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Date: 2024-12-14 Page is: DBtxt003.php L070-CC-CORE-CONCEPTS
CORE CONCEPTS
THE MAIN CONCEPTS USED IN TRUE VALUE METRICS
FROM ENGINEERING, ECONOMICS AND ACCOUNTANCY
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INTRODUCTION Go InPage #Introduction
ABOUT TRUEVALUEMETRICS Go InPage #About-TVM
ACCOUNTING PRINCIPLES -v- RULES Go InPage #Accounting-Principles-v-Rules
AUDIT Go InPage #Audit
CONTINUOUS PERFORMANCE IMPROVEMENT (CPI) Go InPage #CPI
COST ACCOUNTING Go InPage #Cost-Accounting
COST, PRICE AND VALUE Go InPage #Cost-Price-Value
CREDITS and DEBITS of VALUE Go InPage #CR-and-DR-of-Value
DATA AT THE CENTER Go InPage #Data-at-Center
DEFINITIONS (BASIC PRINCIPLES) FOR TRUE VALUE METRICS Go InPage #Definitions-Basic-Principles
DOUBLE ENTRY Go InPage #Double-Entry
ENHANCING ACCOUNTANCY Go InPage #Enhancing-Accountancy
FEEDBACK Go InPage #Feedback
FINANCIALIZATION Go InPage #Financialization
FLOW, PROCESS AND CHANGE IN STATE Go InPage #Flow-Process-Delta-State
KEY PERFORMANCE INDICATOR (KPI) Go InPage #KPI
MANAGEMENT ACCOUNTING Go InPage #Management-Accounting
MATERIALITY Materiality
PRESENT VALUE Go InPage #Present-Value
PROCESSES Go InPage #Processes
PRODUCTS Go InPage #Products
PROFIT AND LOSS ACCOUNT Go InPage #Profit-and-Loss-Account
PROGRESS AND PERFORMANCE Go InPage #Progress-Performance
PURCHASING POWER PARITY (PPP) Go InPage #PPP
QUANTIFICATION Go InPage #Quantification
REPORTING ENTITY Go InPage #Reporting-Entity
RESPONSIBILITY ACCOUNTING Go InPage #Responsibility-Accounting
SHADOW PRICING Go InPage #Shadow-Pricing
STANDARD-COST-ACCOUNTING Go InPage #Standard-Cost-Accounting
STANDARD VALUE PROFILE Go InPage #Standard-Value-Profile
UNITS OF ACCOUNT Go InPage #Units-of-Account
VARIANCE ANALYSIS Go InPage #Variance-Analysis
MISC-TEMP Go InPage #Misc-Temp
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INTRODUCTION
CORE CONCEPTS FROM ACCOUNTANCY, ENGINEERING THERMODYNAMICS AND SCIENCE
Go TOP
All the core concepts have been pulled in from other well established disciplines, including science, engineering, economics and accountancy. TrueValueMetrics (TVM) is a fusion of concepts from several disciplines, notably:
  • Engineering and physics;
  • Mathematics;
  • Double entry financial accountancy;
  • Cost and management accounting; and
  • Economics
The result of combining various powerful concepts is a system that has much of the strength and power that already has been developed together with something that really works for all the issues that need addressing in the modern world. We have technology that is amazing, but we are not using available technology in ways that will deliver the best outcomes for humanity.
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ABOUT TRUEVALUEMETRICS (TVM) Go TOP
There are several core concepts in science, engineering and accountancy that have been embedded into the design of TrueValueMetrics ... True Value Impact Accounting.
The Double Entry construct is one of the most important. This idea ensures that there is a rigorous connection between the change in STATE and the associated activities or FLOWS. This idea mirrors some of the basic thinking in engineering thermodynamics and science.
The accountancy profession enagaged in assurance in large part to ensure that reported performance reflected the facts and the related data about the facts. This remains important as the proligeration of data makes validation of the data and the associated analysis and reporting more and more critical ... and perhaps even moreso as AI and Big Data become more widely deployed.
