Accounting Made Simple

Book summary

Mike Piper is the author of eight finance books, as well as the popular blog, Oblivious Investor. A certified public accountant, Piper has published articles in The Wall Street Journal, Money and Forbes.

Having explored accounting formulas and financial statements, we’ve now examined the income statement, which tracks financial performance over a set period. Starting with revenue at the top, expenses like the Cost of Goods Sold (CoGS) are subtracted to determine gross profit, followed by deducting operating expenses to calculate net income. We also reviewed the importance of adhering to Generally Accepted Accounting Principles (GAAP), emphasizing double-entry accounting and the balance between debits and credits. Building on the accounting equation—Assets = Liabilities + Owner’s Equity—we saw how it applies universally, from small businesses to personal finances. Additionally, the cash flow statement complements the income statement by detailing cash movements across operating, investing, and financing activities, helping to identify potential cash shortages. Finally, we explored how balance sheets summarize assets, liabilities, and equity, and how financial ratios like liquidity and profitability metrics provide insights into a company’s health. Up next, we’ll delve deeper into interpreting these financial tools to make informed business decisions.

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