Page 146 - DLIS003_LIBRARY ADMINISTRATION AND MANAGEMENT

Unit 8: Library Accounting

Notes

Caselet GAAP Provides Level Playing Field

enerally Accepted Accounting Principles (GAAP) require the recognition of
transactions, methods of valuation and disclosure of information in a way that is
G often confusing and complex to business owners and probably even the users of
financial statements. Ironically, GAAP is supported by a governing body, the Financial
Accounting Standards Board (FASB), for the expressed purpose of providing transparency
and consistency among all entities issuing financial statements. This enables users of the
information, such as lenders and investors, to make informed decisions about a business’s
financial condition and performance.
As the business world and financial transactions have become more complex, so have
accounting rules. Smaller, closely held businesses are often required to present GAAP-
based financial statements for their bank or bonding companies, and this usually requires
the assistance of external accountants with expertise in GAAP accounting.
When you start out with a small business, you’re generally concerned only with
cash-based transactions. “What did I deposit and what have I paid out?” Eventually, you
realize that you need to be slightly more sophisticated and begin to track what customers
owe you, and what you owe vendors. This is the foundation of “accrual” accounting and
the root of GAAP.

Soon, you start tracking additional accruals (showing the liability for an expense you’ve
incurred, but haven’t been billed for), capitalizing long term assets on the balance sheet
and depreciating them over time.
Finally, the business may find itself with contracts, sophisticated financial instruments
like interest rate SWAPs or hedge contracts. These items have rules about how to value
and record them in financial statements so a user fully understands the financial impact of
legal obligations and expected benefits.
Lenders and other users of financial statements typically have thresholds for requiring
GAAP financial statements because those prepared on a cash or income tax basis may not
be perceived to provide a complete picture. But in the case of many closely held businesses,
the leap to GAAP-based statements can add cost and complexity to compliance which may
be difficult to achieve.

Source: http://www.reacpa.com/it-is-greek-to-me-understanding-the-importance-of-gaap
8.2 Purpose of Library Accounting

Every library needs to maintain good records to track how much money they have, where it
came from, and how they spend it. These records are maintained by using an accounting system.
Even if you do not own or run a business, as an accountant you will be asked to provide the
valuable information needed to assist management in the decision making process. In addition,
these records are invaluable for filing your library’s tax returns. Information is needed by
various people involved directly and indirectly in a business organization:
(i) Owners: The owners provide funds or capital for the library. They possess curiosity in
knowing whether the business is being conducted on sound lines or not and whether the

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