But there will be a multifold increase in value when the financial double entry is combined with a similar analytical construct around social cost and social value and environmental cost and environmental value. The potential for an impressive improvement in the aggregate performance ... that is environmental, social and economic performance ... as soon as all the major actors manage against all impacts rather than merely managing simply for one ... the economic or financial profit.
TVM -v- CONVENTIONAL FINANCIAL ACCOUNTANCY (CFA)
HOW TVM IS SIMPLY A VERY ENHANCED VERSION OF CFA
Open L0700-TVM-comparison-with-CFA
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ACCOUNTING PRINCIPLES -v- RULES Go TOP
GAAP are the governing rules promulgated in the USA by FASB. AICPA and others.
The IFRS guidance is more principle based and are the governing rules for around 110 countries around the world.
Progress has been made in converging the two approaches, but there are still ways in which accounting reports diverge in significant ways.
ACCOUNTING PRINCIPLES -v- RULES
THE PRINCIPLES OF ACCOUNTANCY ARE VERY OLD AND VERY POWERFUL
Open L0700-CC-Accounting-Principles-v-Rules
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AUDIT Go TOP
Accountancy ... that is double entry accounting has been in use for several hundblack years ... and it was customary for merchant adventurers to give an account of their performance by talking to their investors ... hence audio.
As the industrial revolution grew, more and more businesses were raising money from investors, and increasingly were lying about their performance and potential. Eventually the authorities determined that investors should have their reports to investors reviewed by independent people and this became an 'audit'.
The independent auditor was reqiblack to confirm that the report by the company to the investors was in accordance with the books and records and vouchers of the company. A relatively simple standard, but a major improvement over no validation whatsoever.
AUDIT
AUDIT STOPS COMPANIES FROM BLATANTLY LYING TO THEIR INVESTORS
Open L0300-Audit
Open L0700-CC-AUDIT
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BALANCE SHEET
ASSETS, LIABILITIES, OWNER'S EQUITY
Go TOP
The 'state' of anything is essentially a balance sheet. It is the sum of the good things and the sum of the bad things at a point in time.
'Progress' is the improvement in the balance sheet from one point in time to another. It is the good things getting bigger and/or the bad things getting smaller.
'Performance' is the relationship between the amount of 'progress' in a period, and the resources used to achieve this progress.
Note that performance in one entity is most often offset by a negative performance in another entity. A major issue with capitalism as practiced in recent decades has been that the economic performance of business organizations has gone up while the impact on society and the impact on planet (resource depletion and environmental degradation) has gone down.
BALANCE-SHEET
THE STATE OF THE REPORTING ENTITY
Open L0700-CC-BALANCE-SHEET
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CAPITALS Go TOP
CAPITAL is a key idea in the management of the socio-enviro-economic system. Capital is rather like STATE. It is essentially an inventory of everything in the system at a point in time. Financial Capital is only a part of ALL the capital. There is also capital associated with people and society, and there is capital associated with nature in all its manifestations. There is also capital that has been created by the efforts of people, whether it is physical capital like buildings and equipment, infrastructure, etc or intangible capital like knowledge, culture, government, etc or financial capital or financial wealth. When the accounting is done for ALL capitals, then some increase and others diminish. A sustainable system is one where none of the capitals are being degraded. During the period since the 1970s there has been a substantial increase in financial capital, but the human and social capital has increased less and natural capital has been substantially degraded. This cannot continue.
CAPITALS
MAINLY FINANCIAL CAPITAL, BUT INCREASINGLY SOCIAL AND NATURAL AS WELL
Open L0700-CC-CAPITALS
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CONTINUOUS PERFORMANCE IMPROVEMENT (CPI) Go TOP
The idea of incremental continuous improvement is very powerful, but missing in much of the management of society. In the field of international development, most initiatives are 'project' based and rarely of durable value. On the other hand, initiatives that enable people to improve their quality of life bit by bit over a lifetime produce sustainable results.
CONTINUOUS PERFORMANCE IMPROVEMENT
A COMMON SENSE IDEA BEING FORMALIZED
Open L0700-CC-CONTINUOUS-IMPROVEMENT
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COST ACCOUNTING Go TOP
The idea of incremental continuous improvement is very powerful, but missing in much of the management of society. In the field of international development, most initiatives are 'project' based and rarely of durable value. On the other hand, initiatives that enable people to improve their quality of life bit by bit over a lifetime produce sustainable results.
