THE JOURNAL ENTRY

A Real Life Accounting for Non-Accountants Monthly Ezine-Newsletter

January 2009 Issue 92 - Theme: Financial Integrity

RLA Mission Statement: To promote accounting literacy within the small

business community.

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IN THIS ISSUE:

1. ACCOUNTING TERM OF THE MONTH: Financial Code-Of-

Ethics

2. FEATURE ARTICLE: The “Easy Money” Trap

3. QUESTION OF THE MONTH: Who’s Driving The Bus?

4. TIP OF THE MONTH: Understanding Corporate Integrity

5. VALUABLE LINKS & RESOURCES

6. RLA NEWS & UPDATES

Editor’s Note: On December 26, my dear mother of 93 passed away so I

have to be out of town for awhile. Therefore this issue is a reprise of
articles written in my financial integrity series in 2002. I found it interesting
that when you fast-forward to 2009, we see the same trends discussed in
these articles now spiraling out of control.

1. ACCOUNTING TERMS OF THE MONTH: Financial Code-Of-Ethics

Most people know that a “code-of-ethics” is a set of standards by which a person

structures his/her behavior. As in, “I do not steal”; “I try to be as honest as I can”;
“I am kind to animals”, etc. A financial code of ethics is similar in that a person
establishes “do’s” and “don’ts” pertaining to financial matters. For example, “I do
not impulse buy”; “I do not write checks if I don’t have money in the bank”; “I do
pay all my bills on time”, and I don’t borrow more money than I can afford to pay
back”, etc.

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2. FEATURE ARTICLE: The “Easy Money” Trap.

There are some who learned early-on the value of a dollar, began solid
businesses that were financially successful, saved money, made good
investments, and have never lived under the tyranny of barely having enough
money to make ends meet. To many, this scenario sounds like a fairy tale. It is
not, but, unfortunately, it is the exception.

So why is it that some people have money problems and others don’t? The
“arena” of money isn’t any different than any other aspect of life? It’s a question
of “boundaries”. Boundaries presuppose guidelines that help us navigate
through the myriad of pitfalls lying in wait. Some people call using guidelines as
“common sense”, while others refer to it as, “being smart”.

Financial Code-of-Ethics

Guidelines are the same as a “code-of-ethics”. Gee whiz, if it were only as

simple as saying, “I will” or “I won’t”. Maintaining financial integrity is a constant
battle with many fronts. Attacks can come from any quarter seeking to exploit a
weakness in your defense. The “easy-money trap” is one of the most common
and insidious ways we can fool ourselves and end up with a financial nightmare
on our hands. Here is what I mean:

Ah, Money! What a deep and complicated subject. Where shall I begin? Well,
we do know that people approach their relationship with money according to the
way they were raised, their economic environment and emotional needs, and so
on. Two people coming out of the same circumstances may relate to money in
completely different ways. Nonetheless, each person develops his/her own
particular “financial code-of-ethics”. The significant question is whether that code
is helping or hurting the individual. The relevant problem is whether an individual
is capable of overcoming the emotional needs and negative habits that contribute
to his/her financial demise. Obviously, some people will never resolve their
financial difficulties. For others who may be ready to change their behavior, the
first step is to understand the nature of the trap. Once understood, the process
of rebuilding a financial structure that supports and sustains can begin.

Many people never had a lot of money, and the money they acquired did not
come easily. It used to be that people had no choice but to live within their
means. During the last twenty-five years, the financial culture of most of the
world has shifted dramatically. For the U.S., in 1975 an expensive house cost
$30,000. Today, that house is probably selling for $300,000, or more, depending
on where it is located. With this dramatic increase, banks have been in hot
competition with each other to trade hard, cold cash for that equity. No one
seemed to care much that our children’s future was being mortgaged. No one
foresaw that this was going to force both the husband and wife to work in full-

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time, high-stress jobs that would tear apart the fabric of the family unit. How else
could a young couple afford such a huge mortgage? We still have no idea what
the true cost of this phenomenon is to society.

