Understanding birth, death and rebirth — the karmic accounting life cycle
Discovering the mother of all debits and credits — your first trial balance
Transforming the trial balance into something useful
Starting a new accounting cycle
In this chapter, I talk about how to construct Profit & Loss and Balance Sheet reports from scratch. The more computer-savvy of my readers may be wondering why I go to all this trouble. After all, if you use accounting software, generating a Profit & Loss or Balance Sheet report is as simple as clicking a single button, isn’t it?
The reason why I explain how to build these reports from scratch is this: Understanding the mechanics behind the construction of financial reports enables you to understand the whole accounting cycle from beginning to end. This gives you a deeper understanding into how the transactions you record impact on financial reports and, ultimately, into the reports themselves.
Of course, if you have accounting software and you aren’t remotely interested in discovering how financial statements get constructed — maybe you’re the business owner and all you want to know is whether you’re making a profit or not — then by all means skip this chapter. I won’t be in the least offended.
Reviewing the Accounting Cycle
Whether you do books by hand, with a spreadsheet or using accounting software, the accounting cycle remains the same. The difference with accounting software is that much ...
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