Financial accounting is commonly referred to as the “language of business.” With an understanding of the fundamental concepts and principles of accounting, you can make more informed decisions, contribute to strategic conversations, and build and run businesses.
“Accounting is a tool that opens doors to key information, provides useful insights, helps gain perspective, and aids in decision-making,” says Harvard Business School Professor V.G. Narayanan in the HBS Online course Financial Accounting.
Perhaps you’re an entrepreneur looking to become part of the 40 percent of small business owners who feel “very” or “exceptionally” knowledgeable about accounting, or you’re hoping to make a career change and be one of the 90,700 people predicted to enter the accounting field by 2028. Maybe you’re simply striving to understand the financial underpinnings of your organization and make a positive impact in your current position.
No matter your industry, role, or background, learning about financial accounting can benefit your career. Here are five steps to take as you begin your education.
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1. Learn How to Read and Analyze Financial Statements
Begin your financial accounting education by learning how to read and analyze three key financial statements: the balance sheet, income statement, and cash flow statement. These documents contain valuable information about your company’s spending, earnings, profit, and overall financial health.
The balance sheet details your company’s assets, liabilities, and owners’ equity for a given period. The relationship between these components is illustrated in the accounting equation, which is used to verify the balance sheet is correct and balanced. Assets should always equal liabilities plus owners’ equity.
As Narayanan says in Financial Accounting, the balance sheet and accounting equation “allow companies to keep score.”
The income statement, also called the profit and loss statement, or P&L, shows your organization’s revenue, expenses, and profit, typically on a quarterly or annual basis.
The cash flow statement lists any cash inflows or outflows your organization had for a set period. The lines on the cash flow statement are categorized into operations, financing, and investing activities, and each source and recipient of cash is listed.
Understanding these statements is useful no matter your role or industry because they illustrate the ins and outs of your organization’s finances. This knowledge can be used to inform which projects and investments you pursue and shape how you make an impact on your company’s profitability.
"Whatever business decision that you're going to be making, you want to understand all facets of it," Narayanan says. "So there are going to be human resource angles to it. There are going to be marketing angles to it. There are operational angles to it. But there's also: 'What is the impact on the financial statements of this particular decision that you're going to make?'"
Having a solid understanding of the components of each financial statement and how to analyze them will also prepare you to take on the more complex principles of financial accounting.
Watch the video below featuring Professor Narayanan to learn more about the benefits of understanding finance in a non-finance role:
Related: The Beginner’s Guide to Reading & Understanding Financial Statements
2. Select a Learning Method
You have a variety of options when it comes to learning about financial accounting, including in-person classes, online courses, accounting textbooks and publications, and advice from colleagues. Each comes with pros and cons, depending on your circumstances.
For example, perhaps an online course seems like the right fit for your needs. To assess whether an online course is your best option, consider the following factors:
- Budget: One advantage of online courses is they typically cost less than in-person classes. If this is still a stretch for your budget, ask if your employer offers tuition reimbursement for professional development courses. The ability to earn a paycheck while taking an online financial accounting course could be an attractive choice.
- Desired Professional Outcomes: It can also be useful to consider the professional gain that could accompany having completed an online course. A recent survey by City Square Associates found that one in four participants who took an HBS Online course received a promotion or a title change as a result of their course completion. Your education is an investment in your career.
- Schedule: Another benefit of taking an online course is the flexibility it provides. If having access to transportation or an irregular, busy schedule are typically barriers for you, an online course could be your best option. Working full-time doesn’t have to limit your education.
- Learning Style: Everyone has a learning style that best suits them. If you’re a kinesthetic learner, meaning you learn best when engaging physically with your topic and surroundings, an online course may not be the best fit. If you’re a visual or auditory learner, however, an online course that illustrates and explains each concept may be a good match. It’s important to note that if you learn best when engaging with others, you should select a program that connects you with a community of like-minded peers.
Whatever educational method you pursue, it should be compatible with your budget, desired outcomes, schedule, and learning style.
Related: Are Online Classes Worth It? 12 Pros & Cons of Online Learning
3. Dedicate Time to Your Learning
No matter which learning method you select, dedicate ample time to your education. Accounting concepts build on one another, so investing time in deeply understanding each one before moving on will build a strong foundation for learning more advanced principles. It can be tempting to rush through to more complex topics, but putting the time in early will pay off.
Make learning part of your routine. Regardless of where you log on or open up your textbook, completing coursework on a regular cadence will allow you to make steady progress toward your educational goal.
“I was able to balance the material with my full-time teaching schedule due to the accessibility of the online course platform,” says Conor Blute, an English teacher who took Financial Accounting as part of the online CORe program. “Even if you only have 45 minutes free, you can log in from anywhere, make some progress through a module, and then get back to your daily tasks feeling like you've made some headway.”
4. Focus on Real-World Application
When studying financial accounting principles and equations, keep in mind that the goal is not memorization, but application. As often as possible, put your knowledge into practice.
In the online course Financial Accounting, for example, participants are put in the shoes of business leaders and apply accounting concepts and principles to real-world challenges through case-based learning.
Additionally, try to think of examples from your own career. Applying equations and concepts to personal experiences can bring an added sense of connection and understanding to your learning.
Remember that financial accounting isn’t something you pick up overnight—it requires repeated application of the concepts you learn. With enough practice, you can recognize instances in your organization where your accounting knowledge can be applied.
5. Network with Other Accounting Professionals
Make it a point to connect with other professionals who are learning about financial accounting. Being part of a network of dedicated learners can provide support and motivation as you hone your accounting skills. People in your network may have run into similar challenges you’re facing, and you can offer each other perspective and support, in addition to celebrating one another’s successes. A community aspect might be built into an online program you're taking, or you may need to find other ways to reach out to like-minded professionals and grow your network.
Take Your Education into Your Own Hands
No matter your experience level, learning about financial accounting can help you track and understand your organization’s performance and make more strategic decisions. Taking steps to further your business knowledge can be a worthy investment in both your career and the financial health of your company.
Do you want to develop or hone your financial accounting skills? Explore our eight-week online Financial Accounting course and other finance and accounting courses to discover how managers, analysts, and entrepreneurs leverage accounting to drive strategic decision-making.