During the same time, easy and fast credit became available to almost anyone
with a job, or, even for those who have the potential of getting a job, such as
college students. With the advent of plastic money or credit cards, having equity
in a home was no longer necessary to acquire easy money. Millions of
individuals, who never had enough money to buy a new car or take a vacation to
a foreign country, now could. Big blocks of money were available as never
before. Therefore, it is not too hard to understand why spending this money was,
for many people, like binge drinking. Easy money is truly a psychological and
emotional drug. It does give one a temporary high, but as with other drugs, if not
judiciously administered, it can exact a devastating price in the future.

It is a lot easier to spend someone else’s money than it is to spend your own
hard earned money. Easy come; easy go. When we are offered all this “easy
money” through credit cards and home equity loans the temptation to spend can
be overwhelming. The primary reason for this is because we do not have an
established financial code-of-ethics to guide us. We don’t realize that the
accumulated debt payments are going to eat us alive. We want to be gratified
NOW. Why? Because we think we damn well deserve it. We have worked long
and hard all our lives and we say it’s time for us to reap our rewards. Or, maybe
we haven’t worked that long, but we see all these other people presented to us in
movies, advertisements, television - and we deserve what they have, don’t we?
Besides, if we don’t take advantage of these opportunities now, time is going to
pass us by and we will be too old to enjoy ourselves.

How can we avoid the siren call of easy money? First, we must understand who
we are and what drives us, and, second we must educate our young people.

3. QUESTION OF THE MONTH: Who’s Driving The Bus?

Socrates’ two simple axioms for life were, “Know Thyself” and “Take Nothing in
Excess”. He knew that without some understanding of who we are, we are left to
the influences and forces of others who may not have our best interest at heart.
He also knew that without some measure of self-control, we are left to the
influences and forces within our own selves that may not be working toward our
best interest. In either case, we can find ourselves swinging far out to one side
of the pendulum or the other.

Beside “life” in general, these axioms are also applicable in context with
developing and maintaining “financial integrity”. In the previous article I
discussed what a “financial code-of-ethics” is, i.e., the do’s and don’ts pertaining
to financial matters. Everyone has a financial code-of-ethics. However, a person

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can have a weak, ill-defined financial code-of-ethics, or a strong, clearly defined
one.

How do we know whether our financial code-of-ethics is weak or strong? All we

have to do is to look at the results of our lives. Are we driving ourselves crazy
trying to make ends meet? Are past due bills showing up in the mail? Are we
unable to do things we would like to do because most of our money is going to
pay debt? Are arguments with our spouses or partners mainly over money? Like
Enron, are we going bankrupt with people suing us left and right? There are
myriad examples, but we are the ones who know whether our financial life is
working or not.

The big question is, “Who’s driving the bus?” Surely, we have all noticed that
there are a number of voices that argue inside our heads. One voice says, “I just
have to have this new dress, or new tool box, today.” Another voice says, “This
is not a good idea, you really can’t afford this right now.” Which one is right?
Advertisers tell us that people buy first on the basis of emotion. Reasoning
comes second. Often, reasoning becomes rationalizing or simply finding an
acceptable justification for the purchase. The voice of reason doesn’t stand a
chance, unless, there is an established “financial code-of-ethics” in place,
guarding against impulse/emotional buying.

All of us seem to have a “Wise Mind” or a “Self” who knows best and watches out
for us. When we are calm and have time to think, we can usually come up with a
plan that makes sense and keeps us out of trouble. A financial plan is called a
“budget”. Laying out a budget seems like a lot of work, so many people don’t
take the time to bother with it. This can be a big mistake! Identifying our
expenses and matching them to our income is essential if we want to stay on
financial track. It is the fabric that makes up our financial code-of-ethics. The
budget process is where we make all our financial decisions beforehand in an
objective way.

