Deficiencies of Typical Basic Balance Sheet Accounting Methods
According to http://www.accountingcoach.com/online-accounting-course/60Xpg03.html and http://www.accountingcoach.com/online-accounting-course/60Xpg04.html the preferred method of keeping accounts involves a balance sheet wherein the accountant has erred if assets are not always equal to the sum of liabilities plus shareholders equity. Their holy cow of accounting is, that assets equal liabilities plus shareholders equity or the accountant is guilty of sacrilege.
In this post I am referring to the accounting doctrines set forth in these two links above start of this post.
If Shareholder Equity calculated 'At Cost'
Shareholders equity is calculated in the Accounting Coach method, I assume, on an "at cost" basis, meaning that it is valued at what it cost when it was last bought. Thus a problem is that since the measure is blind to changes in stockholders equity produced by changes in expectations for a company, it cannot discern real situations that occur such as imbalance, assets equal 100 in a company, exceeding its 25 liquidity plus 25 real or current value stockholders equity, as 100>50, a situation which can occur because although there are high assets and low liabilities, the future expectation of profit is low.
The Acctg Coach measure as it values stockholders equity at cost, is also blind to situations such as imbalance, Assets=40, stockholders-equity (equity in real or current value)=50, and Liabilities=50, as 40<100, which could occur because although there are low assets and high liabilities, the future expectation of profits is still high.
When the method advocated by the Accounting Coach, is applied with the stockholder's equity valued on an 'at cost' basis, the picture produced by the accounting antennae is befuddled, due to an under-valuation of acts that increase the future expectation of profits.
When shareholder equity is valued at an at cost basis, the picture is again and further befuddled because for example: poorly chosen equipment, could result in high assets combined with low liabilities and low stockholders equity (equity in real or current as opposed to at cost dollars), but this expensive pile of useless equipment situation would not be detected because the stockholders equity is measured in at cost dollars.
If Shareholder Equity Measured not 'At Cost' but in real or current dollars
If such a poorly chosen equipment phenomenon were indeed to be picked up by the Acctg Coach method so to speak antennae through the use of real and current instead of at cost dollars when measuring shareholder equity, the result would be imbalance contradicting the Acctg Coach etc 'basic of accounts' which it seems accountants would scramble to rectify by weirdly assigning imaginative accounts that put assets where liabilities should be and vice versa, hopelessly complicating the picture, all to make a , the so called " of accounts" specifying that assets shall equal liabilities plus stockholders equity, all to make this come true.
Whereas logically, a of nature should by assumed to be true if events bear the out to be true, Acctg Coach types it seems reverse matters and force events into making the hypothesized of nature come true, by weirdly and redundantly categorizing events, as in double-entry triple-entry quadruple-entry accounting started by the idolized Venetian merchants of 500 years ago.
The Accoutning Coach method;s purpose appears to be to separate expectations, bsed on things like cleverness in asset purchases, from actual performance. It does an inmperfect job of this, in part due to for instance the general wage and price inflation enveloping assets it insists on valuing 'at cost', meaning what was paid for the assets when they were last bought.
@2006 David Virgil Hobbs
In this post I am referring to the accounting doctrines set forth in these two links above start of this post.
If Shareholder Equity calculated 'At Cost'
Shareholders equity is calculated in the Accounting Coach method, I assume, on an "at cost" basis, meaning that it is valued at what it cost when it was last bought. Thus a problem is that since the measure is blind to changes in stockholders equity produced by changes in expectations for a company, it cannot discern real situations that occur such as imbalance, assets equal 100 in a company, exceeding its 25 liquidity plus 25 real or current value stockholders equity, as 100>50, a situation which can occur because although there are high assets and low liabilities, the future expectation of profit is low.
The Acctg Coach measure as it values stockholders equity at cost, is also blind to situations such as imbalance, Assets=40, stockholders-equity (equity in real or current value)=50, and Liabilities=50, as 40<100, which could occur because although there are low assets and high liabilities, the future expectation of profits is still high.
When the method advocated by the Accounting Coach, is applied with the stockholder's equity valued on an 'at cost' basis, the picture produced by the accounting antennae is befuddled, due to an under-valuation of acts that increase the future expectation of profits.
When shareholder equity is valued at an at cost basis, the picture is again and further befuddled because for example: poorly chosen equipment, could result in high assets combined with low liabilities and low stockholders equity (equity in real or current as opposed to at cost dollars), but this expensive pile of useless equipment situation would not be detected because the stockholders equity is measured in at cost dollars.
If Shareholder Equity Measured not 'At Cost' but in real or current dollars
If such a poorly chosen equipment phenomenon were indeed to be picked up by the Acctg Coach method so to speak antennae through the use of real and current instead of at cost dollars when measuring shareholder equity, the result would be imbalance contradicting the Acctg Coach etc 'basic of accounts' which it seems accountants would scramble to rectify by weirdly assigning imaginative accounts that put assets where liabilities should be and vice versa, hopelessly complicating the picture, all to make a , the so called " of accounts" specifying that assets shall equal liabilities plus stockholders equity, all to make this come true.
Whereas logically, a of nature should by assumed to be true if events bear the out to be true, Acctg Coach types it seems reverse matters and force events into making the hypothesized of nature come true, by weirdly and redundantly categorizing events, as in double-entry triple-entry quadruple-entry accounting started by the idolized Venetian merchants of 500 years ago.
The Accoutning Coach method;s purpose appears to be to separate expectations, bsed on things like cleverness in asset purchases, from actual performance. It does an inmperfect job of this, in part due to for instance the general wage and price inflation enveloping assets it insists on valuing 'at cost', meaning what was paid for the assets when they were last bought.
@2006 David Virgil Hobbs
posted by David Virgil at 11:27 PM
0 Comments:
Post a Comment
<< Home