Everyone has heard that accounting is all about number crunching. For many people, just the mention of the word “maths” can prompt school memories of struggling through a boring algebra class and unfortunately, this perception discourages so many students who would be both capable and fond of the course, from jumping in and giving it a go.
Ok, so how much maths is actually involved?
A working knowledge of arithmetic (so being able to calculate the difference in percentages, the increases in percentage; even just being confident in addition and subtraction!) and a small amount of basic algebra will allow you to successfully complete any introductory accounting courses. (If you don’t believe me, scroll down to see my maths checklist).
So why does introductory accounting seem so challenging to so many students?
Well, there are two reasons and they are not about maths. Firstly, you are simply learning a lot of ideas, rules, and procedures that are specific to accounting and that are new to you. You are using basic maths and applying it a completely different context. You are being asked to understand the relationship to a business’ assets, its liabilities, its cash and its expenses; and then use these to calculate a value.
So secondly, although accounting doesn’t require much maths, it does require thinking that is careful and logical. You are ultimately a problem solver, and accounting requires you to first analyse transactions before recording them. What I mean, is that it is the initial analysis of transactions that will give you the correct value to use in an accounting practice. You will need to learn the difference between liabilities and assets and where they sit on the balance sheet. For example, is an amount payable or receivable to a business?
Once you understand the categorisation of different business terms the maths that applies to each is the easy part!
Studying accounting falls under three key parts:
- Accounting theory: This includes bookkeeping procedures, lessons on how to categorise financial data, how to manage a balance sheet and so on.
- Principles: Understanding how these theories apply to the real world.
- The procedures: AKA- the maths bit.
If you are still not convinced I have added a small maths checklist here for you to look at. Ask yourself if you can:
- Problem solve using the order of operations? E.g. Do you understand how brackets work when solving algebra?
- Can you solve written problems in a test by devising simple algebra calculations yourself?
- Can you express the same value in a percentage, then in a decimal, a fraction and an average?
- Then, given two different values could you work out the difference between them?
Sounding easy? Well that is because it is! Accounting is simply using these basic mathematical processes and applying them to a business procedure.
Let’s look a little more at the business procedure. One of the very basic levels of accounting assumes that the wealth of a company is called its assets. Though, assets are made up of both liabilities and capital (I’ll let your accounting teacher explain these terms…)
But on a basic level , A = L + C
Being, Assets = Liabilities + Capital.
Easy peasy! Though under this theory there are so many business procedures that impact your calculation of the above. For example, what happens when a clothes shop buys inventory (new clothes to sell)?
Let’s assume they are using $1000 in cash to buy this new inventory. Does this mean that their business is worth $1000 less than it was yesterday?
Of course not! Because while this is a cost to them (they have spent money) it will bring back revenue into the business (when they sell the dresses).
They could make $3000 using that $1000.
So the clothes bought are still an asset to the company- even though they are no longer in their original capital form, and this means that inventories are carried on the balance sheet as assets.
You can see that while the maths in this scenario is easy to understand, the difficulty lays in understanding where that number sits in relation to the equation above. Working out the assets of a company is more problem solving based than it is mathematical.
Accounting can be one of the most rewarding courses because everything you are working with is simply black or white. If you apply the principles and procedures together correctly, you will never be wrong in Accounting 101. It certainly takes a lot of practice and work, but there is not a single lesson you will learn that is not applicable to the business world.
Do not be deterred by the maths, be confident!
Studying accounting, my missing footnotes:
Looking back over my first year, I have come to realise the importance of good documentation. After sitting through a lecture when our teacher would explain the different parts of the accounting procedures theoretically, it all made sense in my head. Though when you are learning, you need to be extremely detail orientated- one mistake will throw your entire working process out.
I now look back realising that in some instances, just making a note of amounts, numbers, and copying down the balance sheet on the board isn’t enough. I used to assume that I could write down the correct version and then at home would work through it on my own. I would recommend taking the question printed with you, and take the time to document everything mentioned before returning to the question at home later. It is much easier to delete excess information later, than it is to bother your lecturer or scan through your textbook because you missed an important piece of information.