The following is an excerpt from a conversation between two employees of Linquest Technologies, Don Corbet and Rita Shevlin. Don is the accounts payable clerk, and Rita is the cashier.
Don: Rita, could I get your opinion on something?
Rita: Sure, Don.
Don: Do you know Margaret, the fixed assets clerk?
Rita: I know who she is, but I don't know her real well. Why?
Don: Well, I was talking to her at lunch last Tuesday about how she liked her job, etc. You know, the usual ... and she mentioned something about having to keep two sets of books ... one for taxes and one for the financial statements. That can't be good accounting, can it? What do you think?
Rita: Two sets of books? It doesn't sound right.
Don: It doesn't seem right to me either. I was always taught that you had to use generally accepted accounting principles. How can there be two sets of books? What could be the difference between the two?
How would you respond to Rita and Don if you were Margaret?
Rita and Don,
I realize now that my comment about keeping two sets of books might have sounded funny. Sometimes there are two sets of books because one is for the actual activity and the other has fraudulent records to make the company look better. Of course, that is wrong and it is not what is going on in my job.
I keep a set of records that are GAAP compliant. That is, the books reflect capitalized assets in accordance with the guidelines of what is and what is not an asset according to GAAP. For instance, a repair is not an asset but a renovation, such as ...
Your tutorial is 404 words and gives examples to illustrate how the same transactions are treated differently for GAAP and tax and this creates two sets of books with the same activity.