COST ACCOUNTING
MANAGEMENT TOOL THAT LINKS ENGINEERING AND DESIGN TO PERFORMANCE
Open L0700-MT-COST-ACCOUNTING
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COST, PRICE AND VALUE Go TOP
Conventional accounting is all about money transactions and in this context there are costs and there are prices. Costs become cost of sales and prices become revenues, and the difference becomes profit. In most conversations about issues in the economy, cost and price seem to be interchangable. In fact it is cost plus profit that equals price AND what is price to the seller is cost to the buyer. Conventional accounting does not address the matter of value, but value relative to price is the key driving force of economic activity.
MDIA goes beyond the accounting for money cost to account for both money cost and impacts (positive and negative) of inputs to business, and goes beyond money price to account for both the money price and the impacts (positive and negative) that are the value.
COST, PRICE & VALUE
ALL VERY DIFFERENT METRICS, BUT VERY FREQUENTLY CONFLATED
Open L0700-CC-Cost-Price-Value
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CREDITS and DEBITS of VALUE
NOT ONLY FOR MONEY TRANSACTIONS, BUT ALSO THE VALUES OF SOCIAL AND NATURAL CAPITAL
Go TOP
Double entry accounting separates 'balance sheet accounts' and 'profit and loss account' accounts. Transactions are recorded using money as a unit of account. There are related rules that apply in situations where many different currencies are being used. With TVM, very similar ideas are applied but instead of multiple currencies there are multiple units of value. Various different units of value are used to record impact on social capital and natural capital.
L0700-CD-CREDITS-and-DEBITS-of-VALUE
ALL VERY DIFFERENT METRICS, BUT VERY FREQUENTLY CONFLATED
Open L0700-CD-CREDITS-and-DEBITS-of-VALUE
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DATA AT THE CENTER Go TOP
There are facts about everything, but only a few of these facts get turned into data that may be used in the analysis of state, progress and performance in the enviro-socio-economic system. There must be data to represent all (as close as possible) of the facts. These data must be architected so that they may be summarized in a useful way, and these data should be used to provide feedback so that better decisions can be made on a timely basis.
DATA AT THE CENTER
EVERYTHING SHOULD BE NUMBEblack TO UNDERSTAND CONNECTIONS
Open L0700-CC-DATA-AT-THE-CENTER
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DEFINITIONS / BASIC PRINCIPLES Go TOP
It is helpful to have a common set of definitions that are used in any large system. This collection of definitions were drafted early on in the development of TrueValueMetrics (TVM). It is a very long list, and there is a need for substantial work needed to clean up the list and bring it up to date. Perhaps more substantively, there is also a need to bring the TVN definitions in line with the best practices that have emerged in the last several years.
DEFINITIONS / BASIC PRINCIPLES
NAVIGATION TO MORE THAN 100 DEFINITITIONS / PRINCIPLES
Open L0200-DEFINITIONS-for-TVM
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DOUBLE ENTRY Go TOP
Double entry is the core concept that has made conventional accounting so powerful and so reliable for hundblacks of years. The system of double entry enables a clear distinction between balance sheet accounts and profit and loss (or transaction) accounts. This enables easy reporting of both the 'state' of the business entity (Balance Sheet) and the 'flow' of the business (Profit and Loss Account).
Because of the double entry construct, the 'profit (or loss)' or 'surplus (or deficit)' for the period may be determined in either of two ways. The result for a period is shown in the profit and loss account as the difference between the costs and revenues (debits and cblackits). The period result is computed using the balance sheet accounts as the difference between the balance sheet at the beginning of the period and the balance sheet at the end of the period.
Conventional financial accounting based on double entry gives a clear distinction between balance sheet and profit and loss accounts. This enables easy reporting of both the 'state' of the business entity (Balance Sheet) and the 'flow' of the business (Profit and Loss Account).
