Acounting for the non accountant - by a computer programmer

Accountants and their meaning

Accounts and Accountants exist to tell the important people in a business what assets the company has. This could mean the MD or it could mean the bank manager. (We say exist, put the existence of accountants cannot be proved, only inferred from presence of some accounts, the existence of which can only be confirmed by one of the previously postulated accountants. A different proof involves counting the number of sports cars in the car park.)

To perform accounting functions we employ a vastly over complicated system peppered with a hybrid language of its own that has never really been designed, instead it has congealed from the collective minds of many accountants over the last couple of hundred years or so.

Assets, on all levels, are represented by money, which as we all know is an arbitrary system of mutual trust invented to prevent people needing to carry an inconveniently large amount of livestock in their handbags.

Therefore an accountant should know how much money he should be getting from other accountants, and who he should be giving it to, and where he has put it in the mean time. This concept is called cashflow. The accountant also needs to account (hence the name) for all the cash that has flowed and be able to report back to his elders and betters in the business as to where the money came from, what we spent it on, and where we are keeping the remainder.

The concept that allows cashflow to exist is something called credit and terms. This says that if I order some goods today, you might deliver them next week, but I will not have to actually pay for them until next month. So the accountant gets to juggle.

The company elders will then know whether they should expand dramatically or give up and become a monk in Tibet. This system of reporting is known as Management Accounts.

The management accounts are the final goal of the accountant. However most people in the company are not allowed to see them, and care even less. Most people in a company are worried about getting assets (money) off people; known as Sales, giving it to others; called Purchasing or Procurement, or doing something with the assets to supposedly increase their value, known as Production.

A basic example would be: Purchasing buys some widgets and sprockets from the Widget and sprocket salesman (called a supplier) (this is then called stock, production then build them into WidgySprocketty Machines, and Sales sell the WidgySprocketty Machines to the mug punters, know as Customers. The managers then want to see how much money (assets!) used (turnovers) for the following.

• WidgySprocketty Machine sales
• Widget Buying
• Sprocket Buying
• Current Value of widgets and sprockets in warehouse
• Wages paid to all the staff.
• Utility expenses (gas, electric, rent etc)
• Amount of money owed by customers who we have delivered too, but who haven’t paid us yet
• Amount of money we owe to suppliers for the reverse reason.
• Amount of money in the bank.

OK? These figures are what management accounts are all about. I could mention Job Costing at this point, but I won’t.