I recently sat down in a meeting were we discussed the “TGG Way™” and our 20 beliefs about accounting. I know what you are thinking, stimulating stuff. However there are things that every accountant knows or learns over time, and some of these become your own personal beliefs on what is necessary for accounting to be successful and to bear fruitful results for the business. I have chosen to expand on my top 5 beliefs from this discussion and how they relate through best practices in management accounting.
Belief #1: One Right Way to do Accounting – There is only one correct way to do accounting. Every transaction is meant to be represented in a specific way on the balance sheet or income statement. The tricky accountant may tell you that there are “Gray Areas” where things can be interpreted one way or the other. I find that usually that is an excuse to represent a transaction in a way different that it was intended. The truth is most transactions are fairly straight forward and should be presented in its proper place, or format. Also, in my opinion Accrual Accounting is the only true accounting as well. Yes, there is cash accounting, and modified accounting methods, but to truly use the accounting to manage by the numbers, as a management accountant should, accrual is the only way to go.
Belief #2: Every Account Must Balance – This is true at its simplest form of accounting and is true at a larger scale as well. There are debits and credits to every transaction and they must balance. Dual entry book keeping has been around for a long while, centuries actually, when Luca Pacioli, an Italian Friar, began using double entry book keeping in 1494. On a more complicated level every balance sheet account must balance to a schedule or a sub-ledger. If you don’t know what’s on your balance sheet you’d better find out.
Belief #3: Every transaction matters – Not only does it matter, but it should have a purpose for the business, and it should have a source document tied to it that tells you the details. There is no easier way to learn about source documentation then being asked about it by an auditor, especially an IRS auditor.
Belief #4: Any items not reconciled must be researched – This is tied to first three beliefs. If your balance doesn’t balance to a schedule (#2) , and you are not sure of its purpose (#3), then you’d better go through the effort to find out, because you may not be doing the things the right way (#1).
Belief #5 We never compromise our ethics – In this business and accounting world you only have one thing to stand on, and that’s your reputation. When you conduct yourself in an ethical way, you earn the respect of others, earn the respect of your peers and employees, and will be successful in business. Accounting is a field where ethics is at the core of what we do.
These are just some of the core beliefs that I have about accounting, and they are vital in the way that I think accounting is an integral part of every business that can help keep companies in compliance, protect against failures, and to help business owners successful manage their business. As I said in my first belief there is only one right way to do accounting, but there are plenty of wrong ways to do accounting.