Page 26 - Finance for Non-Financial Managers

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Counting the Beans
ety of reports. Some are
for people outside your
cipal accounting record into
company, like the govern- General ledger The prin- 7
which all transactions of the
ment, your bankers, company are recorded and summa-
investors, and stockhold- rized.The general ledger is the record
ers. But most important to from which information for the basic
running the company are financial reports is drawn. It varies
greatly in appearance.These were
the reports the account-
once huge books maintained with
ants prepare for company
carefully handwritten entries, but
managers, for it is those
nearly all general ledgers today are
reports that managers use produced by computer software.
to understand their compa-
ny’s financial past and make decisions about its financial future.
As you will learn later in this book, or as you may already
have discovered the hard way, the readability of those reports is
a huge factor in their value. Put another way, it’s hard to use a
report you can’t understand, no matter how valuable the infor-
mation it contains.
That, unfortunately, is the way some managers view the
basic financial reports their companies’ computerized account-
ing programs typically produce. (We’ll discuss these reports in
depth in Chapters 3 and 4.) Managers often have good reason
to feel that way, it seems to me, because these basic financial
reports were designed primarily for use by outsiders! Their pur-
pose is to give a snapshot of a company’s financial condition to
people outside the company—bankers, government regulators,
stock analysts, investors, and others who have no direct role in
running the company. While that may be true, these reports still
provide an essential summary of the company’s monthly or
quarterly operations in a standard format that is consistent and
familiar, thus making them more credible and useful. They also
serve as the basis for more tailored and typically more useful
reports, which we’ll discuss later on in this book.

GAAP: The “Rules” of Financial Reporting
The standard format for recording and reporting financial trans-