PUBLIC SECTOR ACCOUNTING

Conf. Dr. Felicia C. Macarie

Content

1. ACCOUNTING AS A FORM OF KNOWLEDGE 1.1. Economic recording a component of the economic informational system 1.2. The tasks of accounting 1.3. Accounting functions 1.4. Accounting systems

2. THE OBJECT AND METHOD OF ACCOUNTING 2.1. The object of accounting 2.1.1. Theories regarding the object of accounting 2.1.2. The elements that compose the object of accounting 2.1.2.1. Economic goods 2.1.2.1.1 Non-current (fixed) assets 2.1.2.1.2. Current assets 2.1.2.2. Economic processes 2.1.2.3. Legal relations 2.2. The method of accounting 2.2.1. The principles of the accounting method 2.2.2. Procedures used in the accounting method

3. DOCUMENTATION A PROCEDURE OF THE ACCOUNTING METHOD. 3.1. The importance and editing of documents 3.2. Content and classification of documents 3.3. Standardization and verification of documents 3.4. The circulation of documents 3.5. Filing and maintenance of documents 3.6. Document restoring

4. THE BALANCE SHEET AND THE ACCOUNT - SPECIFIC PROCEDURES OF ACCOUNTING 4.1. The balance sheet 4.1.1. Defining the balance sheet 4.1.2. The influence of economic operations on the balance sheet

4.1.3. Case study number 1: the influence of economic operations on the balance sheet 4.2. THE ACCOUNT 4.2.1. The notion, necessity and economic content of the account 4.2.1.1. The connection between balance sheet and account at the beginning of the management period 4.1.2.1. The connection between the balance sheet and the account at the end of the reporting period 4.2.2. The functions of accounts 4.2.2.1. Functions performed by certain accounts 4.2.2.2. Functions performed by all accounts 4.2.3. The structure and form of accounts 4.2.3.1. The structure of the account 4.2.3.2. Case study number 2: the relationship between balance sheet and account, account and balance sheet and the structure of the account 4.2.3.3. The form of the account 4.2.4. Account functioning rules 4.2.5. Double recording and accounts correspondence 4.2.5.1. Double recording 4.2.5.2. Accounts correspondence 4.2.6. Accounting analysis of economic operations 4.2.7. The accounting formula 4.2.8. Case study number 3: the accounting analysis 4.2.9. Accounts classification 4.2.10. Normalization (uniformization) of accounting in Romania

5. THE INVENTORY OF THE PATRIMONY 5.1. Definition, requirements and functions of the inventory. 5.2. Types of inventory 5.3. Inventory organization 5.3.1. Inventory preparations 5.3.2. The actual realization of the inventory 5.3.3. Establishment and usage of results 5.4. Case study number 4 regarding the inventory procedure

6. THE TRIAL BALANCE 6.1. The definition, content and functions of the trial balance 6.2. Types of trial balances 6.3. Drafting the trial balance 6.4. Accounting errors that can be identified with the trial balance

7. PRACTICAL APPLICATIONS Bibliography

1. ACCOUNTING AS A FORM OF KNOWLEDGE

1.1. Economic recording a component of the economic informational system The economic informational system is structured in three sub-systems: (1) economic and financial planning, (2) economic recording and (3) financial law. The three sub-systems are not independent of each other, but rather inter-dependent. Economic recording is influenced by and influences the other two subsystems; economic records are the main source of information, as they record, process and circulate economic data. Economic recording is a unitary system which, based on well-established principles, registers, tracks and controls: (1) economic goods and their source of provenience, and (2) economic processes and their results. All these actions are undertaken with the aim of knowing the economic and financial activities of a given patrimonial unit. Economic recording has the following tasks: - To reflect the economic processes and the results of these processes; - To control the implementation of the revenues and expenditures budget and to compare the predicted elements with those that are actually achieved; - To record the patrimony of units; - To determine the cost of production, revenues and overall financial results; - To provide the information required to develop programs and budgets; - To monitor the compliance and enforcement of the law; and - To act as a source of information in decision making processes. In order to fulfill these tasks, economic recording must meet the following conditions: - To have its own methodology; - To be organized on the bases of scientifically sound principles and rules; - To provide (in a correct, effective and operative manner) all the information required to characterize a phenomena, in order to provide support for decision-making processes; - To be simple, clear, accurate, documented, uninterrupted and to timely reflect economic phenomena and processes; and - To be adaptable to the progress of economic activity. Economic recording can be presented in three different forms: stock recording, statistics and accounting. The objective of stock recording is to record, track and maintain operative control of economic operations and phenomena at the time and place of their occurrence. Thus, this

follows the consumption of materials, the work attendance of employees, the usage of working time, the enforcement of orders and contracts regarding material supplies, products marketing and machines/equipment usage. Stock recording is a necessary tool for the daily activities of management in all economic units (workshops, departments and functional services); at these places it serves to signal, identify and prevent (avoid) operational failures of economic processes. The data provided by (or included in) stock recording can also serve as a source of information for statistics and accounting. As there are no unitary methodological standards for all patrimonial units, each department (unit) that uses stock recording must design and implement it, tailored to specific organizational needs. In the specific literature, stock recording is also known as technical-operational recording, as it uses technical means (counters, control clocks, ammeters, voltmeters, and so on) to measure and automatically record data, and because it reflects the technological processes used. Statistics can be best understood as a two stage process. The first stage is to record (following a uniform set of criteria) socioeconomic phenomena pertaining to mass groups. The second stage consists of grouping together and summarizing the information comprised in the aforementioned records, in order to obtain general indicators that will be used to offer a holistic view of the phenomena that were analyzed. The objective of statistics goes beyond patrimonial units as it includes demographic, cultural and natural phenomena. In order to fully reflect empirical phenomena, statistics can use, separately or together, all the standards/instruments of recording. Statistics differ from other forms of economic evidence due to their specific means and instruments used to collect, record and process information, and due to the way in which data analysis is presented (tables, graphics, indicators, selective observations, censuses, surveys and so on). Its objectives can be achieved in two ways: 1. By using specific means and instruments (surveys, censuses, monographs and so on) to collect and record individual phenomena, after which the data is grouped and centralized in order to obtain indicators that characterize, as a whole, the phenomena studied. 2. By using information provided by other forms of economic recording. Accounting, as the main form of economic recording, has specific tasks and functions. It records, monitors and controls, in a documented, complete and uninterrupted way, the economic phenomena and processes that can be expressed as values.

A particularity in the reflection of economic and financial operations that are subject to registration makes reference to their documentation. Economic transactions are recorded and registered using written documents. However, economic operations that cannot be expressed using monetary standards are not subjects to accounting practices. Using primarily monetary standards and sometimes, in addition, natural standards (measures) in order to reflect economic operations, accounting is considered to be a numeric evidence. Although the three forms of economic recording distinguish each other by the methods used for collecting, processing and presenting data, they also complement each other and cannot be separated from each other, forming a unitary system of recording.

1.2. The tasks of accounting Accounting has the following tasks: 1. To provide data and information required to develop the schedules of activity. At the elaboration of the budget for the general activity of a patrimonial unit, accounting provides data for: (1) sizing revenues and expenditures pertaining to financial and operating activities, (2) forecasting the costs of activities and the gross operating surplus, (3) designing budgets and cash flows in national and foreign currency, (4) 2. To chronologically record economic and financial operations, to analyze and maintain data regarding the status of the patrimony. Such information are necessary both for the internal use (needs) of the patrimonial unit and for external use, referring to the relations an entity develops and maintains with external (public or private) actors. 3. To control patrimonial operations in order to ensure patrimonial integrity. Accounting provides information regarding the existence and transfers of patrimony (or patrimonial goods), its distribution within an economic entity and the persons that are accountable for its safekeeping. In order to fulfill these tasks, accounting uses inventory (stock taking) and actual (empiric) control of property. 4. To verify (control) the accuracy of accounting data in order to provide a real image of the patrimony. The trial balance is used in order to fulfill this task. 5. To provide data and information necessary to oversee/track the judicious usage of production factors, in order to ensure that the expenditures will be recovered from the income and that economic activity will produce profits and increase economic efficiency. 6. To provide data and information necessary for the elaboration of synthesis documents which offer an accurate depiction of the patrimony, financial situations and economic results

obtained. The information thus provided is required in order to substantiate decision making processes.

1.3. Accounting functions Accounting performs the following functions: Recording function: refers to the ability to reflect rapidly and precisely complex economic processes and phenomena that occur within patrimonial units and can be expressed as numeric values. Information function: as a result of accounting processes, information is obtained regarding the structure and dynamics of the patrimony, the stages reached by economic processes and phenomena and the results obtained at the end of a period of management. Accounting presents exact information regarding the management of material goods and money, the volume and dynamics of production, expenditures and revenues, results of different activities and so on. Particular emphasis is given to periodic synthetic financial statements which provide useful information (1) for the leadership and managerial needs of the economic unit, (2) in relation with third persons and legal entities such as clients, suppliers, banks and the state and (3) for economic and financial analyses. This function results directly from the recording function of economic and financial operations by using the same rules and principles, accounting being a tool that can be used for the knowledge of reality. The control function is linked with the informative function. This function refers the use of accounting data to verify (control): storage and use of material values and money, management of funds, achievement of forecasted indicators, terms of dept payment regarding other entities or recovery of claims and the compliance with financial discipline. Accounting data and economic records serve as evidence in court (justice) to prove the reality of an operation, material responsibility, or the guilt/innocence of persons who participated in such operations. The control function cannot be found in other forms of economic evidence. Forecasting function. Accounting is not limited to the representation of the current activities of an economic unit; its information represents an accurate and comprehensive source for economic and financial analyses of activity and for the establishment of results. Accounting provides the possibility to identify future trends and economic processes, thus influencing decisions both for the present and future. Accounting data serve to develop the budget for the general activity of the unit, budgets for specific activities and to fundament programs.

Legal function. Using its instruments, accounting serves as a mean to provide evidence of commercial and financial operations conducted and for the existence of patrimonial elements. Thus, supporting documents, accounting registers and balance sheets are official documents of the patrimonial units that serve as basic references in establishing responsibility following financial and managerial control. Furthermore, for judicial institutions proceeding cases, they constitute conclusive evidence in courts.

