Why do a lesson on Financial Statements in the first section of Bookkeeping Fundamentals?
The reason I am doing a lesson on financial statements in the first section of a course on bookkeeping fundamentals, is because it underscores the whole point I am trying to make with this entire course.
Let’s say you’re an inexperienced bookkeeper. You may have learned along the way that major asset purchases get booked to fixed assets. At some point you’ve asked, “what’s the threshold?” How much does one need to spend on something in order for it to be considered a “major purchase?” There are different schools of thought on this, but let’s say you’ve settled in on $500. From that point forward, if someone spends more than $500 on (eg) computer equipment, then you’re going to book that to a fixed asset account called, Computer Equipment.
The problem arises when you don’t think beyond this. It’s important to understand what you’re doing with that money, and why you’re doing it. Using the example of fixed assets, we are putting it on the balance sheet as something we own, and it will stay there for some time. Then each year you get a depreciation expense entry from the client’s CPA. You book the entry and move on, never stopping to consider what’s being done here.
The whole idea of this course is for you to walk away with a thorough understanding of the financial transactions you are entering and managing. This means knowing where they’re going on the financial statements, and why. You should be able to answer those two questions about every single transaction you ever post. If you can do this, you will stand way out among other bookkeepers, and even many accountants.
In this lesson I am going to give you a high level overview of the three major financial statements, and what they look like in each of the products. This way as I go through the sections for each product, and I discuss where the transactions are posting, and why, you will be able to follow along.