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Meaningful Metrics for a Smart Society
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Date: 2020-07-11 Page is: DBtxt001.php list0300-Balance-Sheet-1

Definitions for TrueValueMetrics
Balance Sheet

Balance Sheet A balance sheet is a very powerful part of financial reporting. A balance sheet shows the state of the reporting entity at a point in time. It shows assets and liabilities and the net of assets and liabilities.

Balance sheet – assets. A balance sheet should show the total of assets, and detail the make-up of the assets. There are both tangible and intangible assets. Money, equipment, etc. are tangible assets. Goodwill is an intangible. There are current assets and there are fixed assets. There may also be “off the balance sheet” assets.

In the corporate environment the generally accepted accounting principles (GAAP) are applied. In TVM the concepts are broadened to ensure that assets are reflected in the best possible way to show the state of the community. In the TVM environment, possibilities and potential are assets.

Balance sheet – liabilities. In corporate accounting with GAAP the liabilities are those that are reflected in law and about money. The amounts owed, are the liabilities. There are also contingent liabilities that may be liabilities if certain things do not work out.

In the TVM environment constraints of various kinds are liabilities.

Balance sheet – net state. The net state is the difference between the assets and the liabilities. In corporate accounting this is stockholders' equity.

In the TVM environment, the net state is a convenient measure of the state of the community. However, it is rare for this measure to be complete enough to be a useful comparative index across many different communities.

Some history. The accounting profession used to have great concern that there should be no chance of manipulating the values on the balance sheet ... but this has been subverted.

Caveat. Accountancy has been very engaged with ensuring that assets and liabilities are accurately reflected on the balance sheet. Unless these numbers are right, financial reporting becomes an exercise in dangerous stupidity. It is apparent that sound accounting principles have been ignored in the development of modern rules about how financial assets and liabilities are valued for balance sheet reporting.

Change over time. When a current balance sheet about now is compared with a balance sheet about some time past, there is an immediate view of how things have changed. revenue of the period should be matched with the costs associated with this revenue.

The balance sheet of a community, a neighborhood or a block shows in stark simplicity what is happening. Much may stay the same from year to year ... indeed from century to century ... but some items change rapidly, sometimes for the better, sometimes not. A community balance sheet report can be prepared that shows what is changing in some detail while having the rest that has not changed in simple summary.

A common interval or period is one year ... but there are circumstances when more frequent analysis is useful. Monthly reporting provides information about seasonality for example. In farming there are times when stocks are very low, and then after harvest very high. A monthly balance sheet report shows when stocks are lowest and highest.

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TrueValueMetrics (TVM) is an Open Source / Open Knowledge initiative. It has been funded by family and friends plus donations from well wishers who understand the importance of accountability and getting the management metrics right. TVM is a 'big idea' that has the potential to be a game changer leveling the playing field so the wealth and power is shared on a more reasonable basis between people who work for a living and those that own the economy and the levers of power. In order to be effective, it cannot be funded in the conventional way with a for profit business plan, but absolutely must remain an open access initiative.

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