibraryThing, Amazon, Wikipedia

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Founder

Tal Gur is a location independent entrepreneur, author, and impact investor. After trading his daily grind for a life of his own daring design, he spent a decade pursuing 100 major life goals around the globe. His most recent book and bestseller, The Art of Fully Living - 1 Man, 10 Years, 100 Life Goals Around the World, has set the stage for his new mission: elevating society to its abundance potential.

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