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Date: 2018-08-18 Page is: DBtxt001.php L07-ndx001


HOW ACCOUNTING WORKS
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TO DO: Update the images better to reflect the content of the page
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HOW DOUBLE ENTRY ACCOUNTING WORKS

CONVENTIONAL FINANCIAL ACCOUNTING
ACCOUNTS FOR THE PAST, THE PRESENT AND THE FUTURE
Very powerful ... Used in every business
... more
HISTORY ... more
History has already happened. We can learn from it, and it is the reason why and how we got to the present time.
Beginning of Period (BOP)
STATE
... more
The Beginning of Period (BOP) STATE is a record at a moment in time of what has gone before
ACTIVITIES ... more
Activities CHANGE the STATE from what it was at the BOP to what it gets to be at the EOP
End of Period (EOP)
STATE
... more
The End of Period (EOP) STATE is a record at a another moment in time ... the end of the period
FUTURE ... more
The future has a Net Present Value (NPV) that is a mix of many factors.
BALANCE SHEET (BOP)
A summary of the Balance Sheet accounts at the beginning of the period.
P&L ACCOUNT
A summary of the P&L accounts for the period.
CASH FLOW
How P&L accounts change the Balance Sheet
BALANCE SHEET (EOP)
A summary of the Balance Sheet accounts at the end of the period.
EQUITY VALUATION
A MEMO Balance Sheet that adds in the Net Present Value (NPV) of future profit flows

TRUE VALUE IMPACT ACCOUNTING
ACCOUNTS FOR THE PAST, THE PRESENT AND THE FUTURE
All Capitals ... All Impacts ... All Actors
... more
Accounting
for everything
Conventional accountancy is a very good basic framework to enable the accounting for everything. The same basic concepts can be used but applied in a slightly different way.
HISTORY ... more
Use a time series of Comprehesive Value Balance Sheets that show changes over time
Beginning of Period (BOP)
STATE
... more
The Beginning of Period (BOP) STATE is a record at a moment in time of ALL the CAPITALS of what has gone before
ACTIVITIES ... more
Activities CHANGE the STATE from what it was at the BOP to what it gets to be at the EOP
Activities have multiple impacts on SOCIAL CAPITAL, NATURAL CAPITAL and ECONOMIC CAPITAL (which includes financial capital)
Positive social and economic impacts are often associated with negative environmental impacts.
End of Period (EOP)
STATE
... more
The End of Period (EOP) STATE is a record at a another moment in time ... the end of the period ... of ALL the CAPITALS
FUTURE ... more
The future has a Net Present Value (NPV) that is the sum of the Net Present Value (or cost) for all the elements of SOCIAL CAPITAL, NATURAL CAPITAL and ECONOMIC CAPITAL
VALUE BALANCE SHEET (BOP)
A summary of the Value Balance Sheet accounts at the end of the period incorporating the Net Present Value (or cost) for all the elements of SOCIAL CAPITAL, NATURAL CAPITAL and ECONOMIC CAPITAL as they were at the Beginning of the Period.
TRUE VALUE ACTIVITY ACCOUNTS
A summary of the activity accounts for the period.
TRUE VALUE IMPACT SUMMARY
How activity accounts for the period changed the Value Balance Sheet from the beginning to end of the period.
VALUE BALANCE SHEET (EOP)
A summary of the Value Balance Sheet accounts at the end of the period incorporating the Net Present Value (or cost) for all the elements of SOCIAL CAPITAL, NATURAL CAPITAL and ECONOMIC CAPITAL as of the End of the Period.

ACCOUNTANCY'S CORE CONCEPTS
GAAP Generally Accepted Accounting Principles used everywhere in the world More on CORE-CONCEPTS
B/S and P&L account Accounting differentiates between 'Balance Sheet' accounts and 'Profit and Loss' accounts. This is a key step in understanding cause and effect.
Balance sheet accounts Typically these are segmented as follows: Current assets: Current liabilities: Fixed assets: Other assets: Long term debt: Stockholders' Equity
P&L accounts Typically these are summarized as follows: Sales revenue: Cost of Sales: Gross Margin: General, Sales and Administration expenses: Depreciation and amortization: Research and Development expenses: Taxes: Financial charges; Net profit
A sub total titled EBITDA is Earnings Before Interest, Taxes, Depreciation and Amortization
PROFIT PROFIT or FINANCIAL PROGRESS can be measured simply by comparing the EOP Balance Sheet with the BOP Balance Sheet. The Change is PROFIT.
Externalities
are ignored
Conventional financial accounting only accounts for money transactions and those that are within a reporting envelope.
Accrual -v-
Cash basis
Business financial accounting systems are 'accrual' accounting systems. Most government accounting and public sector is cash basis accounting. Accrual systems are far more rigorous. Seems that governments and legislators like the sloppiness!
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TRUE VALUE IMPACT ACCOUNTING
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ACCOUNTABILITY FOR ALL THE ACTORS
INDIVIDUALS, COMMUNITIES and ORGANIZATIONS
AND ALL THE ACTIVITIES

