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AccountingMany working-age adults need skills that will help get them a better-paying job.¬† However, financial reports must conform to International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS). Financial reports are more standardized, while management accounting formats are more ad hoc and can vary widely within and among organizations. Management accounting would be concerned with inventory levels, whereas financial accounting would be focused on the valuation of inventory. Financial accounts are strictly historical representations of an organization’s operations for an accounting period.

Here’s a rule of thumb for talking about accounting identities: Accounting identities do not constrain behavior;¬†they constrain accounting. If you find yourself saying or implying that an economic actor cannot do something they want to do because of an accounting identity, you have lost the thread. Here’s a second rule of thumb for talking about accounting identities: Accounting identities are not enforced by mechanisms (like price changes); they are enforced by accounting.Accounting

If you find yourself saying or implying that accounting identities are preserved by some process of adjustment, you have lost the thread. Under the rules of the balance-of-payments accounting game, neither of these transactions constitutes a net financial flow. That’s how accounting identities work: they are preserved in all states of the world, simply by the rules for how individual transactions are written down. This is the most basic accounting identity and, no surprise, economists got it badly wrong – from Keynes to Hicks to Krugman to Wren-Lewis. Although he says: Accounting identities do not constrain behavior; they constrain accounting.

Unaware of the underlying conceptual and logical defects, economists finally messed up National Accounting (2012). The root cause of all accounting errors/mistakes is a complete lack of understanding of what profit is. For an economist this is disqualifying. Because the fundamental accounting identity for the closed economy has always been false, the identity for the open economy has also been false. All countries cannot be net exporters, this is an accounting identity, so It seems behavior is constrained somewhat.

The problem with accounting identities has, indeed, something to do with equilibrium thinking, yet ultimately, the all-pervasive analytical blunder can be traced back to the provable false profit theory. In the calculation, the expenses which are taken into consideration can be administrative costs, employee salary costs, cost of goods and materials, income tax paid, legal counsel expenses, interest payments, depreciation etc.