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Thursday, Apr. 28, 2016

Ross Rambles: Schools head into the GAAP

Friday, March 24, 2006

It was stated at this week's Cherokee School Board meeting that school districts across the state are being required to adopt Generally Accepted Accounting Practices (GAAP) and this will result in the districts having an increased spending authority next year.

Many people don't understand what this means. Fortunately, I took a bookkeeping class once so I'm an expert on this sort of stuff.

I don't recall exactly when I took this course. I think it might have been in junior high back when we used an abacus for mathematical calculations.

Anyway, the GAAP (pronounced gap) form of bookkeeping will replace the Generally Unacceptable Accounting Procedures (GUAP, pronounced goo-ap) that most school districts have been using.

The big difference between the accounting methods lies in the fact that GAAP regards "accounts receivable" as assets as soon as they are posted while GUAP relies on an "account of we ain't got no money" spending philosophy, regarded as unacceptable accounting because of the use of a substandard double negative.

To understand GAAP, a person needs to understand double entry bookkeeping. The rules of double entry bookkeeping were established by Irving Newton, Isaac Newton's younger and less renowned brother.

According to Irving's rule, for every bookkeeping entry on one side of the ledger there needs to be an equal and opposite entry on the other side of the ledger.

The left side of the ledger contains assets and the right side of the ledger contains liabilities. Since, hopefully, the assets of any organization exceed the liabilities, the difference between the two is called capital, that is: assets - liabilities = capital, a formula that was converted by Irving Newton in a 31-step process to: assets = liabilities + capital.

Therefore, on the left side of the ledger are assets and on the right side of the ledger are liabilities and capital. For those of us with personal finances in which liabilities exceed assets, we must remain with GUAP practices. But the school district will be able to go to GAAP practices and will have more assets on the books and therefore more spending authority. The superintendent said this may come in handy some day.

What is the practical implications for individual residents of the district? We each have to decide that for ourselves. Personally I have decided that it means I should convert more of my non-liquid assets into liquid assets.

I really like liquid assets.