What is the Point of Accounting?
What does accounting produce anyway?
Recently I was asked a question that goes to the crux of the title question. Accounting is a way to track, measure, and report information. Accounting does this by producing financial statements. Accounting is actually quite brilliant and there is a good argument that it spurred the Renaissance and thus the modern world.
But that’s a story for another post. Suffice it to say one of the greatest thinkers and writers Johann Wolfgang von Goethe called double entry accounting,
“among the finest inventions of the human mind.”
Everyone should know a little about accounting and how it functions. Your investments and retirement depend on it. If you have studied accounting and still don’t get it, read on.
By the end of this post you will all be able to read and understand financial statements.
The question that acts as the launching pad is a bit technical and geeky so hold your nose and just power through it.
Why do net losses reduce retained earnings?
The question is a perfect one because it straddles the three financial statements and their impact on each other.