1.4. Accounting systems The evolution of accounting is characterized by continuous developments of its theoretical bases and by continuous improvements regarding practical usage and implementation. During its history, different systems have been created and adopted in order to represent the object of accounting and the organization of accounts. Taking into consideration the object of accounting, the most known accounting system are the simple entry bookkeeping and the double-entry bookkeeping. Simple entry bookkeeping draws its name from the fact that each and every economic operation is only recorded once, in a single ledger account. For example, a sum of money entering a banking account is only recorded in the ledger Current bank accounts. Double entry-bookkeeping represents all economic operations by registering the same transactions in two ledger accounts, one that shows the origin (source) of the transaction and one that shows the destination. Thus, if the amount of money that is transferred to the bank comes from the cashier, it will be recorded (reflected) in two accounts: the House account to reflect the origin of money and the Current bank accounts to highlight their destination. Destination Current back accounts Origins House

Taking into consideration the way in which accounts are organized in the economic system, a differentiation should be made between accounting systems with a single circuit and accounting systems with two circuits. The single circuit accounting system (monistic) organizes accounts in a single flow in the economic circuit (for example: supply exploitation - sales), both externally (for operation that refer to relations with third parties) and internally (regarding internal management). Dual circuit accounting systems organize accounts in order to differentiate between two distinct circuits: (1) one recording those elements and patrimonial operations related to

exchanges and relations with third parties and financial results, and (2) another recording operations pertaining to the internal management of the patrimonial unit, operations such as production, costs, profitability of products, services and performed tasks. The two circuits thus formed are called the financial (general) accounting circuit and the management accounting circuit. Financial (general) accounting is based on uniform rules and regulation regarding organization and implementation, norms that are provided by law and are binding for all patrimonial units. The objective of financial accounting is to record all the operations that can affect the patrimony of the unit in order to determine possible financial results, offer information required for internal or external (employees, customers, suppliers, banks and so on) use; such accounting practices also involve de development and publication of financial synthesis documents. Management accounting has as a principal aim to control the factors of production in order to obtain goods (products), activities and services of high quality, with optimal costs. As a result, such accounting processes are organized by each patrimonial unit in accordance with their activities and empiric requirements. Its main objectives are to calculate production costs, establish results and the profitability of the products that are obtained, to prepare (draft) the revenues and expenditures budget by type of activities, to monitor and control budget execution and to provide data necessary for decision making processes regarding the management of patrimonial goods. Dual circuit accounting is practiced mainly in European Union countries, while the Anglo-Saxon and American socio-economic space prefers uses single circuit accounting.

2. THE OBJECT AND METHOD OF ACCOUNTING 2.1. The object of accounting 2.1.1. Theories regarding the object of accounting Four main opinions have emerged in the specific literature regarding the object of accounting, from multiple perspectives such as administrative, legal, economic and financial. In the administrative vision that belongs to the Italian school of thought (E. Pisani, G. Massa, V. Gitti) the object of accounting is to control and reflect administrative actions in order to obtain maximum economic effects with minimal efforts. The legal vision dominated by the German school of thought (Fr. Hgli; R. Reisch, I. C. Kreibig) and promoted in Romania by G. Trancu, S. Iacobescu and A. Sorescu considers that the object of accounting is refers to the patrimony of a legal/private person, assessed from

a legal perspective; thus patrimony is defined by pecuniary (material) legal rights and obligations in relations to identifiable objects, goods or material values. From this perspective, accounting is the science that records the patrimonial exchanges of an entity. The economic vision is widely spread in the schools of thoughts of continental Europe (J.Fr. Schr, R.P. Coffy, E. Leautey, A. Guibbault, A. Gilbert, I. Evian, C. Panu, D. Voina) and considers that the object of accounting is the circulation of capital, in terms of destination (fixed capital or circulating capital) or acquisition (equity or foreign capital). The financial vision considers that the object of accounting is to study and improve the existence, movement and transformation of patrimonial resources; the main topics are the origins of such resources (permanent or temporary) and their utilization (sustainable or cyclical). According to some authors the origins of resources can be structured considering the obligations they entail (obligations towards the owners or towards third parties). The financial vision is gaining more and more followers and is accepted by most accounting schools. The economic and financial perspectives upon accounting are the bases for developing conventions and international accounting standards. We believe that the object of accounting is to reflect in numeric value the status of the patrimony (property), its movement and transformation resulted from economic processes and phenomena and the results obtained. From a patrimonial perspective, any economic unit (or private institution) differs from another. Property consists of all economic rights and obligations denominated in money, together with goods to which they relate, of a natural or legal persons, wherever they originate from (Epuran, Babaita, 1997, p. 34). For patrimony to exist, the following conditions have to be jointly meet: - The existence of the subject of property: an entity who assumes rights and obligations and which can perform acts of disposition and administration upon the patrimony. - The object of patrimony must exist: material goods or money which form the object of the aforementioned rights and obligations. As such, patrimonial rights and obligations and the material goods to which they refer are connected via the legal or natural entities that are subjects of property/patrimony. From the perspective of their utility, the sum of goods that compose the patrimony represents the property of different legal (companies or institutions) or natural (individuals) entities. In economic language, the property of a patrimonial unit is expressed by the term Assets.

The patrimony or property of an entity is comprised from two main types of elements: (1) patrimonial elements such as material and financial assets that can be expressed quantitative or numeric and (2) patrimonial elements that refer to legal (judicial) pecuniary relations established by entities during economic processes or phenomena, relationships expressed by rights and obligations. From a structural point of view, the patrimony consists of economic property and juridical property. Economic property represents the sum of goods owned by a legal or private entity, goods that can be used during economic activities, regardless of their source of provenience. Legal or juridical property expresses legal relations, rights and obligations that are created in economic units as a result of the existence and usage of economic property. Legal pecuniary relations are important parts of the patrimony and consist of the following categories of rights and obligations: 1. Rights of the subject of property: - Property rights regarding the goods and values owned; and - Rights of claims against third parties regarding goods and values transferred, assigned or alienated. 2. Obligations (duties) for the subject of property: - Internal obligations, toward partners or shareholders for their contribution of capital to the patrimonial unit; and - External obligations toward third parties for the goods and services received, for loans, labor performed or taxes. Reflecting the patrimony of an economic unit, the object of accounting is to maintain accounting records, to compute and control the status, movement and transformation of economic goods as a result economic processes and in conjunction with appropriate legal relations. Accounting can be organized according to specific rules in private companies (organizations), public institutions, non-profit organizations and all other entities that possess property. Public institutions are state organizations created with the aim of attaining socio-cultural objectives and which are not engaged in productive economic activities. Such entities are characterized by the fact that their revenues and expenditures are provided by state or local budgets.

Public institutions are tasked with administrative, socio-cultural or scientific (education, health, research, culture) activities; as such activities do not generate income that would allow self-financing they have to be funded from the budget. The object of national (general) accounting of the state is to represent in a system of accounts those operations that reflect national socio-economic activities, as circuits and flows; national accounting also refers to macroeconomic data regarding on the evolution of national economy. National accounting also ensures coherent and consistent information required to make decisions regarding economic policy, to substantiate macroeconomic forecasting or to inform stakeholders on the development of national economy.

2.1.2. The elements that compose the object of accounting The elements that compose the object of accounting are structured in three main categories: - Economic goods; - Economic processes; and - Legal relations.

2.1.2.1. Economic goods The sum of the goods used by an entity in its activity represents the patrimony of that entity. The elements that compose the patrimony differ in accordance with the primary object of activity: (1) in the case of credit banks, the primary element of wealth is money, (2) for commercial units, the primary elements are the stocks of goods, (3) for industrial productive units that transform raw materials into finished products, economic goods come in the form of raw materials, auxiliary materials, machines, installations and finished products. Beside wealth elements that are characteristics to the type of activity, every economic unit also possesses economic goods that can be found in the patrimony of all economic units, such as money, buildings, furniture, vehicles and so on. Depending on the role meet during their exploitation, their circuit and rotation, economic goods can be divided in non-current (fixed) assets and current assets.

2.1.2.1.1 Non-current (fixed) assets Non-current assets distinguish themselves from other types of economic goods due to their importance and by the fact that they are not fungible, they are supposed to serve in the activities of patrimonial units for longer periods of time. Their recovery and transformation in

money takes long periods of time. Depending on their nature, such goods can be classified as intangible assets, tangible (material) assets and financial assets. Non-current intangible assets do not take shape as material goods. This category includes expenses incurred at the establishment or with the development of the patrimonial unit (registration fees and expenses, the issuance and sale of shares and bonds, market prospecting, marketing and advertising), research and development expenses (referring to the purchase or creation of patents, licenses, trademarks, IT programs) and so on. Non-current tangible (material) assets consist of existent (land, fixed assets) or developing (investments in progress, current expenditures) goods that will result in the increase or renewal of such assets. Non-current financial assets consist of those items of property which represent amounts invested for long or medium terms in the equity capital of other economic units, long term loans; such investment aim to gain profit or other economic benefits. An important role in obtaining material goods or performing services is played by noncurrent tangible assets such as the fixed assets owned by a patrimonial unit. Fixed assets are machineries of equipments used to transform or process materials during the production process in order to produce goods, offer services and sell goods; fixed elements (buildings, shops, transport means) that are used in order to secure normal conditions for the process of production or marketing are also considered fixed assets. In order to be considered fixed assets, the equipments and installations used in economic processes have to simultaneously meet the following two criteria: to have a normal life span greater than one year and an individual value greater than the limit set by the law. Fixed assets have longer usage periods, taking part directly or indirectly to several cycles of operation; during production or marketing processes they transfer their value gradually to final products. As their utility value is depleted and when such goods are wearing out, they need to be replaced before further economic activity can take place. Fixed assets can be identified in the patrimony of economic units under multiple forms, such as buildings (productive and unproductive), machinery and installations which produce or transform energy (electric generators and motors, steam boilers), equipments and machinery that act directly on raw materials and change their attributes (lathes or cutters), measurement, control and regulation apparatus (ammeters, barometers, voltmeters), vehicles, furniture, office equipment, safety equipment and so on. Although various fixed assets can be grouped into categories and types, their evidence is not kept by categories or types of fixed assets, as each fixed asset is different from others,

even when they are similar, due to peculiarities such as building type, acquisition value, degree of wear and tear, date of establishment, number of repairs, and so on. Therefore, individual analytical records must be kept for each fixed asset. By fixed asset, as object of evidence, we understand the single object (or the complex of objects) that, together with accessories and devices, can independently fulfill a distinct functions. They are characterized by the fact that their construction is completed, the component parts can be individualized, they can be used independently and they are delimitated in space or they can be delimitated from other items in the evidence of the patrimonial unit. Once fixed assets are included in the accounting records, they can be subject to economic operations regarding the establishment of their depreciation, repair or removal from the management of patrimonial units.

2.1.2.1.2. Current assets Current assets are used to ensure continuity of production and circulation and they are in constant change and transformation in the economic circuit. Successively, they change their form at each stage of the economic circuit (supply-production-sales). During the economic circuit, current assets can be found simultaneously either in production or in circulation. Depending on the form taken during different phases of the economic circuit, current assets can be grouped in current material assets (stocks) and current financial assets (cash/treasury). Material current assets (stocks) are material in nature and include: stocks of raw materials, fuel, spare parts, inventory, tools, devices, controllers, tires, work equipments, uniforms, safety uniforms and equipment, finished products, packaging, natural goods and so on. Accounting reflects economic operations regarding the entrance and exit of current material assets from the storage units of patrimonial units. Current financial assets (treasury). In the last phase of the economic circuit, current material assets transform into financial assets, as they are received from customers following economic transactions. Financial assets are represented by the money from the cashier of an economic unit, existing cash and cash equivalents in bank accounts, checkbooks, bonds, shares or other monetary values (postage and revenue stamps, travel tickets, tickets for treatment and rest and so on). Accounting reflects those economic activities that generate payments and cash receipts under any form (cash, bank transfers, check books and so on).

