ARTICLE TABLE OF CONTENTS
What do you learn in an accounting class?
An accounting class is designed to teach you the fundamentals of accounting. This class provides key concepts, insights, and information that will help keep the books in order and make strategic decisions down the line.
Students begin with learning accounting terminology and the three main types of accounting: cost, managerial and financial.
This is a form of accounting used that helps management make decisions on current operations and making future plans. Costs associated with building your products and services fall under this umbrella. In this area, fixed and variable costs are considered, like labor, materials, production, overhead, and maintenance.
The main internal portion of the accounting process falls here. This is when all the financial reports, statements, and documents are compiled to look at the business performance and make changes or improvements. Management uses this information for analysis of records and identifying issues regarding daily operations. This includes risk management, performance management, and strategic management.
This is an external process. The business prepares financial statements for the financial health of the business. These documents are used by creditors, suppliers, investors, and customers.
Other types of accounting include public accounting, tax accounting, governmental accounting, forensic accounting, and auditing. These may be mentioned during the class to give students some familiarity of these methods in case they hear about them in the future.
Auditing is one that may come up. Students will discuss the different types of audits, including, compliance, investigative, financial, and tax. The IRS does investigative and compliance audits, and your accountant may do a tax audit.
Once the differences are understood, students are usually given a background in the principles of accounting, which are the Economic Entity Principle; Monetary Unit Principle; Time Period Principle; Cost Principle; Full Disclosure Principle; Going Concern Principle; Matching Principle; Revenue Recognition Principle; Materiality Principle; and Conservatism Principle.
The accounting cycle is covered, as business financials are based on the accounting cycle.
Here is the process:
• Recording transactions
Daily financials are recorded in the journal or ledger.
• Transfer transaction
Journal entries are transferred to the general ledger and the end of the cycle.
• Classification of transactions
At the month-end close, all journal entries become classified based on certain accounts. The company will have a Chart of Accounts outlining the revenue, assets, expenses, liabilities, and Shareholder’s Equity.
• Trial balance and entry adjustment
This calculates all the income and expenses in the general ledger. Entries are adjusted based on need and the accounting equation.
• Preparing financial statements
The general ledger’s information is used to prepare the income statement and balance sheet, and the cash flow statement.
To begin, students are taken through the different types of accounts: assets, liabilities, equity, income, and expense. Once the background on these types of accounts is covered, students start learning more about:
• Recording Transactions
• Balance Sheets
• Income Statements
• Cash Flow Statements
• Accounts Payable
• Accounts Receivable
• Journal Entry Adjustments
• Financial Statement Analysis
• Accounting Standards
• Business Forecasting
Understanding the assignments
Accounting can be difficult if you don’t understand the concepts. The goal is to have students grasp the key terms, concepts, and principles to show how the transactions taking place within the company will impact different equations. One of the key areas is comprehending the different financial statements – where they come from and why they exist. This will help in recording business transactions the right way, such as journal entries to successfully come up with a trial balance.
As you get deeper into the accounting processes, financial statements become a centralized part of the class. Financial statements are a module of its own, where students will learn to understand the purpose of an income statement and balance sheet, along with all the content that goes on it. Then, students will begin to see where the trial balance fits in when creating a balance sheet and income statement that reflects all the money going in and out of the company. These financial statements are very important, as they are needed when applying for a business loan or going through a valuation.
Journal entries are key to having complete documents. Students learn how to adjust journal entries through accounting transactions to see how they relate to the accounting equation and principles. During this section of the class, students will learn how to recognize, manage, and mitigate the risks of credit while recognizing how mishandling, misjudgment, and bias can impact your financial statements.
Every business is concerned with cash flow and must really grasp the knowledge of constructing and reading the cash flow statement. GAAP, Generally Accepted Accounting Principles, and IFRS, the International Financial Reporting Standards play a huge role in this area. That means your accounting must align with federal standards.
What is the difference between GAAP and IFRS?
GAAP is rules-based with four basic constraints: objectivity, consistency, materiality, and prudence. This is used by businesses in the U.S. reporting their financials. IFRS is used internationally by other countries. Their rules are not as stringent as GAAP. GAAP has 10 Principles:
- Principle of Consistency
- Principle of Regularity
- Principle of Sincerity
- Principle of Permanence of Method
- Principle of Non-Compensation
- Principle of Prudence
- Principle of Continuity
- Principle of Full Disclosure
- Principle of Utmost Good Faith
Once you have gotten the basics down on how to make journal entries, put together financial statements, and have a good handle on the terminology, learning how to analyze those financial statements becomes clearer. Students should be taken through the steps of evaluating the company’s performance using ratios of efficiency, profitability, leverage, and others. This helps evaluate where the company is and how to determine the strategy moving forward. This is key to maintaining the financial health of the business and can also point you in the right direction as it relates to scaling.
As the business grows, knowing how to forecast to predict revenue you may anticipate in the future, along with expenses and your cash flow is key. An accounting class demonstrates how to go through the valuation process and all the concepts and metrics associated with this. Knowing how to perform accounting for future growth makes a difference. During this phase, students should learn how to dissect an investment opportunity, or value a project or venture. Students will learn how to put together pro-forma financial statements, perform sensitivity analyses, and forecast and calculate free cash flows.
What studying accounting can do for you
Studying accounting can open doors for your business because you learn how to track your income and expenses. Having a business where you don’t know what’s coming in and going out can cause serious problems over time. Being able to manage your finances more effectively makes a difference, and you’ll put yourself in a position to compete with larger businesses when you need additional capital.
An accounting class doesn’t just teach financials, it teaches you how to successfully navigate entrepreneurship and move the company forward. When you have a good handle on your financial state, you will be able to make better decisions, create budgets that keep you in the black, and forecast for the future.
If you don’t know accounting or some of the concepts, you are doing your business a huge disservice that could result in additional fees and taxes because you weren’t on top of what you needed. The only way to ensure you are keeping a financial balance is by knowing some form of accounting to not only understand your financial position, but to monitor the work of others on your business books.
Payroll can be very tricky and has its own set of rules and regulations that must be followed. Business owners learn the intricacies of payroll, how it works, and how to make sure employees are properly classified, have the right deductions and how to determine them, and pay taxes due.
These are the things business owners will learn and understand in an accounting class, creating a solid foundation for your business now and in the future. If you are interested in taking an online class, check out our post on the best online accounting courses for small business owners.
Disclaimer: Please keep in mind that the content of this post is not intended as tax, accounting or legal advice. The information presented here is for informational and educational purposes only. Before engaging in any transaction, be sure to discuss these matters with a trained, licensed professional.