Page 37 - Finance for Non-Financial Managers

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Finance for Non-Financial Managers
in your company. Employees come to work, produce some sort
of work result, and get paid. The company buys products and
services, pays for them, adds its value to what it buys, and
delivers a product or service to its customers. Then it bills them
and collects its bills, enabling it to pay its bills in turn. This
whole flow of activity is continuous every business day, all year
long, for as many years as the company is in business. Yet once
a month the finance department produces a report that starts
promptly on the first day of each month and ends on the last
day of that month. The accountants have found a way to stop
the action for their purposes, even though it never stopped in
reality, so they could report on the results for each period of
“the game.” They succeeded because they, too, recorded the
action in their records. Think of the accounting books as an
Accounting Transaction Recorder, or “ATR.” Now we might
change the labels in Figure 2-4 and see some similarities
between the two recordings.

Income Statement Income Statement
Balance Sheet Balance Sheet Balance Sheet
Figure 2-3. Flow of the financial action

As you can see, the “tape” starts when the business starts
and the “freeze frame” status is captured in the company’s bal-
ance sheet. Then there is a continuous flow of action, captured in
the company’s income statement and its statement of cash flow.
The action never stops, but periodically, usually once a month,
the accountants press the “freeze frame” button on their tapes, so
they can analyze the progress the company made in detail. They