Beside monitoring the existence, movement and transformation of goods, the object of accounting also refers to the fact that it must determine and record the depreciation of the utility values of goods, as a result of their exploitation or other factors. Economic goods (current or non-current assets) are affected in time by devaluation factors (physical wear, obsolescence or unfavorable market circumstances). In most cases, depreciation processes are typical and work systematically, thus we can determine and foresee such phenomena in order to recover these values (depreciation of fix assets, depreciation of inventory items). Other loses in value are random and atypical as they occur only in certain circumstances (the utility value of raw material can be reduced as a result of lower prices of goods or new production processes). In these cases, in order to recover and take them into account, they are estimated (as best as possible) and reserves are made in accordance with those estimates (provisions are made).

2.1.2.2. Economic processes The economic processes in which a patrimonial entity engages in order to achieve the aims of activity is also a part of the object of accounting. Economic processes are specific activities and operations carried out systematically in different phases of the economic circuit and which generate quantitative modifications and transformations in the value and structure of the patrimony. For each economic unit they generate both revenues and expenditures and the difference between them determine the financial results of the entity at the end of each year of activity (financial year). Public accounting is an accrual accounting that requires patrimonial units to organize and implement their accounting practices (and by extension their activity) in accordance with the budget of revenues and expenditures that was approved. Implementation of accrual accounting principles and of the International Public Sector Accounting Standards requires all expenditures and revenues to be grouped according to the nature of the activity in ordinary (operational) and extraordinary revenues and expenditures. The costs incurred by public institutions are called government/budgetary spending because they can be done only on the basis of the approved budged and are considered to be maximum limits that cannot be exceeded. The revenues of public institutions are recorded in accounting only in accordance with documents that justify (offer evidence regarding) the existence of a transaction or other economic event.

Revenues and expenditures can be grouped by type of activity and in accordance with International Accounting Standards as: - Operational revenues and expenditures; - Extraordinary revenues and expenditures; and - Financial revenues and expenditures. The financial result can be categorized as either deficit or surplus.

2.1.2.3. Legal relations Legal relations that generate rights and obligations which can affect the patrimony of a unit also constitute the object of accounting. Rights are legal-patrimonial relations that establish the legitimacy of a natural or legal entity to own or use the goods and values that exist in its patrimony. Two categories of rights can be identified in the patrimony of an (legal or natural) entity: property rights and rights of claim. Property rights are those rights which confer to a person social recognition of the ownership of goods and objects. Property rights define the patrimonial position of a person vis--vis particular objects and material goods. In the structure of the patrimony, property rights consist of all material assets (fixed assets, stocks) and funds that are not encumbered by obligations toward third parties and for which the property owner (subject) has full and unconditional capacity for usage and possession. Legal rights of claim refer to the legally certified rights of one person to claim and receive goods or values from third parties. These rights define the patrimonial position of a person vis--vis another person, position that is gained by virtue of commercial and financial relations (operations) or regulated by law. Obligations (liabilities) are legal-patrimonial relations that express legal or contractual commitments of an entity to other entities; such commitments refer to goods or values that exist in the patrimony. Obligations can be considered the source of origin for patrimonial/property rights.

2.2. The method of accounting The term of method is of Greek origins and derives from meta, (which means "succession, change, after which") and hodos, (translated as "way") and can be understood as "the path which must be taken to reach a particular outcome, purpose or truth ".

"The method shows a systematic way of research, knowledge and transformation of the objective reality" (DEX, p. 626). The method is a rational (logical) system of research which can be used to establish the principles, procedures and instruments that will be used for the study of an object or phenomena. The object and the method of a science are interdependent and condition each other: the object shows what must be studied and the method shows how it should be studied. To achieve its object of study accounting has its own method of research based on certain laws, principles and specific procedures.

2.2.1. The principles of the accounting method The fundamental principles of accounting are: - The principle of dual representation or the equality of the balance sheet; - The principle of double recording of patrimonial operations; - The principle of periodic synthesis calculations;and - The principle of enclosed patrimony. The principle of dual representation postulates that all patrimonial assets should be reflected under two aspects: 1. In terms of the utility of goods or their destination (allocation) in the activity of an economic entity (non-current assets, current assets, financial or monetary assets). The notion of actives is used in this case. 2. In terms of the property relations by which economic goods are acquired (become objects of rights and obligations); this refers to the acquisition or provenience of assets and the notion of source or passive is used in this context. In accounting, the same component of the patrimony, viewed as a whole, is reflected and represented in a dual aspect. Dual representation of property can be rendered in a synthetic form, as the following equation: Value of economic goods = Value of provenience sources - relationship known as the dual representation equation. The dual representation of patrimony is effectively implemented with the help of the balance sheet that expresses the status of the patrimony at a certain point in time. The principle of double recording of patrimonial operations. The elements that constitute property are in continuous movement and transformation during the stages of an economic circuit. Thus, new elements may enter the patrimony, existent elements may leave the patrimony or goods (sources of goods) may transform during the economic circuit. The

principle of double recording takes into account the fact that every economic operation generates a ratio of equivalence between goods and sources, between inputs and outputs. In essence, the principle of double recording maintains that, using the same sum, all changes in the volume and structure of economic goods (or sources of provenience) should be recorded, while respecting the equality criteria required by the principle of dual representation. Double recording is influenced by dual representation as, during their movements and transformations, all economic goods are analyzed from the dual perspective of utility, namely regarding their economic destination and source of provenience. Dual representation and double recording, as essential features of the accounting method, are specific to it and cannot be found in any other economic discipline. The principle of periodic synthetic calculations. In order to know the economic and financial results, the performance of an economic unit at the end of a financial (fiscal) year, periodic synthesis calculations are necessary; these can be made using trial balances, balance sheets, annexes to the balance sheet, patrimonial result and execution accounts. The principle of enclosed patrimony. Each economic unit has the obligation to organize and implement the accounting process. While carrying out their activities, economic units establish contacts with other patrimonial units, but economic operations are to be reflected for each economic unit, only from its perspective. For example, the payment of fixed assets is reflected in both the accounts of the payer (buyer) and in the beneficiary (seller), respecting the principle of double recording: A. Payer: subtracts the cash (money) and the obligations toward the seller. B. Seller: adds the cash (money) and deducts the right of claims toward the buyer.

If this principle would not be respected, the transaction would assume the following form: A. Payer: subtracts the cash. B. Seller: adds the cash. Such a form would make it impossible to differentiate at microeconomic level the patrimony and the results of each entity.

2.2.2. Procedures used in the accounting method The theoretical fundamental principles of accounting are implemented in the socioeconomic practice; thus the method of accounting refers both to the way in which research

and study are done and to procedures and instruments utilized in order to study the objects of accounting. The process of accounting refers to the means used to achieve a particular result, the way to proceed, means, method, procedure" (D.E.X., p. 853). Thus, the process shows how, in which way, we can proceed to an end and the instruments (tools) are the practical ways in which work can be performed for a particular procedure. In order to accomplish its objects of research, accounting can use either specific procedures (balance sheets, accounts, trial balances) or procedures that are common to other economic subjects. The balance sheet is a procedure of the accounting method which reflects the patrimony (as a whole) and financial results of different activities at a given moment. It ensures the implementation of the dual representation principle by presenting, at a particular time and in monetary terms, the patrimony; the destinations of economic goods as well as their sources are presented. The data presented in the balance sheet can be further detailed and analyzed in annexes to the balance sheets and income statements. Since de balance sheet does not present information regarding the movements, transformations and changes that occur in the structure of economic goods or their sources due to financial and economic operations and processes, accounting uses accounts. For each item, source, economic process or phase of an economic process a new account must be opened; these accounts record what exists, what increases or what decreases form that economic (patrimonial) element. Although accounts differ regarding their economic content, they condition each other and together they constitute the aggregate accounts system used by accounting to achieve its object of study. Accounts are used to ensure that the principle of dual representation is implemented, while maintaining equality in the balance sheet. If the balance sheet provides general information regarding the patrimony at a given time, accounts provide detailed information regarding the existence and movement of goods, sources or economic processes; while the balance sheet offers only a general overview of economic data, accounts can particularize and offer details on the patrimony. The gap between accounts (which offer detail information) and balance sheets (that present a general perspective) is bridged by another accounting procedure the trial balance. Given the equalities it contains, the trial balance offers the opportunity to verify the correctness of entries made in accounts, while respecting the principle of dual registration.

The trial balance centralizes information that is reflected separately in the accounts (by economic goods or processes) in order to obtain a general perspective on the activity of the patrimonial unit. By centralizing data via the trial balance, information regarding present and previously cumulated changes in the structure of the patrimony is provided. In addition to the aforementioned specific procedures, accounting also uses procedures that are common to other economic disciplines, such as documents, evaluation, calculation and inventory. In accounting, no economic operation can be registered without a document, a written record that can justify the economic operation. Documents are particularly important in order to check the accuracy and legality of economic operations, control material goods or money, or to establish accountability for the patrimonial management of that unit. Since the object of accounting includes all elements that have value (numerical) expressions, all assets, sources and economic processes need to be expressed in monetary terms, a fact that can only by achieved by using another procedure of accounting, namely evaluation (assessment). Evaluation involves converting natural units (economic goods) into units of value, with the help of prices and tariffs, in order to bring all the elements of patrimony to a common denominator. As a procedure of the accounting method, evaluation is intertwined with other procedures and contributes to their application. Evaluation is closely related to the calculation procedure because recording the existence and movement of patrimony cannot be done without determining their exact value. Differences can occur between what is recorded in accounting and what exists in reality due to natural occurring losses during storage, errors, omissions, the poor condition of measurement instruments or unlawful acts committed by managers. In order to limit de effects of such acts and disparities, the inventory is used; the inventory establishes elements of property that exist empirically and correlates them with data existing in accounting.