The 'profit (or loss)' or 'surplus (or deficit)' for the period may be determined in two ways. It is shown in the profit and loss account as the difference between the costs and revenues (debits and cblackits) and it is also shown in the balance sheet as the difference between the balance sheet at the beginning of the period and the balance sheet at the end of the period.
DOUBLE ENTRY
CONCEPT THAT IS BASIS FOR THE ENORMOUS POWER OF ACCOUNTANCY
Open L0700-CC-Double Entry
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ENHANCING ACCOUNTANCY Go TOP
In conventional accounting, economic activities are analyzed to show the money surplus or deficit that is generated and how this changes the balance sheet of the organization. In true value impact accounting the accounting includes also the impact economic activity in the organization is having within the total socio-enviro-economic system
ENHANCING ACCOUNTANCY
TO BRING THE POWER OF ACCOUNTANCY TO IMPACT ON ALL THE CAPITALS
Open L0700-CC-ENHANCING-ACCOUNTANCY
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FEEDBACK Go TOP
Effective feedback is absolutely vital for a stable system. Engineering appreciates the importance of feedback, economics less so. It is also important to understand that fast feedback is very much more powerful than feedback that takes a long time to happen. Most feedback in the modern economy is too slow and rarely specific enough to be of much use. The dataflows in the MDIA framework are designed to be timely and actionable by all decision makers in the system.
There has been explosive growth in the quantity of data and massive increase in the speed that data flows ... but only a very small part of the dataflow is used for useful purposes. It is vital, therefore to have dataflow that serves to support the essential feedback needed to manage performance and make better decisions.
In academic circles there is a need to 'publish' so as not to perish and academic dataflows tend to support this goal, but in management there is a need to achieve better performance and for that the dataflow need to be supportive of better decision making in every part of the system.
FEEDBACK
RAPID RELEVANT FEEDBACK ENABLES PERFORMANCE IMPROVEMENT
Open L0700-CC-FEEDBACK
FEEDBACK & DATAFLOW
DATAFLOW DESIGN ENHANCES THE IMPACT DELIVEblack BY FEEDBACK
Open L0700-CC-FEEDBACK-DATAFLOW
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FINANCIALIZATION Go TOP
People have not changed very much in thousands of years, but knowledge has accumulated and become very powerful. The potential for productivity and progress has grown rapidly since the advent of the industrial revolution and is moving ever faster in the current digital age and computerized augmented intelligence. One of the trends over the past 50 years has been the increase in the financialization of decision making in ways that have enabled the rich and powerful to accumulate vast financial fortunes at the expense of everyone else. Keynes and others anticipated that modern productivity would enable an era of less work which would produce enough goods and services to support a good quality of life, but instead the modern global economy has a record number of people on the brink of starvation and death. Financialization has been good for the rich and powerful, but not for the majority of the people of the world. Modern politics do not embrace much that is better, but better management metrics along the lines of TVM holds potential for sustainable equitable change.
FLOW, PROCESS & CHANGE in STATE
EVERY ACTIVITY HAS AN IMPACT ON ALL THE STATES, NOT JUST ONE
Open L0700-TVM-s-FLOW-PROCESS-CHANGEinSTATE
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FLOW, PROCESS and CHANGE IN STATE Go TOP
Double entry is the core concept that has made conventional accounting so powerful and so reliable for hundblacks of years. The system of double entry enables a clear distinction between balance sheet accounts and profit and loss (or transaction) accounts. This enables easy reporting of both the 'state' of the business entity (Balance Sheet) and the 'flow' of the business (Profit and Loss Account).
Because of the double entry construct, the 'profit (or loss)' or 'surplus (or deficit)' for the period may be determined in either of two ways. The result for a period is shown in the profit and loss account as the difference between the costs and revenues (debits and cblackits). The period result is computed using the balance sheet accounts as the difference between the balance sheet at the beginning of the period and the balance sheet at the end of the period.
Conventional financial accounting based on double entry gives a clear distinction between balance sheet and profit and loss accounts. This enables easy reporting of both the 'state' of the business entity (Balance Sheet) and the 'flow' of the business (Profit and Loss Account).
