I have decided to do book reviews on some select accounting books. The most recent book I have read is
Financial Statements by Thomas Ittelson. Ittelson has an interesting bio for someone who writes a book on financial statements. According to the book "Thomas R. Ittelson is a scientist, businessman, author and teacher with many years of hands-on experience in business development and marketing for technical companies. As a consultant to entrepreneurs, Ittelson has written business plans and prepared financial projections that have helped raise more than $500 million in start-up equity capital. Financial Statements was born from the author's efforts to teach client entrepreneurs how to design and use financial statements in their start-up businesses."
I will start off by saying that his life story is what makes the book great for beginners. Ittelson is not writing this book for sophisticated investors who have extensive knowledge of financial statements. The book is meant people who know absolutely nothing about accounting. The authors goal is to teach them how to create their own financial statements. This book is ideal for people running their own business who want to learn how to create balance sheets for their own businesses.
I actually enjoyed reading this book which I can say is almost never the case for any accounting book I read. This is also probably due to Ittelson's unique background instead of an accounting professor writing a book in a boring manner.
This book is also great for new investors. Ittelson explains in simple terms. To give an example he starts off with Assets=liabilites+ owners equity. Anyone who knows any accounting knows that is one of the most basic equations in accounting. If you want to be a real investor you have to know how to analyze the balance sheet, statement of cash flows, and income statement. This book will not tell you the nitty gritty of analyzing complex financial statements but it will get you started on the path.
The whole book goes through the life of a small company that produces apple sauce. Ittelson explains how the company purchases equipment, a plant etc. starts marketing and selling its products and finally deciding on future plans to grow the company.
What is great about the author's book is he goes through a simple transaction and shows how it effects all three financial statements. For example the company buys a $250,000 machine and pays half up front with the rest due after installation. The company now has $125,000 less cash on its balance sheet and $125,000 more of Property, Plants and equipment. At the same time this transaction shows up on the cash flow statement under PP&E purchases and lowers the ending cash balances. This is just one example of how the author explains to beginners how to read or even construct a balance sheet.
Ittelson also provides clear information on basic accounting principles that people with little knowledge in the field may lack. He details when to recognize revenue and expenses. Ittelson also explains differences between LIFO, FIFO, average cost method. The author explains how high inflation could cause dramatic changes to cost of goods sold based on whether a company uses LIFO or FIFO.
Another great thing is the author explains cost accounting to the beginner. Most books for beginners ignore this crucial data probably because they feel it is too intense for the beginner. Ittelson makes cost accounting seem simple. He explains the product a company makes starting out as raw material, then work in progress and finally a finished good. He explains along the way how this is accounted for in a company's internal balance sheet and why it is important for a company to keep track of this. He does not get in to the complex aspects of cost accountings but he provides a good basis to understand the basics.
I normally do not look on amazon.com for other reader reviews before posting a book review. However, since I loved this book, and think it is spectacular I was curious to see the ratings. The book got almost all 4 or 5 star ratings. It got a few one star ratings from people complaining about the difficulty reading the kindle version. However, the readers were unanimous that the book is great.
One last good thing about the book is it is timely. Accounting rules change from time to time. A great book on accounting written 40 years ago might not be such a good book for today. Ittelson's book was released in late 2009 and therefore is probably up to date with all new accounting rules.
To purchase this book on Amazon.com click on the following link
Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports
Disclosure: New FTC rules require me to disclose that I have a material connection since I received a free copy of this book to review.
