Two Dark Shadows in the World of Accounting
The real purpose of accounting systems, such as QuickBooks, is simple: Accounting systems are supposed to make succeeding in your business easier for you. You may think, therefore, that the world of accounting is a friendly place. Unfortunately, this scenario isn’t quite true. I’m sorry to report that two dark shadows hang over the world of accounting: financial accounting standards and income tax laws.
The first dark shadow
“Financial accounting standards,” you say. “What the heck are those?”
Here’s the quick-and-dirty explanation: Financial accounting standards are accounting rules created by certified public accountants (CPAs). These rules are supposed to make reading financial statements and understanding what’s going on easier for people. (I happen to believe that just the opposite is often true in the case of small businesses, in case you’re interested.) But because of what financial accounting standards purport to do, some people — such as bank loan officers — want to see profit and loss statements and balance sheets that follow the rules. The exact catchphrase is one that you might have heard before: “Prepared in accordance with generally accepted accounting principles.”
Unfortunately, the rules are very complicated, the rules are inconsistently interpreted, and actually applying the rules would soon run most small businesses into the ground. (And, as you were running your business into the ground — you’ll be happy to know — your ...