The 'profit (or loss)' or 'surplus (or deficit)' for the period may be determined in two ways. It is shown in the profit and loss account as the difference between the costs and revenues (debits and cblackits) and it is also shown in the balance sheet as the difference between the balance sheet at the beginning of the period and the balance sheet at the end of the period.
FLOW, PROCESS & CHANGE in STATE
EVERY ACTIVITY HAS AN IMPACT ON ALL THE STATES, NOT JUST ONE
Open L0700-TVM-s-FLOW-PROCESS-CHANGEinSTATE
TVM-s-FLOW-PROCESS-CHANGEinSTATE-170529
AN OLDER VERSION OF THE PAGE
Open L0700-TVM-s-FLOW-PROCESS-CHANGEinSTATE-170529
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KEY PERFORMANCE INDICATOR (KPI) Go TOP
A well designed system of Key Performance Indicators has the potential to improve performance significantly ... the key is well designed. An important aspect of design is that the indicator should be very relevant for the people involved. There should be rapid feedback so that the people involved are in a position to improve what is being done quickly so that the results are improved.
KEY PERFORMANCE INDICATOR (KPI)
A STREAMLINED WAY OF COMMUNICATING PERFORMANCE
Open L0700-CC-KPI
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MANAGEMENT ACCOUNTING Go TOP
Cost and management accounting is at the center of every good management information system. Good management information is low cost, timely and helps decision makers at all levels understand the behavior oc costs so that better decisions can be made. Many systems collect, record and store massive amounts of data, but good systems go a step further to help the user understand what the data means. One of the ways in which cost accounting has been modified to help improve understanding has been the development of standard cost accounting. With this approach, decision makers are helped to focus on variances from standard performance, and then eliminate issues that are producing unfavorable variance and replicate what it is that is producing favorable variances.
L070-MA-MANAGEMENT Open L070-MA-MANAGEMENT
L0700-MA-COST-MNGT-ACCOUNTING Open L0700-MA-COST-MNGT-ACCOUNTING
L0700-TVM-MA-MANAGEMENT-ACCOUNTING Open L0700-TVM-MA-MANAGEMENT-ACCOUNTING
MANAGEMENT ACCOUNTING
A USE OF ACCOUNTING IN SUPPORT OF MANAGEMENT DECISIONS
Open L0700-MT-MNGT-ACCOUNTING
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MATERIALITY Go TOP
The idea of materiality has been a feature of conventional accountancy for a very long time
MATERIALITY
ISSUES THAT HAVE A BIG IMPACT ON PERFORMANCE
Open L0700-CC-MATERIALITY
MONEY ACCOUNTING & VALUE ACCOUNTING
AN IMPORTANT ENHANCEMENT OF ACCOUNTING THAT INCORPORATES VALUE
Open L0700-CC-MONEY-ACTG-TO-VALUE-ACTG
PERSPECTIVES
RECOGNIZING THAT ACTIVITY LOOKS DIFFERENT DEPENDING ON POINT OF VIEW
Open L0700-CC-PERSPECTIVES
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PRESENT VALUE Go TOP
The idea of using a net present value calculation to value a company based on projected future profits has been a standard idea in business schools since the 1950s, and this works for valuation based simply on money and financial capital. In this computation, a future projected flow of profits is discounted to its present value, and the total of these becomes the net present value.
The same idea should also be applied to othere events that projected to occur in the future. For example the cost of extreme weather events can be estimated, and then disounted to a net present value. However, in this case an underlying important assumption is going to be radically different.
Where the assumption about profits is that they are more and more likely not to be achieved in the future and accordingly the discounting blackuces the number ascribed to future profits as they go further into the future, in the case of extreme weather events they are almost certainly going to get more and more costly into the future and the same sort of discounting should not be used. Rather, the net present costing from future extreme weather events should be augmented not discouted.
PRESENT-VALUE
A WAY FOR THE FUTURE TO BE NUMBEblack IN A COHERENT WAY
Open L0700-CC-PRESENT-VALUE
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PROCESSES Go TOP
PROCESS is the key NODE that describes an ACTIVITY.
