>> I think that Accounting should be so simple that questions cannot arise. I believe that has always been the intention of Accounting. Accounting's basic purpose is to track money coming in and money going out.
There should be no question at all as to what is a real expense item and what is a real income item. EVERY item should be easily 'placed' and accounted for.
However, even President Bush says that 'sometimes there are differences of opinions as to how things should be accounted'. This is where the problem is! There is no need for there ever to be a 'difference of opinion' as far as accounting each item is concerned. Standards (rules) make these things clear. <<

I agree you about the goals and intention of accounting -- to give a clear statement of where the money is coming from and where it is going. However, there really are gray areas. (And I don't mean fudging the financial statements to make earnings appear more steady than they are in order to keep shareholders content -- that is just plain wrong). A good example is accounting for the value of stock options, which of course is a hot topic these days. If you account for them as an expense -- as just about every accountant and regulator agrees they should be -- what dollar value do you use? Think about it. A stock option is the right to buy stock at a defined date in the future at a defined price. Theoretically the value of that option is simple: the difference between the option price and the market price on that date, times the number of shares. Obviously, though, we don't know what the stock price will be on that future date (otherwise we could all quit our jobs and become traders <g>). Nor do we know how many of the options will be executed, or whether they will be executed at all. So even though we can agree on the principle that they should be accounted for as expenses, it isn't clear at all what numbers we would use.

That's just one example. Accounting is actually full of gray areas. Cost accounting alone is an extremely complex subject, full of estimates and projections.

Mike