DQ4. 9 The basic point is that accounting records and financial statements need not be complex or expensive to be useful. Every manager needs to know how the business is performing and to be able to explain that to bankers and others. This performance goes beyond mere sales records, even if sales are the lifeblood of the firm. The accounting system provides information about profitability, cash flows, debts and other factors important to the business besides sales. Bankers and tax authorities want to know about such things, even if the businessman claims not to. It should be said also that the entrepreneur mentioned may well have an accounting system that fits the modest needs of his/her business well. He/she understands cost-benefit: accounting, like everything else, should be worth its cost. But he/she should ask himself/herself if he/she could be a better manager if he/she had more information, and perhaps accounting could help him/her there. DQ4. 14
The main reason for not including human capital on the balance sheet is the measurement problem.
If we take the consulting firm, the problem is putting a dollar figure on each staff member. Would it be based on years of past service, years to retirement, ability to generate future revenues etc? There is also an issue of control, as you will see in later chapters. Options for measurement include:

i Present value of future profits generated by firms ii Amounts previously spent on training iii Cost of obtaining a replacement and training that person.

Problem 4.18
1
Morilla LtdGeneral journal | | | $ | $ | (a) | Dr Inventory | 8,250 | | | Cr Accounts Payable | | 8,250 | | | | | (b) | Dr Accounts Receivable | 11,000 | | | Cr Sales | | 11,000 | | Dr COGS | 7,700 | | | Cr Inventory | | 7,700