2013-01-30

Learning to state finances

Today I'm putting together the projected three-year balance sheet, cash flow statement, and income statement, for a project. I have done this once before, in 2008, and with very limited review. So much of today is spent studying accounting, specifically the terminology and structure of these statements.

At the end of the work day, I have a complete set of these statements which sketches out roughly where the project stands, from a monetary point of view. However, the accounts do not balance, so I will attempt to fix this discrepancy tomorrow by reconstructing them from scratch.

I also am learning more to
  • begin with the more concrete data points, the cash flows,
  • and then to progress to the balance sheet, which is a summary of cash flows,
  • and then to progress to the income statement, which is a further abstraction of all the above, with regards to the fiscal year
It is not yet clear to me if my understanding of this is correct, but the above schemata / working-hypotheses are what I have at hand.

I intentionally ignored accounting studies since the 10th grade, when I opted out of classes in school. It is good to catch up on postponed learnings. I have had various less in-depth exposures to financial statements, since school. (I have generally tried to only learn things when it seems efficient to do so - perhaps the algorithm for that sort of judgment should be put into another blog post.) Sometimes, more commercially oriented friends of mine will say that I have an over-intellectualised vocabulary. HAVE YOU HEARD WHAT ACCOUNTING SOUNDS LIKE TO A NON-ACCOUNTANT? It probably sounds like Shakespeare to someone with no sense of metre, or like analysis to someone who does not analyse. Other memories of having interacted with generally commercially-oriented people flood back into my mind. Particularly, of course, I remember an interview at a boutique corporate finance consultancy, but that is a story for another day.

It is good to work with startups, again. Aside from these quantitative projections, I have much qualitative subject-matter knowledge to catch up on in this project's domain.

Aside, today I also received a message from a web startup CEO that I worked with in the past. It is somewhat amazing that after five years in the business, she still can't figure out how/where to hire CSS coders. That is almost literally like trying to set up a restaurant for five years, and not learning how to train and retain floor staff.

Update: the next day, I balanced my first set of financial statements for an entire operation, by myself. Excited. Had been putting off this domain of knowledge for over a decade!!!

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