Connecting people to the world
The entrenched social misunderstandings that give us our mission
What Color Accounting is doing in the world is having people see their reality more clearly. You can't manage or create anew your financial situation if you can't clearly see what it is. You can't create wealth if you don't know what wealth is.
Color Accounting is a way of presenting financial information that is enabling society to raise its level of literacy... specifically, financial statement literacy which is the ability to describe your financial activity and position. We think of accounting as a language, and as the fourth basic form of literacy after 'reading, writing and 'rithmetic'. People benefit from being able to think clearly about their finances, just like they benefit from being able to read, write and add.
Those of you who have attended a Color Accounting training know how easy it is to become accounting-literate. And how this literacy is based on truly understanding just 5 essential elements of finance. The basic understanding of the meaning of the five essential elements is so fundamental to accounting literacy and yet they are so widely misunderstood. (That's why Color Accounting was invented!)
And so it's interesting to me to see how entrenched in society the misunderstandings of the basic five elements are. Take for example the largest accounting software company in the world, Intuit. You'd think that they would be clear in describing the key elements. But they are not. They are perpetuating the confusion.
Look at this extract from an Intuit QuickBooks manual, explaining what an expense is:
Specifically, these are the words that I have a problem with:
One of the biggest issues that we as Color Accounting educators face is debunking the myth of this statement. It's not entirely wrong to say that an expense is 'something you spend money on'. But it's imprecise with big social consequences.
One form of spending money is an expense. But you can also spend money on things that are not an expense. You can buy assets or pay down liabilities, which are also 'cash out' transactions but are not expenses. And sometimes expenses occur when no money is spent.
Here's a real world example of the consequence of people not understanding the precise nature of an expense, and the benefits of understanding...
I was leading a Color Accounting training in Ethiopia recently for a health care organization. One of the participants was the head nurse of a rural clinic. She managed the purchase, storage and use of medical supplies. Sometimes she noticed that she received medicines whose expiration date was quite near. The medicine would expire and become unusable quite soon.
After learning the true nature of an expense, which is truly the loss of value, rather than the payment of cash, she changed her behavior and returned those 'old' medicines instead of accepting their delivery. Because she now realized that medicine on the shelf can one day be an asset, and the next day instantly turn into an expense just while sitting there, by virtue of passing the expiry date. No cash movement in sight! And yet she would be left with a loss with no revenue gain if that happened.
Real world behavior change simply because of an shift in understanding of what an expense is. Amazing!
Color Accounting is a way of presenting financial information that is enabling society to raise its level of literacy... specifically, financial statement literacy which is the ability to describe your financial activity and position. We think of accounting as a language, and as the fourth basic form of literacy after 'reading, writing and 'rithmetic'. People benefit from being able to think clearly about their finances, just like they benefit from being able to read, write and add.
Those of you who have attended a Color Accounting training know how easy it is to become accounting-literate. And how this literacy is based on truly understanding just 5 essential elements of finance. The basic understanding of the meaning of the five essential elements is so fundamental to accounting literacy and yet they are so widely misunderstood. (That's why Color Accounting was invented!)
And so it's interesting to me to see how entrenched in society the misunderstandings of the basic five elements are. Take for example the largest accounting software company in the world, Intuit. You'd think that they would be clear in describing the key elements. But they are not. They are perpetuating the confusion.
Look at this extract from an Intuit QuickBooks manual, explaining what an expense is:
Specifically, these are the words that I have a problem with:
One of the biggest issues that we as Color Accounting educators face is debunking the myth of this statement. It's not entirely wrong to say that an expense is 'something you spend money on'. But it's imprecise with big social consequences.
One form of spending money is an expense. But you can also spend money on things that are not an expense. You can buy assets or pay down liabilities, which are also 'cash out' transactions but are not expenses. And sometimes expenses occur when no money is spent.
Here's a real world example of the consequence of people not understanding the precise nature of an expense, and the benefits of understanding...
I was leading a Color Accounting training in Ethiopia recently for a health care organization. One of the participants was the head nurse of a rural clinic. She managed the purchase, storage and use of medical supplies. Sometimes she noticed that she received medicines whose expiration date was quite near. The medicine would expire and become unusable quite soon.
After learning the true nature of an expense, which is truly the loss of value, rather than the payment of cash, she changed her behavior and returned those 'old' medicines instead of accepting their delivery. Because she now realized that medicine on the shelf can one day be an asset, and the next day instantly turn into an expense just while sitting there, by virtue of passing the expiry date. No cash movement in sight! And yet she would be left with a loss with no revenue gain if that happened.
Real world behavior change simply because of an shift in understanding of what an expense is. Amazing!
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© 2010 Created by Mark Robilliard on Ning. Create Your Own Social Network
