MBA Boot Camp: Why Accounting Matters (2.1)
Concepts & Vocabulary
Financial Accounting: The process of recording and summarizing business transactions to report them to external stakeholders (investors, regulators, banks). It must follow strict standard rules (like GAAP in the US).
Managerial Accounting: The process of identifying and analyzing financial information for internal decision-makers (managers, executives). It is flexible and focused on future forecasting and budgeting.
Fiscal Year: A one-year period that companies and governments use for financial reporting. It doesn't always align with the calendar year (e.g., a fiscal year might run from July 1 to June 30).
Core Lesson: The Language of Business
Many people fear accounting because it involves math, but accounting is actually just a highly structured filing system. It's a way of telling a story about what a company did with its resources.
There are three main financial statements that make up this story:
The Income Statement: Did we make a profit over a specific period of time?
The Balance Sheet: What do we own, and what do we owe, at this exact moment?
The Cash Flow Statement: How much actual cash moved in and out of our bank accounts?
Application & Reflection (The Library Connection)
The city treasurer would provide the public library with monthly financial statements, which I would share with my board. There would also be an annual report to the city council, where I’d propose the next year’s budget and account for the financial decisions of the current year, showing what assets we’d acquired (e.g. new books, computers, etc.) and demonstrating that we stayed within budget. In that case, the city was the investor that gave us the capital (i.e. a budget). Financial accounting is just doing this for a corporation, using standardized vocabulary so investors can make proper comparisons.
My job as the executive at a smaller library was both easier and harder than a larger library. It was easier in the sense that there was less money to account for and we weren’t taking in large sums of money each month. We were primarily spending, though there was monthly revenue through things like copies, book sales, and small donations. It was harder because if you wanted to be ambitious, you had to hustle and work the external stakeholders to get more money so you could realize your ideas. That meant meeting with the Friends group to pitch ideas, writing grants, and developing fundraising campaigns for specialized projects. We won over 25 grants during my seven years at Lodi. I found that the harder I worked to reach out to various stakeholders the more success we had, and as our successes grew, then the momentum sped up for future compaigns, as we developed a reputation for being a good place to invest.
