The Journey to Business Mastery: Entry 7

The world of corporate financial accounting is one I was highly unfamiliar with when I started my MBA journey. Now I have a better understanding of it. Actually, let’s just put it as me finally having an understanding of it, because before this programme I had not given the topic of accounting a full thought.  Now it’s on my mind almost every single day. My facilitator mentioned that for us non-accounting folk, when we hear a new word and understand what it means, we should grab hold of it and store that away. I took his advice and made a mental and physical note of phrases I was unfamiliar with and I’ve decided to go through a portion of my list with you, dear reader. Yes, I know, you get to learn about the wonderful world of accounting with you (surprisingly, I’m not being sarcastic at all. This is progress):

• Assets: this is any resource which is controlled and owned by a business which is of financial value. Assets represent ownership and can also be converted into cash. Cash itself is also an asset.
• Liabilities: as in any other setting where it is used, a liability in accounting is what a business owes. It could be cash, goods or services and can be settled through the exchange of either cash, goods, or services. It is the direct opposite of an asset.
• Equity: this is the owner’s interest in the company. or rather the resources which the business possesses which are used to assist in generating revenue. This does not include liabilities such as loans. Equity is company owned assets.
• “A business is a going concern”: this phrase is used to imply that the business being referred to does not appear to be facing the risk of financial ruin and is expected to be able to meet its financial obligations.

An aside, I originally thought the phrase was “A business is a growing concern” which I think is actually the opposite of the actual phrase stated. Because that implies that concern for the business is growing, which implies that there are increasing financial problems. I still giggle a little whenever I remember that. Moving on.

• Direct and Indirect costs: directs costs are expenses which can be directly traced to a product or service which is being built e.g., flour and sugar at a bakery. Indirect costs are the costs that cannot be tied to the production of a good or services but rather are expenses incurred to keep business operations ongoing e.g., electricity and rent for the bakery and salaries of the staff.  
• Baseline: this is the fixed point of reference by which the performance of a business is measured. If the company’s performance levels were to drop below the “baseline”, then the company’s survival could be at risk.
• Blue ocean strategy: this is a business approach that is about creating and securing a new market space with little to no competition, in a bid to pursue value innovation.
• Red ocean strategy: unlike the earlier mentioned approach, this approach is focused on strategizing to build advantages over the competition as you strive to secure a share of an already existing market. Your gain only comes ta the loss of another business.

This served as a bit of a refresher for me and got me excited to learn new words and see how they add up in the world of financial accounting.

Till next time, I bid you farewell.