CONVENTIONAL FINANCIAL ACCOUNTING
ACCOUNTS FOR THE PAST, THE PRESENT AND THE FUTURE
Very powerful ... Used in every business
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HISTORY
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History has already happened. We can learn from it, and it is the reason why and how we got to the present time.
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Beginning of Period (BOP)
STATE
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The Beginning of Period (BOP) STATE is a record at a moment in time of what has gone before
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ACTIVITIES
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Activities CHANGE the STATE from what it was at the BOP to what it gets to be at the EOP
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End of Period (EOP)
STATE
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The End of Period (EOP) STATE is a record at a another moment in time ... the end of the period
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FUTURE
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The future has a Net Present Value (NPV) that is a mix of many factors.
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BALANCE SHEET (BOP)
A summary of the Balance Sheet accounts at the beginning of the period.
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P&L ACCOUNT
A summary of the P&L accounts for the period.
CASH FLOW
How P&L accounts change the Balance Sheet
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BALANCE SHEET (EOP)
A summary of the Balance Sheet accounts at the end of the period.
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EQUITY VALUATION
A MEMO Balance Sheet that adds in the Net Present Value (NPV) of future profit flows
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HISTORY
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Use a time series of Comprehesive Value Balance Sheets that show changes over time
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Beginning of Period (BOP)
STATE
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The Beginning of Period (BOP) STATE is a record at a moment in time of ALL the CAPITALS of what has gone before
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ACTIVITIES
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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.
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End of Period (EOP)
STATE
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The End of Period (EOP) STATE is a record at a another moment in time ... the end of the period ... of ALL the CAPITALS
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FUTURE
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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
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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.
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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.
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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.
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GAAP
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Generally Accepted Accounting Principles used everywhere in the world
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More on CORE-CONCEPTS
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B/S and P&L account
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Accounting differentiates between 'Balance Sheet' accounts and 'Profit and Loss' accounts. This is a key step in understanding cause and effect.
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Balance sheet accounts
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Typically these are segmented as follows: Current assets: Current liabilities: Fixed assets: Other assets: Long term debt: Stockholders' Equity
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P&L accounts
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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
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PROFIT
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PROFIT or FINANCIAL PROGRESS can be measured simply by comparing the EOP Balance Sheet with the BOP Balance Sheet. The Change is PROFIT.
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Externalities
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Conventional financial accounting only accounts for money transactions and those that are within a reporting envelope.
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Accrual -v-
Cash basis
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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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