Lesson 2 - Accounting & the "Cover Your Nut Principle"

This lesson is taken right from: Section 1.2 Basic Accounting Principles, found in my book "Cover Your Nut" Practical Accounting in Plain English for the Real World.  You can check it out on my web site, Bud's Books.  For the period June 1st through the 15th you can receive a free copy of this book when you purchase my book, "Gibbon's Secrets" A boy's Memories of the 40's, on my web site.  

Accounting and the “Cover Your Nut Principle”

       Accounting is here to stay – it started back in time before the Roman era and will undoubtedly be here for as long in the future, so let’s make it easier to understand and use.  I want to show you that Accounting is really a ten letter word – not a four letter word like some people call it or think about it.  Accounting is a system for recording and measuring the results of an economic activity.  Accounting gives us the information that we need to plan for the future, utilizing the information from the past.  We can then use this information for the establishment of operating Budgets.  The results of the application of accounting information through Budgets give us the guidelines to set product prices, plan for purchasing or building of materials, and planning for increases in future individual expense items based on historical facts rather than flip-a-coin guesses.

            In this section (Accounting 101), I will try to lay the groundwork, for a better understanding of the areas in accounting where many businessmen need the most help.  You must understand that the only reason that you are starting a business is to make money, and to do so you must have the tools to accomplish this.  “Cover Your Nut” is a general term for covering the costs and expenses of your business to make a profit, and something that is often left out in the early planning stages of a business.  In order to make money with your business, the first step should be to see at what point in time, and with what revenue, will I cover all of my costs and expenses.  The “Cover Your Nut Principle” is the most important step that you can make toward being successful in reaching that original goal for starting a business, (making money).