PEOPLE ... m
Quality of Life
PEOPLE ... m
as ACTORS
ORGANIZATIONS
as ACTORS ... m
ROLE of
PLACE ... m
ALL the
IMPACTS
TOOLS and ... m METHODS METRICS ... m
Accountability
Health ... more
Wealth ... more
Income ... more
Education ... more
Housing ... more
Water ... more
Food ... more
Jobs ... more
Recreation ... more
Individual ... more
Family ... more
Community ... more
Employee ... more
Employer ... more
Investor ... more
Customer ... more
Director ... more
Governments ... m
Multinationals ... m
Companies ... m
SMEs ... more
Banks ... more
NGOs ... more
Portfolio ... more
Building ... more
Neighborhood ... m
City ... more
Metro-area ... more
Suburb ... more
Rural Town ... more
Development ... m
STREAMS ... more
PRODUCTS ... more
PROCESSES ... more
SECTORS ... more
PLACES ... more
MARKETS ... more
Productivity ... more
Exchange ... more
Money ... more
Standard Values ... m
Value Tokens ... more
Basic Income ... more
Money Metrics
Economy / GDP ... more
for Investors ... more
for Companies ... more
True Value
Impact Acctg

TVIA ... more
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MANAGE FOR ALL THE CAPITALS
NOT JUST THE FINANCIAL CAPITAL
There are 3 main segments of CAPITAL

and any number of sub-segments reflecting ALL of the system
SOCIAL CAPITAL ... more NATURAL CAPITAL ... more ECONOMIC CAPITAL ... more

SOCIAL CAPITAL
HUMAN CAPITAL
STATE Cost of living Contribution
HUMAN CAPITAL

Every individual on the planet should have health, education and opportunity ... m
A person's present quality of life
The accumulated cost of getting to this point in life
The net present value of the opportunities that should be possible net of costs to accomplish this
The net present value of the opportunities that are possible net of costs to accomplish this
The net present value of the costs that will likely be incurred in the future (e.g. medical care)
HAPPINESS
HOUSING
HEALTH
EXPECTATION OF LIFE
FINANCIAL SECURITY
LOCATIONAL SECURITY
EDUCATION and EXPERIENCE
CONTRIBUTION POTENTIAL
Key variables that have been found to support well-being: income, healthy life expectancy, social support, freedom, trust and generosity,
The costs of living needed for a decent day to day quality of life:
... the economic costs;
... the natural capital costs;
... the social costs.
Expenditures being made for a better future in education, health care, etc
Expenditures that are simply an indulgence
Contributions that are being made to the world:
Parenting and other services in a family setting
Research and addition to knowledge
Doing a job
RELATIONSHIP CAPITAL
STATE Cost / Impact Contribution
RELATIONSHIP CAPITAL

Relationships make it possible for individuals to be better than they are on their own . m
The incremental quality of life because of relationships ... family, extended family and friends, community
NATURAL CAPITAL
LAND
STATE Depletion / Degradation Remediation
LAND

Land has been used to earn profit with little attention to the issue of ecological sustainability ... more
Absolute amount of land
Characteristics of land in a natural state
Characteristics of land in prevailing state
Amount the land is being degraded Amount the land is being remediated to better state
FRESH AIR
STATE Depletion / Degradation Remediation
FRESH AIR

Fresh air is very good for human health and longevity ... more
Cumulative amount the fresh air has been degraded
Cumulative damage done by degradation of the fresh air
Additional degradation of the fresh air in the period
Additional damage being done by degraded air
for example: to human health
for example: via acid rain
Improvement to air quality during the period
FRESH WATER
STATE Depletion / Degradation Remediation
FRESH WATER

Without water there is no life, and now becoming increasingly scarce ... m
Amount of fresh water in lakes
Amount of fresh water in aquifers
Amount of accumulated pollution
Amount of fresh water consumed by people
Amount of fresh water consumed by industrial production of all sorts
Amount of fresh water withdrawn from the aquifers in the period
Amount of fresh water flow out of the area in the period
Amount of pollution introduced into the water flows
Amount of precipitation in the period
Amount of fresh water flow into the area in the period
Amount of fresh water withdrawn from the aquifers in the period
Amount of pollution removed from the water flows
OCEAN WATER
STATE Depletion / Degradation Remediation
OCEAN WATER