These are “wise mind” decisions. These are the decisions that determine
whether a purchase is really necessary or would just be nice to have.
Those of us who have children are familiar with how they try to break us down in
a store to buy them something they don’t really need. They beg, cajole, throw
fits, and do anything they can think of to see if we will cave in. If we show any
sign of weakness, their persistence becomes stronger and stronger. Once that
voice comes in that says, “Well, maybe it would be okay”, we are dead meat.
Knowing in advance what we are willing to do and not willing to do, and sticking
with it through the onslaught is our only salvation. Our kids can tell in a nano-
second when we are starting to cave in.

It seems apparent that these voices we hear in our minds lobbying for this or that
are simply parts of our own Self. Psychologists tell us that these parts can
represent varying aspects of ourselves that still have unmet needs. The conflict

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we feel inside when trying to make a financial decision may be the result of
certain competing factions within that are trying to get these needs met.

So what does this mean? How do we know which one to listen to? Do we all
have to go into therapy in order to develop financial integrity? For some people,
this may be necessary. Yet, for many of us, formulating a clear understanding of
who we are, what our financial goals are, and a plan as to how we are going to
arrive at those goals may be enough.

4. TIP OF THE MONTH: Understanding Corporate Integrity.

Can corporations navigate through financial waters without a moral compass to

guide them? They do so at their own peril. A moral compass can keep the
corporate ship in deep waters and away from the shallow, rocky banks. Socrates
warned against excess or extremes. His axiom applies to corporations as well as
individuals.

And what are corporations? Corporations are merely pieces of paper without
people. The people who run corporations are the board of directors and
management. Large corporations have financial policies and procedures to
guide them and they normally obey tax law and the penal code. However, their
ethical standards are arbitrary. Unfortunately, some large corporations have
adopted ethical standards that translate into “profit at all costs”. This is where
capitalism gets its bad name.

The attitude of profits at all costs is not good for the long run. It really is short-
term thinking driven by immediate gratification. For instance, can my company
exploit the third-world labor force and not expect any long-term consequences?
Can my company pollute rivers, air, and other limited resources continually and
not expect any long-term effects? Can my company sell products to consumers
that have not yet been properly tested and not expect to be sued when they
cause harm? Can my company artificially inflate its net worth in order to sell
stock to the unwary in the hope that they will never find out? When does gray
become black? Sometimes it’s hard to tell, especially if a career is riding on it.

The most glaring example of corporate greed run amok is the whole Enron
debacle. (And now our sub-prime mortgage debacle) Enron executives had
their financial policies and procedures in place. However, when the test came,
some key people chose to ignore the code. More astounding is that the
supposed watchdogs’ (auditors) judgment was also influenced by the “easy
money” lure. Now, they are experiencing the “pain” that comes from shortsighted
thinking. (The same is true for the companies on Wall Street. Their greed
prevented them from protecting their long-term self interest. Alan Greenspan
never believed they would do such a thing.)

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Businesses have to make a profit to stay in business. But, when is enough,
enough? Is the desire for wealth insatiable? Do businesses like Enron have to
ride the wave of wealth and power to the point of their own destruction? How is
“excess” known? Perhaps it is when others have to suffer and the environment is
fouled. The Navaho culture knew when someone had more than was needed.
Excess was an embarrassment and brought shame to those who did not share
their good fortune. Somehow, our culture in the West has gotten it turned around
to where shame is felt for not having enough.

The answer is not to refer to corporations as “evil” and dismantle them. That is
nonsense because the majority of individuals who are leaders of large
businesses are responsible and caring people. In fact, there is a new component
of corporate thinking that is emerging called, “Social Risk Management.” CEO’s
are waking up to the fact that social accountability must be factored into their
financial planning.

There are now organizations that rate corporations on their ethical standards and
responsibilities to the communities in which they are located. This is definitely
helpful and a step in the right direction. However, a more immediate and
effective solution would be to create a law that held the board of directors
financially responsible for any social and environmental harm done to a
community within or outside this nation. Were this to happen, there’s a good
chance that corporate irresponsibility would end overnight.

