image missingTrue Value Metrics (TVM)
Meaningful Metrics for a Smart Society
image missing Navigation ... HOME
(0)
HOME
(1)
ISSUES
SYSTEMIC
DYSFUNCTION
(2)
IDEAS
THINKERS
POSSIBILITIES
(3)
BETTER
METRICS
TVA
(4)
PEOPLE
SOCIAL
CAPITAL
(5)
NATURAL
SYSTEMS
BIOSPHERE
(6)
CREATED
PHYSICAL
ECONOMY
(7)
CREATED
FINANCIAL
ECONOMY
(8)
CREATED
INTANGIBLE
ECONOMY
(9)
PLACE
COUNTRIES
COMMUNITIES
(10)
STREAMS
PRODUCTS
PROCESSES
(11)
ORGANIZATIONS
COMPANIES
INITIATIVES
(12)
ABOUT
BURGESS
ARCHIVE
Date: 2017-09-21 Page is: DBtxt001.php L070-CFA-CONVENTIONAL-FINANCIAL-ACCOUNTANCY


CONVENTIONAL FINANCIAL ACCOUNTANCY
A very powerful methodology for measuring performance and making pro-profit decisions

OVERVIEW / CONTEXT / INTRODUCTION
Most Chartered Accountants have been trained to think in terms of accounting principles. Areas influenced more by US CPA's think more in terms of the accounting rules and regulations that have been promulgated. This has resulted in some 'gaming' of the rules by those with power and influence.
(TO COME ... some examples of this)

Understanding the Basic Principles of Accounting
from QuickBooks All-in-One For Dummies ... By Stephen L. Nelson 2011
ABOUT CONVENTIONAL ACCOUNTING TPB COMMMENTARY
Generally Accepted Accounting Principles (GAAP)
Accounting rests on a rather small set of fundamental assumptions and principles. People often refer to these fundamentals as generally accepted accounting principles. Understanding the principles gives context and makes accounting practices more understandable. It's no exaggeration to say that they permeate almost everything related to business accounting.
Revenue principle
The revenue principle, also known as the realization principle, states that revenue is earned when the sale is made, which is typically when goods or services are provided. A key component of the revenue principle, when it comes to the sale of goods, is that revenue is earned when legal ownership of the goods passes from seller to buyer. Note that revenue isn't earned when you collect cash for something.
Expense principle
The expense principle states that an expense occurs when the business uses goods or receives services. In other words, the expense principle is the flip side of the revenue principle. As is the case with the revenue principle, if you receive some goods, simply receiving the goods means that you've incurred the expense of the goods. Similarly, if you received some service, you have incurred the expense. It doesn't matter that it takes a few days or a few weeks to get the bill. You incur an expense when goods or services are received.
Matching principle
The matching principle is related to the revenue and the expense principles. The matching principle states that when you recognize revenue, you should match related expenses with the revenue. The best example of the matching principle concerns the case of businesses that resell inventory. for example, if you own a hot dog stand, you should count the expense of a hot dog and the expense of a bun on the day you sell that hot dog and that bun. Don't count the expense when you buy the buns and the dogs. Count the expense when you sell them. In other words, match the expense of the item with the revenue of the item.
Accrual based accounting
Accrual-based accounting, which is a term you've probably heard, is what you get when you apply the revenue principle, the expense principle, and the matching principle. In a nutshell, accrual-based accounting means that you record revenue when a sale is made and record expenses when goods are used or services are received.
Cost principle
The cost principle states that amounts in your accounting system should be quantified, or measured, by using historical cost. For example, if you have a business and the business owns a building, that building, according to the cost principle, shows up on your balance sheet at its historical cost; you don't adjust the values in an accounting system for changes in a fair market value.
The idea of historic cost has been contentious in the conventional accounting community since the 1960s ... and most financial analysis takes into consideration this aspect of conventional accounting. With TVA the impact of all of the past, and the impact of a place, and the impact of the future are all brought into account in a way that has meaning. This is very important in a world where change is rapid and there are a multitude of important risks that change over time.
Objectivity principle
The objectivity principle states that accounting measurements and accounting reports should use objective, factual, and verifiable data. In other words, accountants, accounting systems, and accounting reports should rely on subjectivity as little as possible. An accountant always wants to use objective data (even if it's bad) rather than subjective data (even if the subjective data is arguably better).
[This assertion that accountants have a preference for objective bad data over subjective data that is meaningful is NOT my personal experience. TPB]
Continuity assumption
The continuity assumption states that accounting systems assume that a business will continue to operate. The importance of the continuity assumption becomes most clear if you consider the ramifications of assuming that a business won't continue. If a business won't continue, it becomes very unclear how one should value assets if the assets have no resale value. If a business won't continue operations, no assurance exists that any of the inventory can be sold. If the inventory can't be sold, what does that say about the owner's equity value shown in the balance sheet?
Unit-of-measure assumption
The unit-of-measure assumption assumes that a business's domestic currency is the appropriate unit of measure for the business to use in its accounting. In other words, the unit-of-measure assumption states that it's okay for U.S. businesses to use U.S. dollars in their accounting. The unit-of-measure assumption also states, implicitly, that even though inflation and, occasionally, deflation change the purchasing power of the unit of measure used in the accounting system, that's still okay.
Separate entity assumption
The separate entity assumption states that a business entity, like a sole proprietorship, is a separate entity, a separate thing from its business owner. And the separate entity assumption says that a partnership is a separate thing from the partners who own part of the business. The separate entity assumption, therefore, enables one to prepare financial statements just for the sole proprietorship or just for the partnership. As a result, the separate entity assumption also relies on a business being separate and distinct and definable as compared to its business owners.

Understanding the Basic Principles of Accounting
from MyAccountingCourse ... downloaded June 2017
ABOUT CONVENTIONAL ACCOUNTING TPB COMMMENTARY




The text being discussed is available at



CAVEAT. The information on this website may only be used for socio-economic performance analysis, personal information, education and limited low profit purposes
Copyright © 2005-2017 Peter Burgess. All rights reserved.