The Ultimate Book on Accounting
Short post on why this book is fantastic to understand accounting
Reading annual reports, research articles, letters, and so on, provides you with many insights about how accounting works. So does academia, for that matter. Nonetheless, I always felt I had a lot of individual pieces of knowledge about accounting, but lacked a common structure. The book that solved this problem and massively boosted my understanding is Financial Intelligence. I’ll briefly hereafter explain why I think it’s so good.
Accounting is not a science, yet it’s interesting to me how many professionals, books, and articles, act as if it is. This book continuously reminds the reader about the limitations of accounting in very useful manners. For instance, it goes through numerous cases of fraud and how the principles, not rules, were taken advantage of.
The book is structured in 4-5 pages chapters, with each having numerous 1-2 pages subchapters. Authors’ intention is for you to read it every time you have 5 minutes available, and it’s written in that way as well. I honestly found this feature phenomenal, for the book was far from my main read.
Karen and Joe don’t want you to become accountants. They want you to understand what’s going on in the finance department, be able to deal with accountants, and help you add value. In consequence, the book is a much lighter read than any other I’ve come across.
I have the sense most books spend pages speaking about single concepts, when it’s not necessary. These guys write concise, but precise, definitions. When necessary, they tie them with principles and exercises.
They help you understand the obscure jargon accounting is filled with.
Does not paint false realities. For example, when speaking about valuations, it very rapidly addresses how much personal opinion there is involved.
Joe and Karen are practitioners, so they know what are the pitfalls people fall in. Hence chapters are specifically dedicated to some of these. How profit differs from cash, for instance.
The book helps you empathize with accountants. It walks you through the decision-making process they have to follow. That way, you recognize how many grey areas there are and how difficult it is to write any single line in financial statements.
Although relatively short, the book does expand when it’s necessary, taking numerous pages and as many number examples as required. I’d say there’s not a single example that shouldn’t be there.
It covers, very simply, the intricacies about financial statements, returns on capital, M&A, the cash conversion cycle, and many things one would think are sophisticated.
Lastly, Joe and Karen explain the why of things all throughout the book. At the end, they address how cash is the element that ties all financial statements together. It is truly enlightening how this last thing is done.
Final Remark
I cannot recommend this book enough for anyone who’s interested in investing. I’d argue this book is perfect for beginners, intermediates, and even people who are well acquainted with the elements behind accounting. For beginners, it gives a spectacular overview and, if studied properly, the 80% that’s needed; for intermediates, it helps solidify already acquired knowledge and sheds some light on obscure corners; for advanced people, the structure it provides is superbly useful, and the book could be used repeatedly when dealing with reports.
Adding to my list. Thanks! There are couple of easy to read books that helped me a lot by Thomas Ittelson.
Net Income is the Rain.
Cash Flow is the River.
Total Assets is the Ocean.
Rain gets into the River flowing to the Ocean.