A huge energy sink, and where all the world's garbage accumulates ... m
The amount of the ocean water
The quality of the ocean water as it effects living systems
The temperature of the ocean water as it effects living systems
The temperature of the ocean water as it effects weather systems
Living systems in the ocean
Accumulated chemical pollution
Accumulated solid waste pollution (mainly plastic)
Amount of ocean rise in a period due to ice melt
Amount of temperature rise in a period
Amount of ocean water quality degradation
Amount of additional solid waste pollution
Amount of over-fishing (Total fishing less no impact sustainable fishing)
Amount of no impact sustainable fishing
Amount of remediated coral reefs
Amount of remediated coastal mangoves, wetlands, estuaries, etc
MINERALS
STATE Depletion / Degradation Remediation
MINERALS

The raw materials for most of the useful products we use every day ... m
FOSSIL FUELS
STATE Depletion / Degradation Remediation
FOSSIL FUELS

The sources of power that made the industrial revolution possible ... m
CLIMATE SYSTEMS
STATE Depletion / Degradation Remediation
CLIMATE SYSTEMS

The essential mechanisms that have kept the climate stable until now ... m
ECOLOGICAL SYSTEMS
STATE Depletion / Degradation Remediation
ECOLOGICAL SYSTEMS

The many mechanisms that serve to recycle everything in nature ... m
BIODIVERSITY (FAUNA)
STATE Depletion / Degradation Remediation
BIODIVERSITY - FAUNA

Animals, birds, fish, reptiles, insects and other life forms ... m
BIODIVERSITY (FLORA)
STATE Depletion / Degradation Remediation
BIODIVERSITY - FLORA

Millions of species of plants that occupy a complex ecosystem ... m

ECONOMIC CAPITAL
PHYSICAL CAPITAL ... Buildings
STATE Cost / Depreciation Value Add
PHYSICAL ... Buildings

Buildings provide shelter and places to work but very inefficient ... m
PHYSICAL CAPITAL ... Infrastructure
STATE Cost / Depreciation Value Add
PHYSICAL ... Infrastructure

Many sorts of infrastructure are essential for a modern economy ... m
PHYSICAL CAPITAL ... Production
STATE Cost / Depreciation Value Add
PHYSICAL ... Production

Modern production has become very efficient but energy intensive ... m
PHYSICAL CAPITAL ... Transport
STATE Cost / Depreciation Value Add
PHYSICAL ... Transport

Transport and logistics are enabling global trade and sustainable development ... m
FINANCIAL CAPITAL
STATE Cost / Depreciation Value Add
FINANCIAL CAPITAL

Money makes the world go round, but it is only a lubricant
WORKING CAPITAL
STATE Cost / Depreciation Value Add
WORKING CAPITAL

Managing stocks and supply chains has revolutionized business ... m
KNOWLEDGE CAPITAL
STATE Cost / Depreciation Value Add
KNOWLEDGE CAPITAL

Education is foundational and essential for a better world ... m
INSTITUTIONAL CAPITAL
STATE Cost / Depreciation Value Add
INSTITUTIONAL CAPITAL

Organizations, rule of law, etc make an enabling environment ... m
CULTURAL CAPITAL
STATE Cost / Depreciation Value Add
CULTURAL CAPITAL

Dance, music, tradition, religion ... all sorts of good things that make life worth living ... m
LOCATIONAL CAPITAL
STATE Cost / Depreciation Value Add
LOCATIONAL CAPITAL

Place is where everything comes together and makes a difference ... m

VALUE ACCOUNTING FOR ACTIVITIES
IMPACT ON >>> SOCIAL CAPITAL NATURAL CAPITAL ECONOMIC CAPITAL
SALES Product availability is positive Characteristics of products may be positive OR negative Too much product may be negative Production, consumption and waste are seriously negative for the environment Sales are positive for profits and financial wealth
COST OF SALES TO COME TO COME TO COME
PAYROLL What is the total labor cost embedded in cost of sale (i.e. including the supply chain). What is the profile of the payroll; profile of hourly wage rates (absolute) and profile of hourly wage rates relative to local living wage norms. TO COME TO COME
MATERIALS TO COME TO COME TO COME
ENERGY TO COME TO COME TO COME
SUB-ASSEMBLIES TO COME TO COME TO COME
OTHER TO COME TO COME TO COME
GROSS MARGIN TO COME TO COME TO COME
G, S and A
General, Sales and Admin.
TO COME TO COME TO COME
PAYROLL The size of BoD and C-Suite remuneration relative to total payroll is a measure of the organization's contribution to inequality TO COME TO COME
ADVERTISING TO COME TO COME TO COME
R&D
Research and Development
TO COME TO COME TO COME
EBITDA
Earnings before income tax, depreciation and amortaization
TO COME TO COME TO COME
Depreciation
Depreciation and Amortization
TO COME TO COME TO COME
Financial Costs TO COME TO COME TO COME
Taxes TO COME TO COME TO COME
Philanthropy TO COME TO COME TO COME
PROFIT before UNUSUAL EXPENDITURES TO COME TO COME TO COME
Unusual expenditures TO COME TO COME TO COME
PROFIT
Profit after tax and all expenditures
TO COME TO COME TO COME
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ACTIVITY ACCOUNTING
MULTIPLE PERSPECTIVES . AND . MULTIPLE IMPACTS

