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Critical Thomisim

Critical Thomisim

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Published by: enemesio on Oct 18, 2011
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The Correcting Entry: Toward a New Generally Recognized

Accounting Principle


Anthony J. Fejfar, B.A., J.D., Esq., Coif

© Copyright 2007 by Anthony J. Fejfar

Although I must admit that I have only had 6 hours of accounting, it may be that the idea of a

little knowledge is inspiring rather than dangerous as some might think. If you are like me, you have a

checking account, and, at the end of every month you have to do a reconciling balance to ensure that

you and the bank think that you have the same amount of money in your account. The interesting thing

about a checking account is that it is remarkably like an accounting system. In fact, if you look at your

check register, there is a column for both credits and debits.

Now, in trying to balance my checkbook over the years I have found that I am typically off by

a small amount of money, maybe only two or three dollars, in an account which had anywhere from a

couple of thousand dollars in it, down to about $500. If I were to follow the rules that I learned in my

accounting classes, I would have to spend hours trying to find out why my balance was off by two or

three dollars. Since I think that my time as a lawyer is worth at least $50 per hour, I found that I was

spending over $100 to correct an error which was only two or three dollars. This is economically


Interestingly, the issue which confronts me with my checkbook can also confront a Certified

Public Accountant, performing an audit. At the end of the audit, things are supposed to balance. Of

course it costs money to have an audit performed, and, if the accountant is billing hourly, the time taken

to find the error might be very expensive. Once again, if the company had $3 billion budget and the

balance was off only by $100, it does not make much sense to spend thousands of dollars in accountant

time trying to correct the problem. So what do we do?

I argue that where the amount involved in a balance discrepancy is de minimus relative to the

overall budget or account involved, that it is perfectly acceptable to set up an “adjusting entry account,”

to reconcile the balance. The idea, attractivc to me as a lawyer, but perhaps unattractive to some

accountants who desire perfection, is that when you are only off by a small amount, you simply make a

credit or debit entry in to the “adjusting entry account” in order to get the “correct” balance. This

could be made into a Generally Acceptable Accounting Principle (GAAP) and then we could all go

home at night feeling good that we had balanced the budget, and have saved ourselves some time and

money to boot.

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