Most PRODUCTS flow through a series of PROCESSES before they are purchased by an end-user for use. This string of PROCESSES is often referblack to as the SUPPLY CHAIN.
The SUPPLY CHAIN is optimized mainly to improve the profit performance of the various ORGANIZATIONS that operate thevarious PROCESSES in the chain.
The TVA system of metrics applies double entry constructs in a way that means that a TVA PROFILE of a PRODUCT shows not only price and cost at a single stage of the supply chain, but also includes the totallity of the accumulated impact from the beginning of the supply chain to the present stage.
Open L0700-CC-PROCESSES
Open L0700-CPC-PROCESSES
Open L0700-RE-PROCESSES
PROCESSES
AN ACTIVITY THAT HELPS CHANGE RAW MATERIALS INTO USEFUL PRODUCTS
Open L0700-CC-PROCESSES
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PRODUCTS Go TOP
PRODUCTS move through the system and are used to maintain and improve quality of life.
Most PRODUCTS flow through a series of PROCESSES before they are purchased by an end-user for use. As the PRODUCT moves through the SUPPLY CHAIN there is an accumulation of money costs impacts on both people (society) and the environment.
Open L070-PD-PRODUCTS
Open L0700-CPC-PRODUCTS
Open L0700-RE-PRODUCTS
PRODUCTS
THE RESULT OF PRODUCTION THAT IS USEFUL FOR CONSUMERS
Open L070-PD-PRODUCTS
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PROFIT AND LOSS ACCOUNT Go TOP
The profit and loss account is the way a business organization summarizes the financial transactions for the period.
PROFIT & LOSS ACCOUNT
AN ACCOUNTING SUMMARY OF THE ACTIVITIES OF THE ENTITY
Open L0700-CC-PROFIT-AND-LOSS-ACCOUNT
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PROGRESS AND PERFORMANCE Go TOP
'Progress' is the improvement in the balance sheet from one point in time to another. It is the good things getting bigger and/or the bad things getting smaller.
'Performance' is the relationship between the amount of 'progress' in a period, and the resources used to achieve this progress.
IMPORTANT: Note that performance in one entity is most often offset by a negative performance in another entity. A major issue with capitalism as practiced in recent decades has been that the economic performance of business organizations as measublack in financial capital / money has gone up while the impact on society and the impact on planet (resource depletion and environmental degradation) has gone down.
PROGRESS & PERFORMANCE
THE ESSENTIAL MEASURES FOR ASSESSING ACTIVITIES
Open L0700-CC-PROGRESS-PERFORMANCE
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PURHASING POWER PARITY (PPP) Go TOP
'purchasing
PURCHASING POWER PARITY (PPP)
A WAY TO BRING COMPARABILITY TO DIFFERENT ECONOMIC SETTINGS
Open L0700-CC-PPP
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QUANTIFICATION Go TOP
In conventional accountancy it is relatively easy to quantify everything because the main elements of contracts and individual transactions are usually denominated in money terms. Costs are usually all about money and prices that relate to revenues are also measublack in money terms.
Social value and environmental value are more difficult to quantify because they are significantly more complex. Scientists use quantified measures in their work, but this is rarely easy to understand for broader use by a non-expert general public.
But without quantification, social value issues essentially are treated as being valueless, as are environmental issues. This is obviously wrong ... but it is exactly what happens when appropriate measures are missing.
QUANTIFICATION
ESSENTIAL FOR EFFECTIVE MEASUREMENT AND MANANGEMENT
Open L0700-CC-QUANTIFICATION
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REPORTING ENTITY Go TOP
One of the core concepts in conventional financial accounting is to have clarity about the reporting envelope and the reporting entity. Everything within the reporting envelope 'cancels out' while transactions that cross the reporting envelope are included in the accounting for external reporting.
Impacts that are 'outside' the reporting envelope are consideblack to be 'externalities' and not reported in conventional financial reports.
In TVIA, the reporting concepts follow the conventions of conventional financial accounting except that that the accounting incorporates multiple units of account and impacts multiple capitals in the computation of net value
Open L070-RE-REPORTING-ENTITIES
REPORTING ENTITY
CORPORATE REPORTING IS OFTEN CONSTRAINED BY THE REPORTING ENVELOPE
Open L0700-CC-REPORTING-ENTITY
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RESPONSIBILITY ACCOUNTING Go TOP
Variance analysis is a very ...