5. Valuable Links and Resources

Real Life Accounting has a new website look. We have revised the homepage to
make navigation much easier. Also, we are using a new e-commerce system
that makes it possible to offer the 20-hour online course, Accounting for Non-
Accountants and The Heart of Accounting 4-hour introductory workbook in a
“combo” package that will save you $30 when purchased as a unit.
http://www.reallifeaccounting.com

Please feel free to visit. All the previous The Journal Entry newsletters ( 120
articles ) are available on our Articles page. Be sure to review and take
advantage of all our other free resources offered on the site

• Business calculators
• Accounting dictionary
• Accounting model template (debits & credits)
• Blank forms for a bank reconciliation and general journal entry
• Links to other useful accounting website

6. RLA News and Updates

Starting October 1, 2008 Real Life Accounting now offers Career Resources and

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Accounting Jobs through our new Career Center in partnership with
AccountingJobsToday.com. Visit us at:

http://ajtjobs.reallifeaccounting.com.

Real Life Accounting has created an alliance with AccountingJobsToday.com,

the premier online career resource dedicated to accounting and finance
professionals nationwide. AccountingJobsToday.com offers several career and
employment-based resources for both job seekers and employers. This includes
an accounting job descriptions library, sample accounting resumes, as well as
various salary tools, continuing education courses, free accounting magazines,
career articles, news center and much more.

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NOW AVAILABLE IN E-BOOK AND PRINT VERSION

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The Heart of Accounting is the perfect pre-course before learning how to use
new accounting software programs such as QuickBooks, PeachTree, People’s
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software when you only have a partial understanding of what:

• Information you must provide the computer.

• Functions the computer can and cannot perform.

• A quality end product is supposed to look like.

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If you haven’t checked it out yet, do so now. Get yourself a cup of coffee, find a
quiet place, and in one morning you can easily complete this 4-hour accounting
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Here is what students are saying about The HEART of Accounting course:

“John, the course was incredible. All my fear and lack of self-confidence
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“Great refresher course. Thanks for making this available. It was just what
I needed.”

Elizabeth Clark, Novato, CA

The Heart of Accounting is also a companion course to my Real Life Accounting

for Non-Accountants 20-hour online course. Students report that it doesn’t
matter which course is taken first, they find taking both courses proves beneficial.

Or, if you’re not ready to take the 20-hour course and just want a quick review of
how debits and credits work and how financial statements are prepared, the
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You can preview the course when you go to the website. Many of you have
requested practice journal entries so I have included a bonus section, FREE OF
CHARGE that includes 100 Practice Journal Entries. Seventy-five percent of
the journal entries are common to all businesses and the remaining are journal
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I have set up a special category on my blog for Heart and RLA students to ask
questions directly to me that pertain to the course or the 100 journal entries.

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The HEART of Accounting course price:

E-book version is $54.00 http://www.reallifeaccounting.com

The spiral bound printed workbook version is $59.00 plus $6.00 shipping for the
first book and $3.00 for each additional book. Call 1-800-720-0126 PST within
the U.S. and 209-532-7005 PST for outside the U.S.
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You may receive my e-book Dream or Nightmare: Four Must Do’s before
Starting a New Business FREE just for visiting the Real Life Accounting for Non-
Accountants website. http://www.reallifeaccounting.com

IN ADDITION! You can now receive my other two e-books Volume I & II
Accounting Solutions for Small Business: A Compendium FREE just by
completing the free preview of the Accounting for Non-Accountants online
course. Go to http://www.reallifeaccounting.com and click on Course Preview.

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This ezine-newsletter is the ninety-second to be issued. Every effort is made to
publish on or near the first Monday of each month. I hope you find it useful. I
encourage your comments and questions. E-mail me at
<jday@reallifeaccounting.com>. The ezine-newsletter discusses small business
accounting and operational issues. Questions should be those related to learning
accounting.

See you next month,

John W. Day, Editor

Real Life Online Seminars

Copyright © 2001 The Journal Entry. ISSN 1544-5453. All rights reserved. No part of this
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