3. DOCUMENTATION A PROCEDURE OF THE ACCOUNTING METHOD. 3.1. The importance and editing of documents Accounting is characterized by the fact that it fundaments and justifies all of its data using written documents, which record all economic transaction (when they occur). Economic transactions can be recorded in accounts only when they are justified by written documents; no economic transaction can be registered or recorded without such proper justification. Documents and papers must be prepared for all economic transactions that change the economic resources of a patrimonial unit and in order to prove or offer justification for the existence of economic means, their sources and economic processes, employment and activity of personnel, workload and remuneration. Documents are written papers prepared during economic operations in order to prove the existence of these operations. They can also be generated by the existence of patrimonial goods and in order to exercise the organizational and administrative functions of a patrimonial unit. Depending on their content and destination, documents have different functions within patrimonial units. We can distinguish between documents that record economic and financial operations and serve as bases for accounting recording, cumulative documents (documents which serve in the preparation of other documents that can constitute a basis for accounting recording) and documents that have no relations with accounting, but serve for administrative purposes. From these categories, only those documents that serve directly or indirectly as sources for accounting records are documents of evidence. Evidence documents represent the primary stage of reflection for all economic operations. Therefore, all documents used to record economic operations at the time of their occurrence, are called primary documents. The importance of documents as tools of the documenting procedure results from the following considerations: - Through documents, accounting can reflect the entire activity of economic units: the existence, movement and transformation of economic goods, their sources, the entire economic circuit and final results of economic activities; - Since documents are sources of data, they act as organic links between al forms of economic evidence; - They serve as support for managerial accountability. Documents are used to determine the persons who were entrusted with the safekeeping and usage of economic goods and to determine (asses) their managerial results;

- Documents serve as a basis for managerial auditing: finding deficiencies, illegal spending, uneconomical use of economic goods, financial indiscipline and unlawful deductions; - They are a mean for the governing bodies to obtain data required for the management of the unit; and - Documents have legal importance because they determine relationships between units and determine compliance with contractual discipline. In case of disputes, fraud or unlawful managerial practices they serve as bases for judiciary inquiry. Thus accounting books, balance sheets and other justification papers serve as official accounting documents which can be used as evidence in court in order to asses patrimonial operations. Documents serve as proof for all economic operations that take place within and economic entity and to determine the material accountability (liability) of those who manage the economic goods of patrimonial entities. Primary documents have general applicability in all accounting procedures; they constitute the basis of accounting recordings and directly influence the accuracy of accounting data and the timeliness of information gathering. A document is valid only if it meets the following criteria (conditions): - is written clear and legible, to eliminate any possibility of subjective interpretation; - does not contain erasures or correction; - is completed in due time; - has all of its empty lines canceled; - contains accurate, exact and real data; and - cash values (in the case of justification documents) are written twice, in numbers and letters. If mistakes are done during the drafting stage of a document, they need to be rectified in all of the copies of that document by crossing out the wrong text (amount) so that the wrong data is still readable; corrections will be made above the old data. The corrected document must mention the rectification (confirmed by the signature of the persons who signed the original document), and the exact time when it was made (to establish an order in time and to ensure that the persons who signed/drafted the document are aware of ulterior changes). If a document that records handover operations of material values is modified, the persons who take over and hand over must confirm by signature. Cash and bank documents (checks, bills, payment and collection orders) cannot be rectified; they must be cancelled without being detached (from the checkbook). If errors are identified in documents, the errors must be presented to the people who drafted the documents and to anyone else who has a legitimate interest in the economic operation recorded by that document.

The accuracy of their content, their clear, timely and complete drafting present special importance for all economic documents, since they determine the reality and accuracy of all accounting data, ensure that all accounting procedures and documents are updated and contribute to the management of patrimonial units. The concordance between economic operations and their respective documents is an essential task of accounting.

3.2. Content and classification of documents In order to offer a clear and accurate reflection of economic operations, all documents should contain the following elements: - Name of the document (invoice, receipt); - Header (name and address of the unit/organization which prepared the document or the location where it was drafted); - Date when the document was drafted and its serial number; - The parties that were involved in the economic transaction recorded in the documents; - The content of the financial-economic operation and its justification; - Standards expressing the object of the operation (quantity, value); and - Signatures of the persons responsible for the legality and reality of the operation recorded by the document. In the case of transfer of economic goods, the documents which record the economic transactions must be signed by the person who received the good, the person who delivered the good and by the person that ordered the release. Beside the common elements that need to be included in all documents, specific elements have to be included in accordance with the nature of the economic operation recorded by the document. Thus, the bill that records sales operations must also include specific elements as: information on the order and contract under which materials are sent, shipping data, the customers and suppliers bank accounts, the means of transport and payment, and the person in charge of the transfer.

3.3. Standardization and verification of documents Standardization involves the development of uniform documents for economic operation within an industry or branch of the economy. The elements that ought to be contained by every document, their size, shape, purpose, circuit are also established.

Standardization offers a series of advantages: - ensures a unitary system of evidence (recording), offering the opportunity to centralize and process data in an automatic way; - creates unitary primary documents that can be simultaneously used by accounting, statistics and operational recording; - helps to reduce printing costs; - eases filling operations (once the knowledge is obtained, it can be transferred between economic units); - reduces the number of documents by eliminating unnecessary documents and duplication; and - simplifies the content of documents and improves (streamlines) their circuit, thus leading to simplification and streamlining in all accounting procedures and activities. Depending in their use, standardized forms can be divided into common financial and accounting forms (developed by the Ministry of Finance) and specific forms (developed by ministries, departments, business groups, professional associations or patrimonial units according to their needs). The models of accounting registers and most standardized forms are provided in the List of common standardized forms of financial - accounting activity (OMF nr. 3512/2008). If computer equipments are used to develop documents or to process and record data in accounting, records and standardized forms can be adapted to the requirements of the patrimonial unit, while respecting the models presented in the aforementioned list. Rationalization and standardization of documents should ensure that: - Documents contain information that is strictly necessary to the departments that use them; - Data is obtained with a maximum of efficiency; - Provide information needed by the management; - Reduce the workload required to complete the paperwork; and - Meet the requirements for automatic data processing; Before being registered, every document must be subject to verification in order to discover material errors, illegal or improper activities; thus the accuracy of accounting data is ensured. Documents are verified (checked) under three aspects: - Formal verification; - Background (content) verification; and - Numbers (digits) verification. Formal verifications checks if the document was prepared correctly. Elements of interest are:

- Use of the appropriate document in order to record an economic operation (by the nature of that operation); - If all required information is included; - If all the elements that describe the economic operation are specified; - If the document is corroborated with its justificatory annexes; and - If it contains all required signatures and there are no erasures or corrections that are not certified. Numbers (digits) verification refers to the arithmetical accuracy of the calculations included in the document. Background (content) verification follows the reality, necessity, appropriateness and legality of the economic operation recorded in the document. Reality of the operation checks if the economic operation took place at the date, place and in the conditions reflected in the document (for example, if the amount paid for the purchase of materials is consistent with the quantity of the materials received). The necessity verification checks if the operation recorded in the document is useful for the activity of the patrimonial unit and if that operation is economically justifiable. For example, the purchase of materials can be necessary for future economic activities, but if the purchase is made too son it can be inappropriate as it immobilizes more funds in stocks than it would be necessary. Background (content) verification also checks the legality of economic operations; only those operations that are not contrary to the law can be considered legal. The control of operations recorded in accounting documents can be performed by persons in charge with accounting activities, persons that perform preventive financial control or financial control, by other persons delegated for such tasks and by state control bodies. In order to establish responsibility for the verification of documents, each document must present the name of the person who performed verification activities and his signature (the person who verifies a document must differ from those who drafted the document). After documents are verified, they can be prepared in order to be recorded in accounting.

3.4. The circulation of documents The circulation (circuit) of documents describes their trajectory from the moment they are drafted (enter the patrimonial unit) until the moment they are send to the archive. The circulation must be organized in such a way that all documents entering the unit at a particular

time can be verified and registered in the shortest time; a well established circuit and procedure influences the accuracy and timelines of accounting. Each department and workplace must know what type of documents they have to prepare, to whom they most submit them and the deadlines for submission. Every document must circulate in a certain order and without unnecessary delays, so that they offer the necessary information to decision-making bodies. For an economic operation a single document will be prepared, with a well established circuit, in a number of copies necessary to various compartments, in order to ease work and reduce operational costs. The trajectory of documents within an economic unit differs from patrimonial unit to patrimonial unit, depending on: - Organizational structure; - The economic content of the operations reflected by the document; - The organization of accounting; and - The methods, procedures and accounting practices used. The circulation of documents must uphold the following requirements: - Documents must follow the shortest path and encounter as few tiers as possible while continuity of movement is preserved. Documents that have entered the economic unit are to be recorded at the registry and then distributed to operating units for resolution. - Documents must be settled completely before the deadline specified in the document flow chart. The document flow chart contains: document name, the compartment that should prepare it, document verification, the tiers through which it circulates, the activities that must be done at each stage of the execution and execution deadlines. The document circulation graph must be approved by the management of the patrimonial entity and processed by all employees. In terms of scope and content, document graphs are: - individual graphics that include operations and accounting activities performed by each employee, execution schedules and the departments or persons to whom they must be sent; - structural graphs that are prepared at departmental level; and - synthetic graphs that include all the necessary operations to prepare complex paperwork (such as the balance sheet).

3.5. Filing and maintenance of documents After the complete and final settlement of documents, they enter the final stage of the circuit, they are classified.

Classification means that documents are arranged in a strictly determined order, ensuring proper storage and easy retrieval in case they are requested. The precision and accuracy of this process determine how easy/fast documents can be found in the archive of the unit. Classification (grouping, clustering) of documents is governed by special requirements which provide criteria for the ranking of documents that enter/leave the patrimonial unit. In order to find documents more easily, a list that contains the documents classified in each file can be prepared. A rational and efficient document classification must meet the following requirements: - To offer the possibility to easily find any document; - To be simple enough to be understood and applied by anyone; - To be elastic (to be utilized for a larger number of documents once the unit develops); and - To be suitable for the specific requirements of the documents produced by the economic unit. Depending on the length of time and place of storage, classification can be temporary or final (permanent). Temporary (provisionary) classification includes documents settled in the functional services and sectors of the unit and which are stored in the current archive. The accounting service temporary classifies accounting documents, the cashier and other house documents. Final classification is done at the general archive when documents received in their complete form and settled. Documents can be classified in dossiers (files/folder) according to several criteria: the object, nominal, correspondents, geography, alphabetically, chronologically and so on. Classification by object means that documents are grouped by categories of problems/issues, thus ensuring that in the same dossier are included similar documents (for example, in a file are classified only documents regarding supplies, employment or wages). Nominal classification groups in the same folder all the documents that have the same destination (bills, minutes). The correspondence criterion requires that all documents that constitute correspondence with other economic units or institutions be grouped in the same folder. The disadvantage of this type of classification is that it groups in the same file documents of different importance and periods of storage. The geographical criterion groups documents by localities (country, county, city) and within the same geographical area by correspondents.