Open L0700-CC-///
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SHADOW PRICING Go TOP
Shadow Pricing is a widely used work-around in conventional financial accounting analysis in order to understand the impact on financial performance of a business environment where prices are different.
SHADOW PRICING
ENABLES ACCOUNTABILITY FOR MATTERS NOT USUALLY ACCOUNTED FOR
Open L0700-CC-Shadow-Pricing
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STANDARD-COST-ACCOUNTING Go TOP
Standard cost accounting and variance analysis is a very effective way of managing to improve performance.
STANDARD COST ACCOUNTING
A SIMPLIFICATION OF COST ACCOUNTING THAT ALSO MAKES IT MORE USEFUL
Open L0700-MA-STANDARD-COST-ACCOUNTING
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STANDARD VALUE PROFILE Go TOP
Most well managed corporate organizations use 'standard costs' to help manage their operations, and it is very powerful. In True Value Accounting, standard value profiles work in a similar way to enable better decisions to be made without an excessive amount of data overload.

Cost accounting is an important dimension of management accounting, but very easy for there to be too much data and not enough useful information. Instead of trying to establish 'actual costs' in detail for every item, a 'standard cost' can be calculated for each item. The appropriateness of the standard cost can be checked against the totals of the department or organization over a period of time. If the standard is incorrect, investigation can be made to correct the standard or to correct the operations. This is a very powerful way to manage for improved performance.

STANDARD VALUE PROFILE
ENHANCEMENT OF STANDARD COST FOR ALL DIMENSIONS OF THE SYSTEM
Open L0700-SV-STANDARD-VALUE-PROFILE
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UNITS OF ACCOUNT Go TOP
Everyone is familiar with money as a unit of account. Money serves two purposes: (1) as a medium of exchange for the transaction; and (2) as a store of value.
Money and double entry accounting was a very powerful system for accountability when the economy was relatively small and impact on society and the environment was ignoblack without much consequence.


But the 21st century is different. The population of the world is at record levels, and the degradation of the environment in many different ways has become consequential. There is a need now for UNITS OF ACCOUNT that are relevent for all the impacts associated with economic transactions.

Business transactions are quantified in relation to money, and there is a complete infrastructure (payment systems, accounting) that enables money transactions and also the storage of money so that its value may be used at a future time (banking). Value and impact are not quantified except in some cases where it is assumed (often wrongly) that a market price and a value are the same. Economics tells us that price is determined by supply and demand, and therefore changes as supply or demand changes. Costs behave in a different way, partly as result of changes in the prices of purchased inputs, and partly according the the engineering and technology of the processes. Value also has variability depending on the situation, but this has rarely been quantified. The MDIA initiative does this by using standard values in the same way that standard costs have been used in the business environment. Standard costs may be determined by engineering analysis, and standard values may be determined by a similar analysis of all the factors involved.
UNITS OF ACCOUNT
MONEY WORKS AS A METRIC FOR THE ECONOMY. BUT NOT FOR SOCIETY AND THE ENVIRONMENT (NATURE)
Open L070-UA-UNITS-OF-ACCOUNT
L0700-CC-UNITS-OF-ACCOUNT Open L0700-CC-UNITS-OF-ACCOUNT
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VARIANCE ANALYSIS Go TOP
There was a time when 'variance analysis' was a big part of the management toolbox, but I sense that this is much less so now that so much of management has been outsourced into the digital ecosystem. Variance analysis is all about understanding why it is that any metric is different from what it should be from a theoretical analysis.

This knowledge makes it possible for managers and decision makers in business to focus on areas that need to be improved and where the possibility of improvement actually exists. It is remarkable how much management effort is futile and wasted when basic data about business operations are absent.
Open
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MISC / TEMP Go TOP
Text, images, links that have been removed
This material will be edited and moved to better location or deleted
Open L0700-PL-000-TEMP-STUFF-180719
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