Thursday, July 14, 2011

Accounting Demystified - My Book Report

Book Report for Accounting Demystified 

Introduction

Jeffrey R. Haber's book 'Accounting Demystified' is successful in fulfilling its purpose in demystifying the accounting literature to be understood by a nonprofessional. The book earns success for it can be used as a study guide in understanding any difficult accounting text or can also be used solely to learn accounts. An exceptional feature of the book is that the chapters are placed in the sequence to help grasp the accounting system and hence has not followed the sequence of accounting procedures. Examples and descriptions cited in the book are given in such a manner as to eventually match with accounting practices in the practical world. This helps to make one compatible enough to practice accounting as a profession. (Haber, 2004: 1-3).

The paper moves further to analyze on the success of the book as a beginner's guide. It proceeds by citing examples used by the author in different chapters to elucidate understanding on the complex accounting concepts and terminologies.

Financial Statements over the Accounting Process

Haber (2004) has not conducted the sequencing of chapters following the process or chronology of maintaining accounts. He has rather given stress on the idea of making one understand the accounting system. It is for this reason that the preparation of the Financial Statements has come before the Accounting Process. Generally, in all other books what follows is contrary to the above event. It is because Accounting Process takes care of the way entries are made into the books of accounts consisting of Journals, Ledgers, and the preparation of Trial Balances. The trial balance been prepared calls for the preparation of Financial Statements. However, providing firsthand knowledge of financial statements, which includes Income Statements, Statement of Retained Earnings, Statement of Cash Flows and Balance Sheet, helps to create an interest on the Accounting Literature than starting with the age-old notions of bookkeeping.

In dealing with the financial statements, Haber has dedicated a section on "notes to financial statements" or has given "footnotes" to provide concise understanding of some relevant portions. Further, Haber has also helped the reader to be acquainted with industrial or practical terminology of some financial statements to elude any misconceptions in future use. For example, he mentions the name Statement of Income instead of Income Statement and the Statement of Changes on Owner's Equity instead of Statement of Retained Earnings for familiarity of use.

While moving along the chapter if Financial Statements Haber has also mentioned a host of synonymous terminologies like Wage Expense or Payroll Expense instead of Salary Expense to help the reader from not getting confused.  While discussing assets and liabilities Haber has introduced a thumb rule for better understanding of the concept by beginners. He mentions that any account containing receivables as a word will signify asset and containing payables a liability. Diagrammatic presentation of the methodology behind preparation of financial statements is also given at the end of the financial statements chapter to let the beginner understand the importance of sequence. (Haber, 2004: 4-5, 9, 12-13).

Guidelines to the Book Entry System

Haber, while addressing the chapter of book entry aptly recognizes the problem the student or the beginner faces on rightly classifying the accounts to be assets, liabilities, equity account or a revenue or expense account. He also recognizes the problem encountered while making the debit and credit entries in respect to a beginner. To this end, Haber again mentions of a thumb rule by mentioning the word BALE that signifies Balance Sheet as the head consisting of Assets, Liabilities and Equities. Again, to make the beginner remember that the Income Statement consists of Revenue and Expenses he mentions the word IRE. Here, 'I' refers to Income Statement, which thereby has the 'R' as the Revenue and 'E' as the Expenses statement. Haber, while discussing the art of making entries as to Debit and Credit the most confusing understanding in Accounting has makes use of a Personal Life situation. In that, he gives an example of a man drawing his salary and thereby expending it. The sole idea behind giving this example is to make one understand that receiving cash to be recorded signifies a debit entry. On the other hand expending cash or in reducing the cash balance made on receiving signifies a credit entry. (Haber, 2004: 25-27).

Discussing the Concept of Inventory

Haber while discussing the concept of inventory takes the example of parents buying their children some popular toys. He makes use of this concept to highlight the importance of the inventory concept. As the notion goes, the most important part to take care in the inventory process is the matching of demand and supply of products stocked. Haber also makes use of an example of an office supplies store. Going about these examples the author lucidly explains the complicated book keeping entries related to inventory and the difficult tenets of Cost of Goods Sold and Inventory Costing Systems. (Haber, 2004: 52-54).

Explaining Intangible Assets 

The author through a lucid and interesting example of a real life situation explains the concept of Intangible Assets.  He explains that the amount paid to the legal system for patenting the name tantamount to asset capitalization and being intangible in nature constitutes an Intangible Asset. By the help of the example, Haber divulges more on the intricacies involved with Intangible Assets and acknowledges the reader with terms like Amortization.  (Haber, 2004: 85-86).

Conclusion

The above discussion made shows that the book can be referred to as a successful beginner's guide in the field of accounting and economics. It is found that unlike other books, which design the sequence of chapters, based on accounting practices Haber (2004) sequences the chapters on needs of understanding the concept. Haber thus takes an uncharted path in this respect. Each chapter of the book is loaded with practical world examples, illustrations and diagrams to help relate the concepts taught to its use in day-to-day practices. Hence, undoubtedly it stands out to be an outstanding resource in serving as a learner's guide in Accounting and Economics.


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