Assignment 1 - Step 1; Key Concepts and Questions: Chapter 1

When I first enrolled for this unit, I thought it would be one I had to just get through and move on to something more interesting. I'm starting to realise this could be a great unit to help with investing, as it plans to teach us how to review a company’s Annual reports.

Questions from within the chapter, "If you were currently running, or were an owner, or was thinking of purchasing any of these businesses you would find various accounting information coming your way. What would you do with it? What would this accounting information look like and what would it be for? And what sense do you think you could possibly make of it?" At this point in time, I have very little idea what their accounts would look like. I’m guessing we would see the purchase cost of their assets including stock, their liabilities and their fixed and variable costs, perhaps a depreciation schedule of the assets. I suppose for me their accounts would only be valuable if compared to other businesses.

I love a good Charlie Munger Quote, he was brilliant and pretty ruthless. I was curious what he meant, by saying “double entry bookkeeping was a hell of an invention”.  I looked into it and I’m a bit surprised he meant it as a positive thing, but that could be my ignorance showing.

I’m enjoying the story telling nature, of what I have previously thought was a bloody dry subject.

Where Martin talks about the QWERTY keyboard design coming from a typewriter mechanical work around, it leads me to think about other parts of life that are, the way they are, due to path dependence and not intelligent design.  An example of this being the side of the road we drive on, coming from Roman solders walking on the left to keep their sword wielding arm (right) closest to people coming towards them. Or the width of a horse’s backside influencing the size of NASA’s space shuttle solid rocket boosters. I encourage you to look into that one if you’re interested.

Double-entry accounting is a bookkeeping system where every transaction affects two accounts: one debit and one credit. This ensures that the accounting equation remains balanced. I suppose this is where the saying, 'Balancing the books' comes from.

Accounting uses journals and ledgers.  Journals contain the daily transactions and events, like a journal used by tweens, saying that Suzie smiled at me today and I had two pies for lunch. Ledgers contain the same information but it’s not in order of occurrence. The Ledger is broken up into sections of assets, liabilities, equity, revenue and expenses.  This seems to be a far easier way to search for information, when I want to look back at how many pies I ate over the year and how much money I owe the tuck shop.