Accounts: Reviews on Basic Principals and Personal Accounting

With accounting, if everyone involved in the process of accounting followed their own system, or no system at all, there's be no way to truly tell whether a company was profitable or not. Most companies follow what are called generally accepted accounting principles, or GAAP, and there are huge tomes in libraries and bookstores devoted to just this one topic. Unless a company states otherwise, anyone reading a financial statement can make the assumption that company has used GAAP.

GAAP is the gold standard for preparing financial statement. Not disclosing that it has used principles other than GAAP makes a company legally liable for any misleading or misunderstood data. These principles have been fine-tuned over decades and have effectively governed accounting methods and the financial reporting systems of businesses. Different principles have been established for different types of business entities, such for-profit and not-for-profit companies, governments and other enterprises.

GAAP's in accounting are not cut and dried. However they're guidelines, and as such are often open to interpretation. They are estimates have to be made at times, and they require good faith efforts towards accuracy. You've surely heard the phrase "creative accounting" and this is when a company pushes the envelope a little (or a lot) to make their business look more profitable than it might actually be. This is also called massaging the numbers. This can get out of control and quickly turn into accounting fraud, which is also called cooking the books. The results of these practices can be devastating and ruin hundreds and thousands of lives, as in the cases of Enron, Rite Aid and others.

Personal accounting

On personal accounting, you balance your checkbook to note any charges in your checking account that you haven't recorded in your checkbook. Some of these can include ATM fees, overdraft fees, special transaction fees or low balance fees, if you're required to keep a minimum balance in your account. You also balance your checkbook to record any credits that you haven't noted previously. They might include automatic deposits, or refunds or other electronic deposits. Your checking account might be an interest-bearing account and you want to record any interest that it's earned.

Income - any money you've earned from working or owning assets, unless there are specific exemptions from income tax.

Standard deduction - some personal expenditures or business expenses can be deducted from your income to reduce the taxable amount of income. These expenses include items such as interest paid on your home mortgage, charitable contributions and property taxes.

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From Boring Accountant to Dynamic Accounting Artist

The accountant is widely considered to be a human computer without a personality. They often the target of vicious jokes in publications, e-mails and discussions. Accounting students at colleges are for the most part considered a “nerdy class”.
Many people consider a career in accounting , for the financial rewards, not the career itself.

The rigorous studying and training could have something to do with this “boring” perception. But also the conservative clubs and societies that accountants are compelled to belong to. A host of laws governing the profession removes the accountant at times, from reality.

After the collusion in fraud at Enron, WorldCom and other corporate failures, the word “crook”, also comes to mind. So the accountant might be sought after for his number crunching and tax skills. But in the minds of most people, businesses and the man on the street, alike, they are not respected.

Accounting degrees vary, but very few of them include proper communication skills in their courses. A common critique of accountants is that they cannot convey the highly technical accounting information to the laymen. The users of accounting information incur high fees to make critical decisions about their businesses and organizations.

A stiff culture permeates many accounting firms, regimented by practice rules, accounting standards and even government ordinances. Accountants complain about “compliance” issues, but are oblivious to the fact that their inputs, at tax workshops, contributed to all these laws, which they claim to detest.

Some salient points need to be addressed beyond the funny nerdy images of accountants.
They are:
· Greed, very high fees for a simple report or short consultation.
· Lack of communication skills (common perception)
· Critical of fellow professionals
· Low quality work (for high fees)

With so many clients at some firms, accountants are pushing through poorly prepared financial reports. This also ties into the greed, raking in as much hours/fees as possible. No wonder, accountants are seen as the scum of the earth.

The Accounting Artist: An artist loves what he does, whether he gets paid or not. If the accountant views every report or assignment as a “work of art”, that requires diligent time and attention. Or better still, he sees his assignment, as a creative process, fewer reports would be returned for correction or clarification.
By creating professional files for every client, and preparing “working papers” for every assignment, not- just- audits, the accountant will enjoy his assignments more.
Building blocks and safeguards are also put in place, since every relevant detail, from the clients phone number to his banks statement are placed on file. Lead schedules connecting information to accounts are clearly referenced. After all the notes are concluded, a financial statement, cash flow forecast or business plan is produced. Just like a Picasso produced a painting. Accountants should shy away from auditing/ working paper software. Retain the manual process. Painters don’t use software. Other software tools such as spreadsheets, is imperative. But accountants rush through some reports, (using auditing software) after years of repeating the cycle; they get bored, and also become boring in the process.

Fewer, but high profile assignments can be taken on. A client would not hesitate to pay a higher fee, for a quality report.
The accounting artist using all the tools at his disposal , will not produce fraudulent financial statements.

About the Author:

Sean Goss
Accounting advice on our website:

www.sgafc.co.za

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