GOLDEN RULES

PERSONAL ACCOUNT

DEBIT THE RECEIVER AND CREDIT THE GIVER

REAL ACCOUNT

DEBIT TWHAT COMES IN AND CREDIT WHAT GOES OUT

NOMINAL ACCOUNT

DEBIT ALL EXPENSES (AND LOSSES) AND CREDIT ALL INCOMES (AND GAINS)

ACCOUNTING IS BUILT AROUND THE EQUATION: ASSETS = LIABILITIES + OWNER'S EQUITY

FOR THE EQUATION, AND THUS THE ACCOUNTING SYSTEM TO FUNCTION PROPERLY, IT IS ASSUMED THAT A BUSINESS OWES SOMEONE FOR EVERYTHING IT HAS.

PROFIT OR LOSS IS A CALCULATION OF: REVENUES - EXPENSES. IF REVENUES ARE MORE THAN EXPENSES, THERE IS PROFIT. IF EXPENSES ARE MORE THAN REVENUES, THERE IS LOSS. REVENUES ARE WHAT THE BUSINESS EARNS FOR DOING WHAT IT IS IN BUSINESS TO DO. EXPENSES ARE THE COST OF ASSETS THE BUSINESS USES TO GENERATE REVENUES.

THE PURPOSE OF THE ACCOUNTING SYSTEM IS TO KEEP A RECORD OF THE CHANGES IN ASSETS, LIABILITIES AND OWNER'S EQUITY (INCLUDING REVENUES AND EXPENSES) AND TO REPORT THE EFFECTS OF THOSE CHANGES. THE REPORTS ARE CALLED FINANCIAL STATEMENTS AND THERE ARE DIFFERENT FINANCIAL STATEMENTS TO REPORT DIFFERENT THINGS.

THE BALANCE SHEET REPORTS WHAT ASSETS, LIABILITIES AND OWNER'S EQUITY THE BUSINESS HAS AS OF A CERTAIN DATE. THE INCOME STATEMENT REPORTS THE TOTAL REVENUES AND EXPENSES AND THE DIFFERENCE (PROFIT OF LOSS) FOR A SPECIFIC PERIOD OF TIME (MONTH, QUARTER, YEAR, ETC.). THE STATEMENT OF OWNER'S EQUITY (SOMETIMES CALLED STATEMENT OF CHANGES IN OWNER'S EQUITY OR CAPITAL STATEMENT) REPORTS WHY AND HOW OWNER'S EQUITY CHANGED FOR A SPECIFIC PERIOD OF TIME (MONTH, QUARTER, YEAR, ETC.). THE STATEMENT OF CASH FLOWS REPORTS THE SOURCES AND USES OF CASH FOR A SPECIFIC PERIOD OF TIME (MONTH, QUARTER, YEAR, ETC.).

     ENTERPRISE RESOURCE PLANNING SOFTWARE, OR ERP, DOESN'T LIVE UP TO ITS ACRONYM. FORGET ABOUT PLANNING—IT DOESN'T DO MUCH OF THAT—AND FORGET ABOUT RESOURCE, A THROWAWAY TERM. BUT REMEMBER THE ENTERPRISE PART. THIS IS ERP'S TRUE AMBITION. IT ATTEMPTS TO INTEGRATE ALL DEPARTMENTS AND FUNCTIONS ACROSS A COMPANY ONTO A SINGLE COMPUTER SYSTEM THAT CAN SERVE ALL THOSE DIFFERENT DEPARTMENTS' PARTICULAR NEEDS.

           THAT IS A TALL ORDER, BUILDING A SINGLE SOFTWARE PROGRAM THAT SERVES THE NEEDS OF PEOPLE IN FINANCE AS WELL AS IT DOES THE PEOPLE IN HUMAN RESOURCES AND IN THE WAREHOUSE. EACH OF THOSE DEPARTMENTS TYPICALLY HAS ITS OWN COMPUTER SYSTEM OPTIMIZED FOR THE PARTICULAR WAYS THAT THE DEPARTMENT DOES ITS WORK. BUT ERP COMBINES THEM ALL TOGETHER INTO A SINGLE, INTEGRATED SOFTWARE PROGRAM THAT RUNS OFF A SINGLE DATABASE SO THAT THE VARIOUS DEPARTMENTS CAN MORE EASILY SHARE INFORMATION AND COMMUNICATE WITH EACH OTHER