Charlie Munger：Accounting Is Only an Approximation
Charlie Munger《A Lesson on Elementary, Worldly Wisdom As It Relates To Investment Management & Business》· Accounting and its limitations · Investing · Cognition · Decision
But you have to know enough about it to understand its limitations—because although accounting is the starting place, it's only a crude approximation.
Source：
https://web.archive.org/web/20140625062802/http://ycombinator.com/munger.html
Locator：Archived transcript, paragraph 22 (beginning “But you have to know enough about it”) · Verified：2026-10-19 · Verification：Exact match
Reading
Accounting is the starting point of analysis, but only a crude approximation.
Context
Munger did not dismiss accounting; he warned that it is the starting point of analysis, not reality itself. Estimates such as depreciation schedules and write-downs can pull reported numbers away from economic truth. Understanding those limits matters more than memorizing more ratios.
Today's question
When did you last trust financial statements completely—and which estimates were buried in those numbers?
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