The alphabetical criteria means that in the same folder documents are classifies in the alphabetical order of their name. Chronological classification means that documents are grouped in the same order as they are drafted. Whatever other type of classification is used, in every folder documents are arranged in a chronological order. The storage of documents must ensure their full integrity, because they serve to control the economic operations that have been performed (their accuracy and correctness) and in order to offer information on the activity of the economic unit. The archives of the institution store all documentary materials: original documents, copies, photocopies, films, correspondence, drawings, plans and so on. Over the year, these materials are stored in the current archive, organized along the main functional services. House documents and some accounting documents (balance sheets, trial balance, account records) are kept in special rooms or safes maintained (under the responsibility) of the chief accountant. Due to the development of electronic equipment for processing accounting data, beside the classical classification and archive storage, documents and accounting records can be organized, classified and kept in other information carries such as CDs, external memories and USB memories; these new environments ensure easier identification of data and higher security against alienation or theft. Documentary materials, consisting of the complete papers (works) of services and departments, namely those from the current archive, are to be transferred to the general archive by the end of the current year for the previous year, on a date established by management. The transfer of the current archive to the general archive is done on the basis of a transfer list; the list needs to be signed by the head of the archive and needs to state the number of each delivered dossier. A copy of the list is given to the service that handed in the documents and another list is kept in the archive. Documents can be temporarily removed from the archive only on the basis of a report and with managerial approval; the report indicates who required the documents, the person who approved the release of the document and with what purpose. The following documents have to replace the document released from the archive: certified copy of the document, the report, approval that the document can be released and a proof signed by the person who took the original document. The periods for which documents must be kept in the archive are established by law and differ according to the nature and importance of the documents. Thus accounting books and

documents that constitute the basis for accounting records must be kept for 10 years while payrolls and the balance sheet must be kept for 50 years (Accounting Law number 82/1991, art. 25). Documents of historical, scientific or political interest, as well as documents that must be kept for longer periods of time can be transferred for safekeeping to the state archive, if the patrimonial unit cannot maintain them anymore. All other documents can be transferred from the archive of the unit to be disposed off, once the mandatory storage period ends.

3.6. Document restoring In case of loss, destruction or theft, documents can be restored in 30 days from the date when their disappearance was acknowledged, using a special recovery file. The recovery file includes: - A written notification drafted in 24 hours from the time the loss/theft/destruction was observed. The notification can be drafted by someone from the management of the patrimonial entity of by the person who observes/acknowledges the disappearance of the document; - If the loss/theft/destruction of the documents or records constitutes a felony, judicial bodies must be informed; - Minute (report) that acknowledges the loss/theft/destruction must be written by the head of the unit in three days from the moment the act was acknowledged. The report contains identification data of the missing document, the full name of the employee responsible for safekeeping the document, the date and circumstances when the disappearance of the document was observed. The report will be signed by the head of the economic unit, the chief accountant, the employee responsible for the safekeeping of the act and by his hierarchic superior; - A written statement given by the employee responsible for the safeguarding of the document; the statement will show the circumstances under which the document has disappeared; - Proof that the guilty person was sanctioned disciplinary of that legal actions have started against him; - A written instruction issued by the head of the economic unit to reconstitute the document; - The document reconstituted as a copy. If the document originates from another economic unit, the document will be restored by that unit, at the written request of the institution the needs it.

Restored documents and records must bear the word reconstituted written in a visible way and mention the number and date of the provision on which the reconstitution was made. Acts that establish general expenditures (vouchers, tickets) that were lost or stolen before being recorded in accounting cannot be reconstituted; the guilty persons must support the damage that was caused by their actions/inaction. Subsequent finding of the original document which was reconstituted does not cancel disciplinary or criminal sanctions. In this case the reconstituted document is canceled based the minute/report. The person that is found guilty for the loss/destruction/theft of the original document can be hold materially accountable for the damages caused or for the expenses incurred by the patrimonial unit in the process of restoration and search. Unit managers are responsible for the evidence of all document restoration and for maintaining the recovery files.

4. THE BALANCE SHEET AND THE ACCOUNT SPECIFIC PROCEDURES OF ACCOUNTING 4.1. The balance sheet 4.1.1. Defining the balance sheet According to the principle of dual representation, the property of economic units must be reflected in accounting under two aspects: 1. In terms of the utility of goods or their destination (allocation), for which the notion active property (actives) is used; and 2. In terms of the property relations by which economic goods are acquired (become objects of rights and obligations), using the notion of passive property (passives). The need for dual representation derives from the fact that patrimonial units are required to take into account not only the assets or economic goods that they own, but also the property relations or the sources of those economic goods. Since the establishment of an organization, the sources that represent the initial allocation are equal to the assets acquired with them. This equality is possible because both goods and sources refer to the same patrimonial objects but from different perspectives: their composition and mode of acquisition. This principle is embodied in accounting via the procedure called balance sheet. The balance sheet is a process if the accounting method which reflects the principle of dual representation of the property. In its simpler forms, the balance sheet can be represented as balance with two horizontal arms. The two arms are called ACTIVE (left arm; represents the

concrete

uses

of

economic

goods)

and

PASSIVE

(right

arm;

represents

the

resource/source/origins of economic goods). The names of active and passive are based on the characteristics of economic goods and on their source of origin. Considering that between the uses and sources of economic goods there is perfect equality, the same equality will be maintained between the active and the passive of the balance sheet. Economic goods as well as their sources are diverse, thus they have to be generalized and synthesized in order to obtain knowledge of the overall situation of an economic unit. Generalization is achieved by taking data from accounting (in a centralized way in order to calculate financial indicators) and presenting it in the balance sheet. Generalization in the balance is achieved in stages, from large to small, resulting in three levels: - 1st level is called the Group and gathers patrimonial elements by general criteria: (circulatory assets group, non-circulatory assets group, equity group, and so on); - 2nd level is called Chapter and structures the Groups by analytic criteria; and -3rd level is called Item and defines or represents patrimonial elements as single economic goods or sources. From a financial point of view, the balance shows if and to what measure the entity is capable (due to the assets is owns) to honor (pay) its debts to third parties when they mature. As such, the active is considered a set of goods necessary to pay debts (liabilities) at their maturity (as such, the active is viewed in terms of liquidity capacity). Passive is treated through the terms on which debts (liabilities) must be paid, when payment becomes due. Liquidity defines the ability of assets (economic goods) to be converted in time into cash. Different types of assets can be transformed into cash in different amounts of time. As such, liquidity is higher for tangible assets than it is for financial assets; it is lower for circulatory assets than it s for non-circulatory ones. Following the liquidity criterion, patrimonial elements can be ordered in the balance sheet in two ways: - In order of increasing equity: from assets whose transformation requires longer periods of time to assets whose transformation requires shorter periods of time; - In order of decreasing liquidity: from assets that can be turned into money in short time to assets that can be turned into money in longer periods of time. Due payment expresses the time (date) when a particular debt must be paid. Not all debts of a patrimonial unit have the same payment deadlines. Some debts have longer payments terms (such as long and medium term bank loans) while other debts (current

liabilities) have very short deadlines (usually they include debts to suppliers, creditors, staff, the state and so on). Debts or liabilities can be ordered in the balance sheet in the following ways: - In increasing order: from debts that are not due for payment during the lifetime of the economic units, to those that have to be paid in longer period of time and those that have to be paid in the immediate future; - In decreasing order: opposed to the order above (from current liabilities to debts that dont have to be paid during the existence of the economic unit). Increasing liquidity and dept payment, as criteria to elaborate the balance sheet are specific to the continental (European) accounting system, to which Romania is also aligned. According to this vision, the patrimony is primarily formed by stable goods and resources which are intended for sustainable use and which are not necessarily required to have liquidity or to be due for payment at a certain time. The stable goods are joined by economic assets and resources which have liquidity or due payment in the immediate future. Decreasing liquidity and debt payment are used as criteria to elaborate the balance sheet in the Anglo-Saxon accounting system. In this perspective, current liquidity and liability take precedent over distant ones.

4.1.2. The influence of economic operations on the balance sheet The balance sheet presents the situation of the patrimony at a given moment in time. As such, any economic transaction taking place in a patrimonial unit will determine changes in the structure or size of the balance sheet, maintaining the principle of equality (between active and passive). Actives and passives are represented in the balance sheet as items, reflecting the patrimonial elements they represent. Patrimonial elements do not have a static character, as they are subject to modifications caused by economic operations. According to the changes they produce on the balance sheet, economic operations can be systematized in four categories, all of which respect both the principle of dual representations and the permanent equality between the active and passive of the balance sheet. The four categories are: 1. Economic operations that determine the increase of an active item while reducing another active item with the same amount (P1). 2. Economic operations that determine the increase of a passive item while reducing another passive item with the same amount (P2).

3. Economic operations that determine the increase of an active item while also increasing a passive item with the same amount (M1). 4. Economic operations that determine the decrease of an active item while decreasing an passive item with the same amount (M2).

4.1.3. Case study number 1: The influence of economic operations on the balance sheet The patrimonial unit presented the following synthetic balance sheet on the 31st of December 2011 . Table 1 Balance sheet 31st December 2011 Active Item name Assets Clients House Bank accounts Total Active Amount Passive Item name Amount 15.000 2.000 3.000

10.000 Social Capital 5.000 Suppliers 500 Short term loans 4.500 20.000 Total Passive

20.000

In January 2012 the following operations take place: Operation 1: 1.000 lei are transferred in a bank account from the client S.C. Clientul S.R.L. As a result of this operation, the following changes occur: the sum available in the bank account increases with 1000 (from 4500 to 5500), the patrimonial units right to collect from its customers diminishes with 1000 (from 5000 to 4000). As a result, two active balance sheet items change with the same amount: Bank accounts increases with 1000 and Clients decreases with 1000 (Table 2).

Table 2 Balance sheet After operation number 1 Active Item name Assets Clients (5.000 1.000) House Bank accounts (4.500 + 1.000) Total Active 20.000 Total Passive 20.000 500 5.500 Amount Item name 10.000 Social Capital 4000 Suppliers Short term loans Passive Amount 15.000 2.000 3.000

Note that operation 1 produced changes only in the active of the balance sheet, by increasing and decreasing two active items with the same amount; total active remained unchanged and equal to total passive. If we use A for active, P for passive, ai and pi for balance sheet items and for the size of the modification, we can represent this modification as: A + a4 - a2 = P , meaning that, 20.000 + 1.000 1.000 = 20.000

The type I formula for balance sheet modification (P1) is:

A + ai - ai = P where: i =1,n

(F1)

Operation 2. The provider SC Provider SRL is paid the sum of 1500 from a short term credit granted by a bank. This operation produces the following changes: the debt to the supplier is reduced with 1500 (from 2000 to 500) and increases the companys liability to the bank with 1500 (from 3000 to 4500). Therefore, two items form the passive of the balance sheet with change: Suppliers decreases with 1500 and Short term bank loans increases with the same amount (Table 3).