GOALS / OBJECTIVES
PEOPLE Everyone having a decent and improving quality of life should be main goal for everything that happens in the system. More on PEOPLE
ENVIRONMENT A decent and improving quality of life should be achieved while also doing no damage to the environment, and indeed remediating the damage already done. More on ENVIRONMENT
ECONOMY The performance of the economy should be judged by how quickly and efficiently it is able to achieve HUMAN CAPITAL and NATURAL CAPITAL goals More on ECONOMY
ACTORS
ACTORS Decision makers that drive the system are people. They may act for, or through organizations like for profit companies, NGOs, governments, etc. or act as individuals. More on ACTORS
PEOPLE Decision makers that drive the system are people. They may act for, or through organizations like for profit companies, NGOs, governments, etc. or act as individuals. More on PEOPLE
ORGANIZATIONS Most economic activity is conducted by organizations. It is therefore vital that there is meaningful accountability about the performance of these organizations. Big for profit companies dominate the system. While they are profit efficient and powerful, historically that have but profit performance before social and environmental responsibility, and they are only changing very slowly ... hence the need for scoring their unsustainability. More on ORGANIZATIONS
PERSPECTIVES
ACTIVITIES Every economic activity has a string of impacts going backwards and forwards through the system More on ACTIVITIES
STREAMS Every economic activity has a string of impacts going backwards and forwards through the system More on STREAMS
SECTORS Every economic activity has a string of impacts going backwards and forwards through the system More on SECTORS
PRODUCTS Products ... goods and services ... are the tangible things that have impact on people and the environment More on PRODUCTS
PLACES Where people live their lives and everything happens. Get the place right and most everything else follows. More on PLACES
ENABLING ENVIRONMENT
KNOWLEDGE The enabler of progress. Some people with specialized knowledge. Everyone with ubiquitous common knowledge. More on KNOWLEDGE
IDEAS Without ideas, progress slows. Not many ideas progress to full scale implementation. More on IDEAS
GOVERNANCE Leadership, laws, rules and regulations, judicial system, security are all contributors to progress More on GOVERNANCE
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MANAGING FOR BETTER SOCIO-ENVIRO-ECONOMIC PROGRESS
MANAGING PARADIGM SHIFT IN ECONOMIC PERFORMANCE
DATA / DECISIONS / FEEDBACK / ACCOUNTABILITY
DATA A small amount of accurate data may well be better than a lot of poor data ... GIGO (Garbage In, Garbage Out) More on DATA
DATA
ACQUISITION
Technological progress has made the acquisition of data less costly and more efficient than at any time in the past. Good people have no problem with data. Bad actors avoid data to avoid accountability. More on DATA-ACQUISITION
DATA FOR DECISIONS Internal corporate management data is as granular as it needs to be for profit performance decisions. The same sort of granularity and timeliness is needed for social and environmental impact information. More on DATA-FOR-DECISIONS
DATA for ACCOUNTABILITY Massive amounts of data, but surprisingly little accountability. Major changes and systemic improvements are needed More on ACCOUNTABILITY
DATA FOR REPORTING These data should be capable of being easily aggregated and be widely respected and accessible without significant delay. Stock price information is rapidly and easily accessible, and so also should be social and environmental progress indicators. More on DATA-FOR-REPORTING
UNITS OF ACCOUNT Multiple units of account makes it possible to link to meaningful scientific measures AND report usefully in a summary fashion More on UNITS-OF-ACCOUNT
STANDARD VALUE PROFILES Similar to Standard Costs, but more complete incorporating cumulative history as well as future impacts for every product More on STANDARD-VALUE-PROFILE
UNSUSTAINABILITY SCORES Everything in the modern socio-enviro-economic system aggregates to an unsustainable disaster. MEASURE IT / MANAGE IT More on UNSUSTAINABILITY-SCORE




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