I always correct people.

“You went to school for accounting, right?”

“No, I was a counting major.”

*Gasps of enlightenment from all who heard*

I used to say accounting is the language of business, but that doesn’t get as many laughs.

When a lot of people think about accountants, they think about “bean counters”, counting the money, and “cooking the books”.   Thanks to Seinfeld, they also think about “tax write-offs”.   People may not understand what they do, but thanks to what has been going on in the economy, mainly financers, but also accountants, don’t look too good in the public eye.

It’s ironic, because CPAs are the watchdogs FOR the public eye:   Certified Public Accountant.   There is actually a limited accountant-client privilege in the U.S. tax law!

I went through a lot of schooling and a lot of studying to be able to help answer this question:

“What do accountants do?”

We take an economic event, measure it, and report it.   If an economic event occurred, we measure it, and report it.

We measure it using certain elements.   For simplicities sake, I will go with IFRS  (they are more theoretical on this stance than GAAP, which has 10 elements)

1. Assets
2. Liabilities
3. Equity
4. Income
5. Expenses

We measure what an entity has (assets), what it owes (liabilities) and what it’s value is (equity).   The first three are a snapshot of the company and the balances carry forward indefinitely.   We also measure what it makes (income) and what it spends (expenses).   These two are reported over a certain timeframe, and then changed back to “0” to start the new period.

I have a minimal amount in my bank account.   I owe a ton in student debt.   Therefore I have negative equity.   I make a decent salary, but I spend it all on many things, like Tax Relaxer and my big wedding coming up!

Kevin