Table 3 Balance sheet After operation number 2 Active Item name Assets Clients House Bank accounts Amount Item name 10.000 Social Capital 4000 Suppliers 500 (2000-1500) 5.500 Short term loans (3000+1500) Total Active 20.000 Total Passive 20.000 4500 Passive Amount 15.000 500

Note that operation 2 produced changes only in the passive of the balance sheet, by increasing one and decreasing another with the same amount, the total remaining unchanged and equal with the total active. Using the same notations as before, we obtain the formula: A = P - p2 + p3, meaning

20.000 = 20.000 1.500 + 1.500

Type II formula for the modification of the balance sheet (P2) is: A = P - pi + pi where i =1,n (F2)

Operation 3 An asset of 10 000 value is bought from a supplier. This operation produces the following changes: increases the value of company assets with 10000 (from 10000 to 20000) and increases the companys obligations to suppliers with the same amount (form 500 to 10500). As a result, two balance sheet items will change: the active Assets and the passive Suppliers will increase with the same amount (Table 4).

Table 4 Balance sheet After operation number 3 Active Item name Assets (10000+10000) Clients House Bank accounts Total Active Amount Item name 20.000 Social Capital Suppliers 4000 (500+10000) 500 Short term loans 5.500 30.000 Total Passive 30.000 4500 Passive Amount 15.000 10500

Note that this operation produced changes both in the size and structure of economic goods from the Active and Passive. Items form both the Active and the Passive increased with 10000 as well as their totals (from 20000 to 30000). This type of change can be represented as: A + a1 = P + p2, meaning

20.000 + 10.000 = 20.000 + 10.000

Type III formula of balance sheet modification (M1) is:

A + ai = P + pi

where i =1,n (F3)

Operation 4 From a bank account 5000 are paid to suppliers, using a payment order. This operation produces the following changes: reduces what is available to the firm in the bank account with 5000 (from 5500 to 500) and reduces obligations to suppliers with the same amount (from 10500 to 5500). As a result, two balance sheet items, Bank accounts and Suppliers, located on the two sides of the balance, will be reduced with the same amount (Table 5).

Table 5 Balance sheet After operation number 4 Active Item name Assets Clients House Bank accounts (5500-5000) Total Active Amount Item name 20.000 Social Capital Suppliers 4000 (10500-5000) 500 Short term loans 500 25.000 Total Passive 25.000 4500 Passive Amount 15.000 5500

Note that this operation produced changes both in the structure and in the size of patrimonial elements from Active and Passive. Financial assets (Bank accounts) decreased with 5000; Passive (Suppliers) also decreased with 5000 and the total balance also decreased with the same amount (while maintaining equality between Active and Passive). This can be represented as: A - a4 = P - p2, meaning 30.000 5.000 = 30.000 5.000

Type IV formula for the modification of the balance sheet (M2) is:

A - ai = P - pi

where i =1,n (F4)

Although the economic operations from the previous case studies were simple operations that only modified two items in the balance sheet, most economic operations generate more complex changes in the balance account; even so, any complex operation can be decomposed into several simple operations covered by the above reasoning. Depending on how the changes affect the balance sheet, all economic operations can be grouped in two categories: A) If economic operations only change items from one part of the balance sheet (Active or Passive), the total of the balance sheet remains unchanged. Because the value of the economic operation is only moved from one item to another (form one patrimonial element to

another) without modifying the total of the balance sheet, these operations are called Permutative or Structural (P1 and P1 mentioned above). B) If economic operations modify items from both parts of the balance sheet (Active and Passive), the total of the balance sheet also changes with the same amount. Because modifications take place (Active, Passive and their respective totals) such operations are called Modifiers or Volume (M1 and M2 from the example above).

4.2. THE ACCOUNT 4.2.1. The notion, necessity and economic content of the account In any patrimonial unit, diverse economic operations determine a variety of successive changes in the size and structure of the patrimony, operations and changes that are also reflected in the balance sheet. However, the complete and exact reflection of these operations and transformations cannot be achieved only with the balance sheet, because drafting a new balance sheet after every operation is difficult due to the large number of transactions that occur daily. Even if, in practice, it would be possible to draft balance sheet after each economic operation, they only provide static information on the existence, structure and size of patrimonial elements at a given time; they do not provide information regarding the dynamic of the patrimony (the size of increases or decreases during a longer period). In accounting, information regarding the dynamics of patrimonial elements can be produced/obtained using the procedure named Account. The account is a procedure of the accounting method that allows us to monitor successive changes that occur related to patrimonial items, as well as the existence and movement of patrimonial goods. For each category of Active and Passive items an account is assigned to maintain evidence on the existence and movements of said item. Unlike the balance sheet that shows the situation of all property items at a given time, the account is more restricted in scope, providing information about only one patrimonial item. An account offers information regarding the status of a patrimonial item at a given moment, about its size and about the type of modifications of that good in a management period. Each account starts by registering the patrimonial good that exists at the beginning of a management period (initial baseline), as represented in the balance sheet; since economic operation modify that patrimonial goods, those transformations will be reflected in the account. At the end of the reporting period, by cumulating the modifications (increases and decreases), we can determine what remained in each account, using the formula:

Final at the end management period (Fi) = Initial baseline (Ei) + increases (C) decreases (M), or: Fi = Ei + C M. In order to reflect the activity of the patrimonial unit a constant data transfer is necessary from accounts to the balance sheet. Between the account and the balance sheet there is a strong connection, each determining the other: data from the balance sheet is taken over by account as initial baseline and the final account at the end of the management period is reflected in the balance sheet as an item.

4.2.1.1. The connection between balance sheet and account at the beginning of the management period

The balance sheet reflects the status and the size of the patrimony at a given moment in time, patrimonial elements being rendered as Active or Passive items. Balance sheet items are taken at the beginning of a management period in current accounting as accounts. Thus, every Active or Passive post is transformed into an account, with the amount that is attached to them in the balance sheet, amount that becomes Ei. Economic operations determine changes either as increases or decreases. We use the following notations: a Active items from the balance sheet p Passive items from the balance sheet x amounts corresponding to Passive balance sheet items and accounts Ca - accounts corresponding to Active items Cp accounts corresponding to Passive items x amounts corresponding to Active balance sheet items and accounts C increases; D decreases; Ef amount existent in final accounts The relationship between balance sheet and account is represented graphically in Figure 1.

Figure 1: Graphic representation of the connection between balance sheet and account at the beginning of the managerial period

4.1.2.1. The connection between the balance sheet and the account at the end of the reporting period The final amount (Ef) is established at the end of each reporting (managerial) period; then that value is transferred in the balance sheet, as an active or passive item. Using the same notations as for Figure 1, the connection between the balance sheet and the account at the end of a reporting period can be presented as follows:

Figure 2: Graphic representation of the connection between balance sheet and account at the end of the managerial period

Unlike the balance sheet that keeps records of patrimonial elements only as values (amounts of monetary units), when economic goods are recorded in accounts, the natural measuring unit is also used beside the value one, in order to ensure control regarding the quantitative existence of such goods. The economic content of each account is determined by the nature of the patrimonial elements recorded. Thus, economic goods are reflected in accounts according to their composition, such as: fixed assets, finished products, materials, cash existent at the cashier, passives in accounts showing sources (suppliers, bank accounts) or final financial results (loss or profit). The distinct economic content of patrimonial elements which are reflected by accounts means that accounts are different between them, with peculiarities determined by their economic content (the patrimonial goods they keep record of). There are also features that are

common to all accounts, making them closely related and mutually conditions; thus they form an unitary system of accounts. In conclusion, accounts are records written in a special form and utilized to express systematically and in chronological order, in values and sometimes in quantities, the existence and movements of patrimonial elements for determined periods of time.

4.2.2. The functions of accounts Beside general functions that can be fulfilled (meet) by all accounts, there are special functions that are encountered when dealing with specific types of accounts.

4.2.2.1. Functions performed by certain accounts Statistical function: some accounts provide statistical data such as the volume of assets (fixed assets, finished products, supplies), labor costs (salaries, CAS) or final results. Calculation function: encountered in the case of those accounts that help calculate the costs of production, delivery prices and so on. Control function: exercised by those accounts which control the integrity of the patrimony (stocks, cash and so on) or actual costs by comparison to previous ones.

4.2.2.2. Functions performed by all accounts Economic function: refers to the fact that each account keeps track of a certain element of the patrimony and financial result, indicating the economic content of that account. The economic function is revealed by the name of the account. Grouping function: refers to the fact that accounts record homogenous economic elements. For example, the salaries of the entire personnel are reflected in one account (Staff salaries payable) or all patrimonial operations regarding clients are reflected in another (Customers/Clients). Calculation function: refers to that fact that for each accounts calculations have to be made regarding the movements (increase/decrease) and existence of economic goods. Systematization function: is realized by designing accounts in a dual system; the two sides separate between operations that increase patrimonial elements from those that decrease them. Accounting functions: is related to the economic function; accounts function according to their economic content.

4.2.3. The structure and form of accounts In order to meet the requirements that determined the usage of the accounts in accounting, the structure and form of accounts must allow: (1) individualization of patrimonial elements as passives or actives, (2) to determine in each moment all the modifications/transformations that occurred in the status of the economic good reflected by that account and (3) what exists in the patrimony at any given time.

4.2.3.1. The structure of the account The structural elements of an account are: 1. Title (heading): indicates the name of the patrimonial element recorded in the account and expresses the economic content of the account. A numerical symbol is attached to the title of the account, representing a code designed after a specific rule and which serves for computerized accounting practices and for enhancing the speed of accounting recording on explanatory documents. An account without a title cannot perform any function because we cannot identify the element recorded in that account; as such that account has no economic content. 2. Parts of the account: perform the systematization function. These are distinct and opposite and give the account the form of a balance or the letter T. In the two parts of the account balance separate sums shall be entered: (1) on one side representing inputs and increases and (2) on the other outputs, declines, reductions of the patrimonial element recorded in that account. Conventionally, the left side of the account was called Debit (D) and the right side was called Credit (C). These names originate in the Latin verbs debere = to be due and credere to believe, from the debtor (debit) and creditor (credit); such terms have been used since the beginning of accounting. The recording of economic changes in the two sides of the account is not identical to all accounts. Setting the part in which increases or decreases are made depends on the economic content of the account. In some accounts, increases are recorded in the left side (Debit) and decreases in the right side (Credit); in the case of other accounts recordings are exact opposites. The rule is that the Debit can only record increases, than de Credit can only record increases or vice versa. 3. Turnover (movement) of the account (R): is the total of the amount recorded in D or C, representing increases or decreases of the patrimonial element reflected by that account in a certain period.

The amounts recoded in D are called debit amounts and form the Debtor Turnover (Rd) of the account and the amounts recorded in C are called credit amounts and form the Creditor Turnover (Rc) of the account. To record an amount in the debit of an account means to debit the respective account, while to record an amount in the credit means to credit the respective account. The initial baseline is not included in the turnover of an account, as R only reflects the movement registered by that account. 4. Total sums (amounts) (Ts). By adding the existent initial debit (Sid) and the debtor turnover (Rd) the total debtor amounts or total amounts receivable (Tsd) are obtained; adding the existent initial credit (Sic) and the creditor turnover (Rc) the total debtor amounts or total credits (Tsc) are obtained. The existent initial is always on the side of the account in which increases of patrimonial elements are recorded. In conclusion, the total debtor or creditor amounts include what was initially in the account, added up with the turnover (for C or D). 5. Date and explanation of the economic operation. The date indicates the day, month and year when an economic operation recorded in accounts took place. The explanation of the economic operation recorded can be: - Descriptive: when it briefly describes the economic operation by specifying the explanatory document. For example: the cashier charged 4 000 lei from client X, based on receipt number 01234 from 11.11.2011. - Accountable: when it indicates the title of the account representing the other balance sheet item influenced by the economic operation. In the above example, account 411 Customers. 6. Account balance (S): represents the patrimonial elements that exist at a given moment. This balance is established at the end of a managerial period or whenever is necessary as the difference between Tsd and Tsc. If Tsd is bigger than Tsc, then the balance is called a debit balance (Sd); if Tsc is bigger than Tsd, then the balance is called an sold balance (Sc). If Tsc is equal to Tsd then the account has 0 balance; it is balanced or closed. Using the aforementioned abbreviations, the three instances can be rendered as follows: Tsd > Tsc => Sd = Tsd Tsc Tsc > Tsd => Sc = Tsc Tsd Tsd = Tsc => S = 0

The balance of the accounts can be: -Initial balance (Si), which can be debit (Sid) or credit (Sic) and which is taken at the beginning of the managerial period from the balance sheet as the value of the Active or Passive item; since the same economic goods is transferred from the balance sheet to the account, a connections between the two is realized. - Final balance (Sf): also can be debit (Sfd) or credit (Sfc). It is taken through the trial balance at the end of the reporting period.

4.2.3.2. Case study number 2: The relationship between balance sheet and account, account and balance sheet and the structure of the account The patrimonial unit presents at the 1st of January 2012 the following initial balance sheet. Initial balance sheet January 1st, 2012 Active Item name Amount Passive Item name Amount

Fixed assets Materials Current account House Total Active

10.000 Social capital 1.000 Suppliers 8.000 1.000 20.000 Total Passive Short term loans

5.000 10.000 5.000

20.000

January 1, 2012: in current accounting, the initial sums from balance sheet items are taken accordingly:

D Si 10.000 RD TSD 0 0

Fixed assets

Social Capital

Si 5.000 RC TSC 0 0 RD 0 TSD 0 RC TSC 5.000 SF5.000

SFD10.000

D Si 1.000 (3) 2.000 RD 2.000 TSD 3.000 SFD 3.000

Materials

D (1) 500 (4)1.000

Suppliers Si10.000 (3) 2.000 RC2.000 TSC 12.000 SFC10.500

RC TSC

0 0

RD1.500 TSD1.500

D Si 8.000 RD

Current account 2.000 0 RC 2.000 TSC 2.000

C (2)

D Short term loans

Si 5.000 (4) 1.000 RC 1.000 TSD 0 TSC6.000 SFC 6.000

TSD 8.000 SFD 1.000

D Si 1.000 (2) 2.000 RD 2.000 TSD 3.000 SFD 2.500

House 500 (1)

RC 500. TSC500

In January, the following economic operations take place: O1: The supplier SC Gama SRL is paid, from the cashier, based on a receipt, the amount of 500 lei. This operation causes a decrease of the item (account) House and a decrease of the item (account) Suppliers of 500 lei (A-X=P-X). O2: A CEC for a 2000 lei withdrawal is lifted from the current bank account. This operation determines a decrease in the Current account (item and account) and an increase with the same amount (2000) in the House (item and account) (A-X+ X=P). O3: Materials are bought from the supplier SC Beta SRL, based on a 2000 lei bill. This operation determines increases in the Materials and Suppliers posts (account) with the same amounts (2000) (A +X=P +X).

O4: The supplier SC Beta SRL is paid 1000 lei, from short term loans. This operation determines a 1000 lei decrease for the Suppliers (item/account) and an increase of 1000 for Short term loans (item/account) (A=P-X +X). These movements cause changes for the accounts (increases or decreases). Increases will be recorded on the same side as the initial balance, while decreases will be recorded on the opposite side. The centralized situation of the movements of the accounts is presented below:

ACTIVE Fixed assets Materials Current account House Total:

Increases 2.000 2.000 4.000

Decreases 2.000 500 2.500

PASIVE Social Capital Suppliers Short term loans Total: 2.000 1.000 3.000 500 1.000 1.500 -

The status of ACTIVE accounts: Initial total balance: Total increases: Total decreases: The accounting equation is: Final balance = Initial balance + Increases Decreases Final balance = 20.000 + 4.000 2.500 Final balance = 21.500 20.000 4.000 2.500

The status of PASSIVE accounts is: Initial total balance: Total increases: Total decreases: 20.000 3.000 1.500

The accounting equation is: Final balance = Initial balance + Increases Decreases Final balance = 20.000 + 3.000 1.500 Final Balance = 21.500

It should be noted that the balance equality is maintained, meaning that: Total final balance Active = Total final balance Passive 21.500 = 21.500

The final account balances are transferred to the balance sheet, at the end of the management period. The final (closing) balance sheet on January 31st, 2012 is presented below:

Final (closing) balance sheet January 31st, 2012 Active Item name Amount Passive Item name Amount

Fixed assets Materials Current account House Total Active

10.000 Social capital 3.000 Suppliers 6.000 2.500 21.500 Total Passive Short term loans

5.000 10.500 6.000

21.500

The example reiterates the distinction whereby the balance sheet reflects the status of the patrimony in a static way, while accounts offer the same reflection in a dynamic manner. If in an account there were no movements, his turnovers are equal to 0, the final balance being the same as the initial one. At the beginning of the next managerial period (1st of February, 2012), accounts are reopened by recording the balance in the same part of the account where is came from (the part where the total amounts were higher). Thus, accounts that had a debtor final balance are opened by recording the initial balance in the Debit of the account, while accounts that had a creditor final balance are reopened by recording the initial balance with the Credit of the account.

4.2.3.3. The form of the account Although accounts have the same structural elements, their graphic representations can differ: a) Bilateral form: where each side of the account (Debit or Credit) appears as a separate sheet, with corresponding accounts (debtor or creditor). For example, the account Suppliers form case study number 1 has the following bilateral form: Credit Number in the registration Journal 3 1.01.2012 Balance 15.01.2012 Total 12.000 2.000 10.000 2.000 2.000 Date of the economic operation Amount Suppliers Corresponding debtor accounts Materials Raw materi als Inventory objects

Debit Number in the registration Journal Date of the economic operation Suma House

Suppliers Corresponding creditor accounts Short Term loans Current account

1 4 Total

6.01.2012 8.01.2012

500 1.000 1.500

500

1.000

500

1.000

Final balance = Total Credit Total Debit = = 12.000 1.500 = 10.500 b) Unilateral form: has a single column for date and explanations (for both Credit and Debit), two columns for debit and credit amounts and a column for the balance. Using this form, the account balance can be established after each economic operation. We return to the account Suppliers from case study number 1 and present it in unilateral form:

Suppliers Date of the operation

1.01.2012

Docume nt

Explanatio n

Symbol of correspondi ng account

Amou nts Debit

Amounts Credit

Balance

Initial balance 531 Casa 500

10.000

6.01.2012

Receipt x

Payment to supplier

9.500

Bill x
15.01.2012

Purchase of materials

301 Materials

2.000

11.500

18.01.2012

O.P. x

Credit payment

519 Short 1.000 term loans

10.500

4.2.4. Account functioning rules Recording an amount in the Debit or Credit of an account follows precise rules. Determining and understanding the rules by which accounts function starts from the balance sheet and the principle of double representation of the patrimony as active and passive goods. The dual relationship between balance sheet and account via the initial and final balance is transported to the balance sheet items, thus creating the premise to identify the rules that govern the functioning of accounts. As shown, the initial balance is transferred to current accounting using items from the balance sheet. Thus, each balance sheet item has one or more corresponding accounts, depending on the economic nature of the balance sheet item. In these accounts the value taken from the balance sheet item is recorded as initial balance (Sic or Sid). By decomposing the balance sheet in accounts we will have to types of accounts: active accounts for items taken from the Active of the balance sheet and passive accounts, for the item taken from the Passive of the balance sheet. The two groups of accounts will have the same content as the balance sheet items where they were taken from: active accounts will reflect patrimonial actives and passive accounts will reflect patrimonial passives.

Having a different content, the two groups of accounts will also have opposite accounting functions: the initial balance will appear in accounts in the same side (left or right) as it appeared in the balance sheet. What exists in the balance sheet as an Active (left) will be transferred as an initial balance in the Debit (left) in the account; what exists in the Passive of the balance sheet (right) will be transferred as an initial balance in the Credit (right) of the account. Schematically, the decomposition if the balance sheet into accounts is shown in Figure 3 (using data from case study number 1 the initial balance sheet).

Figure 3: The decomposition of the balance sheet in accounts

Note that the amounts that initially were in the Active of the balance sheet became opening balances for the accounts from the Active of the balance sheet; the initial amounts from the Passive balance sheet became opening balances for the accounts from the Passive of the balance sheet. On the bases of the balance sheet equality A = P, the equality of initial (opening) debit and credit balances is also maintained, meaning that: SiD = SiC From these observations, the first rule of account functioning is: Functioning rule number 1 regarding the registration of the initial amounts Active accounts begin to work by debiting; they are debited with the patrimonial elements (active) taken from the active of the balance sheet. Passive account begin to work by crediting; they are credited with patrimonial elements (passives) taken from the passive of the balance sheet. Increases and reductions of the Active patrimonial elements will be reflected using Active accounts, while increases and decreases of the Passive patrimonial elements will be reflected using Passive accounts. In order to identify the second rule, we consider two operations that generate increases and decreases of actives and passives.

Operation 1 regarding the increase of patrimonial elements The patrimonial unit from case study number 1 purchases materials from a supplier, based on bill number 012345 from 03.02.2012 in amount of 500 lei. This economic operation determines the following modifications on patrimonial elements: the material stock increases with 500 (from 3.000 to 3.500) and total obligations toward suppliers also increase with 500 (from 10.500 to 11.000).

The influence of this operation on the balance sheet can be rendered as follows: A + a1 = P + p1, meaning that: 21.500+ 500 = 21.500 + 500 22.000 = 22.000

In accounts, this operation is recorded as follows: In the Materials account the amount of 500 lei is recorded beside the exiting sum of 3.000 (in the Debit of the account); in the Suppliers account the same sum (500) is recorded beside the existing initial sum of 10 500 (in the Credit of the account). As such we can formulate the second law:

Functioning rule number 2 regarding the recording of patrimonial increases Active accounts are debited with entrances, increases and gains of the Active patrimonial elements; it follows that Passive accounts are credited with increases and inputs of Passive patrimonial elements.

Operation number 2 regarding decreases of patrimonial elements The patrimonial unit pays 1.500 lei to the supplier SC Gama SRL (due payments) with the payment order number 213/15.02.2102. As a result, duties toward suppliers decrease from 11.000 to 9.000 and the cash available in the current bank account also decreases with 1.500 lei (from 6. 000 to 4.500). The influence of this operation on the balance sheet can be rendered as follows: A a1 = P p1, meaning that: 22.000 1.500 = 22.000 1.500 20.500 = 20.500 This operation is recorded in the following way: In the Suppliers account, the 1.500 amount is registered in the opposite side of the initial baseline and increases, namely in the Debit of the account, as this operation determined a decrease of patrimonial elements (debt to suppliers). In the Current bank account account, the same amount is registered in the opposite side of the initial baseline, namely in the Credit of the account, as this operation determined a decrease of patrimonial elements (cash available in the current bank account). As such, we can formulate the third law: Functioning rule number 3 regarding the recording of decreases of patrimonial elements: Active accounts will be credited with the decreases, losses and diminishes of patrimonial elements from the Active (actives); Passive accounts will be debited with the cuts, decreases and reductions of patrimonial elements form the Passive (passives).

Starting from these three rules, two general rules have been synthesized, to govern the functioning of Passive and Active accounts.

FUNCTIONING RULE FOR ACTIVE ACCOUNTS Active Accounts start to function by debiting. They are debited with the initial amount or the initial balance from the active of the balance sheet and with ulterior increases of actives and they are credited with the decreases of actives. Their balance can be either Debit or zero.

FUNCTIONING RULE FOR PASSIVE ACCOUNTS Passive Accounts begin to function by crediting. They are credited with the initial amount or the initial balance from the passive of the balance sheet and with ulterior increases of passives and they are debited with the decreases of passives. Their balance can be either Credit or zero. The function of Active accounts is opposed to the function of Passive accounts due to the different content of the two parts of the balance sheet (Active and Passive), which are closely related to the accounts; active accounts reflect economic goods (actives) and passive accounts reflect their resources/sources (passives). Taking into consideration how these two rules are accepted, accounts can be: 1. Mono-functional accounts: function only after one rule (either Active or Passive) and at the end of the managerial period they can have only on type of final balance: Debit or Credit. 2. By-functional accounts: function either by the rule or Active accounts or by the rule of Passive accounts and can have at a certain time either a debit or credit balance. If their final balance is Debit, they are called Active accounts; if their final balance is credit they are called Passive accounts.

4.2.5. Double recording and accounts correspondence 4.2.5.1. Double recording Double recording and dual representation are the two basic principles of accounting. Regarding the principle of dual recording, accounting literature identified two main arguments to explain its existence. 1. Flux based explanation: double recording highlights economic fluxes which originate in exchange relations between patrimonial entities; two fluxes are necessary to indicate the origin (resource) and the destination. There are, however, two short comings to this explanation. First, it only covers economic relations with the external environment of the patrimonial entity and ignores internal movements (fluxes) (which originate in processes and operations that are purely

internal). Second, it departs accounting from its object: reflecting the patrimonial status of an entity. Consider the commercial relation between a buyer and a seller, where payment is done in cash (which determines internal fluxes). According to the flux based explanation, the two partners (buyer and seller) represent different patrimonial elements in their accounting. The relationship can be summarized as: Buyer money - Money + Money Seller

merchandise + Merchandise - Merchandise

In the buyers accounting system, the seller is considered a supplier (a resource that reflects obligations), and in the sellers accounting system the buyer is considered a client, representing a right of claim.

2. Patrimonial based explanation: is better suited for the object of accounting by reflecting the economic phenomena and processes of the patrimonial unit. This explanation is based on the fact that any modification of a patrimonial element automatically determines an opposite and equal reaction movement of one or more patrimonial elements. In the case of the aforementioned example, the patrimonial element money is replaced by the patrimonial element merchandise; an active is replaced by another active. If the transaction had been conducted without the immediate payment, then, an increase in the stock supply as well as an increase in obligations toward suppliers would have occurred; thus both the active (stocks) and passive (obligations toward suppliers) would have suffered modifications. This explanation emphasizes the patrimonial unit as the object of accounting and is better suited for the requirements of accounting. Starting from this second explanation for the principle of dual representation and taking into account that any economic operation determines two modifications of the balance sheet (with can be both active or one active and the other passive), accounting will use at least two accounts to reflect these modifications: a series of calculations for Active and another for Passive, while maintaining the equality of the balance sheet. The usage of accounts and dual recording has the following effects:

- Gives the possibility to simultaneously record increases and decreases of actives or passives; - Permits tracking of the existence and modification of patrimonial aspects form a dual perspective, referring to composition and origins; - Ensures two series of calculations: one of the Active and one for the Passive of the balance sheet; - Ensures permanent equality between the Active and Passive of the balance sheet; - Ensures that records in accounts are exact, by measuring the total of debiting and crediting; and - Ensures reciprocity between the accounts in which an operation is recorded. To conclude, dual recording refers to the fact that economic operations, that affect the structure and composition of the patrimony, must be reflected in accounts simultaneously and with the same amounts.

4.2.5.2. Accounts correspondence Choosing an account in which to reflect an economic operation is done by considering the nature of the economic operation (buying, selling, paying, being paid) and the nature of the modifications produced (increases or decreases). The nature of the economic operation, by its economic content, establishes an interdependence relationship between the accounts that will reflect the operation; the relationship is organic and logic in the same time. The connection between the accounts that are debited and those that are credited in order to record into accounting an economic operation, connection determined by the economic content of the operation, is called account correspondence. The accounts between which such a relationship is established are called corresponding accounts. They are established for each economic operation, on the bases of explanatory documents. Depending on the nature of the modifications they make to the balance sheet, corresponding accounts can be: 1. Active when they produce the following modification: A + X X = P 2. Passive when they produce the following modification: A = P + X X 3. Active and Passive when they produce the following modification: A + X = P + X or AX=PX For example, let us consider that a supplier is paid the amount of 3000 from a current bank account. Such an operation will produce the following modifications:

- reduces the amount existent in the current bank account, thus it will be recorded as Credit in the Current account account; - reduces obligations toward suppliers, thus is will be recorded as Debit in the Suppliers account. The correspondence was established between an Active account (Current account) and a Passive account (Suppliers), generating a modification such as A- X = P X; thus both available money and obligations to suppliers are reduced. After this operation is recorded, the two accounts present the following form:

Current account 3.000

Suppliers 3.000

4.2.6. Accounting analysis of economic operations An analysis is a scientific method of research of phenomena (seen as a unitary entity); analysis based on the systematic study of each component element, on the detailed scrutiny of a problem (DEX, p. 96). In order for economic operations to be accurately recorded in accounting, it is necessary to establish the accounts in which these operations are recorded as well as the effects of those operations on the accounts (if they debit or credit them). The accounts (in which transactions will be recorded) are established by an accounting analysis of the economic operation; the analysis aims to determine which accounts correspond to the content/nature of the economic operation that needs to be reflected. Thus, accounting analysis is a method of researching economic operations, that are presented in explanatory documents, which takes into consideration economic content to decide the types of modifications (increase, decrease) produced on patrimonial elements (actives or passives), corresponding accounts and where the operation will be recorded (debit or credit). The stages of accounting analysis: 1. Establish the economic content of the operation that will be recorded; the nature of the operation; 2. Determine the type of modification the operation will produce in the balance sheet; 3. Establish balance sheet items and accounts were the modifications produced by the economic operation will be recorded;

4) Apply the general functioning rules of accounts: to establish which account will be debited and which will be credited as a result of the economic operation; 5) Draft the accounting formula.

4.2.7. The accounting formula In the last stage of an economic operation accounting analysis, the symbol (=) is placed between corresponding accounts to represents their inter-dependence based on the principle of dual representation and balance sheet equality. The accounting formula is a graphic way to express economic operations with the help of accounts, taking into consideration the principles of accounting. In the accounting formula, the account that is debited always appears on the left of the equality because the debit also appears on the left side of the account; the account that is credited appears on the right side, because the credit also appears on the right side of the account. The elements that compose the accounting formula are: - The name or symbol of the corresponding debiting account; - The name or symbol of the corresponding crediting account; - The sign/symbol equal (=) between corresponding accounts; - The amount by which patrimonial elements modify. If the date and a description of the economic operation is added to the aforementioned elements, the accounting article is obtained. In some cases it is possible write the accounting formula without the = sign between accounts, if the nature of the account (Credit or Debit) is mentioned before every account. For example, we can write the accounting formula as:

x Amount Account 1 = x or Debit Account 1 Credit Account 2 Amount Amount Account 2 Amount

There are multiple types of accounting formula and they can be classified after the following criteria:

A. By the number of corresponding accounts that compose the formula: 1. The simple accounting formula: is formed form a single debiting account and a single crediting account and it is used for economic operations that modify only two items from the balance sheet: one from Active and one from Passive or two (items) from one side of the balance sheet. Examples: buying materials from suppliers x Amount Materials = Suppliers x amount

or taking money from the bank x Amount house = Current account amount x

or paying suppliers from with a bank credit x Amount Suppliers = x Short term loans amount

2. Composed accounting formula: consists of one account that is debited and more accounts that are credited, or from one account that is credited and more accounts that are debited. Every composed accounting formula can be decomposed in simple accounting formulas. Generally, the composed accounting formula can be depicted as:

x Amount 1 Account 1 = % Account 2 Account 3 Account 4 x Amount 1 Amount 2 Amount 3 Amount 4

where:

Amount 1 = Amount 2 + Amount 3 + Amount 4 % = following accounts

Or x Amount 1 % = Account 1 Amount 1

Amount 2 Account 2 Amount 3 Account 3 Amount 4 Account 4 x

These composed accounting formulas can be decomposed as: x Amount 2 Account 1 = Account 2 Amount 3 Account 1 = Account 3 Amount 4 Account 1 = Account 4 x Amount 2 Amount 3 Amount 4

Or x Amount 2 Account 2 = Account 1 Amount 3 Account 3 = Account 1 Amount 4 Account 4 = Account 1 x Amount 2 Amount 3 Amount 4

Example: A patrimonial unit buys, based on a bill, merchandise in worth of 10000 lei and consumable materials valuing 1000 lei.

After an accounting analysis, the composed accounting formula is determined: x 11.000 % = Suppliers 11.000

10.000 Merchandise 1.000 Consumable materials

The composed formula can be decomposed in simple formulas, as follows:

x 10.000 Merchandise = x 1.000 Consumable materials = x Suppliers 1.000 Suppliers 10.000

B. By the scope for which they are drafted:

1. Current accounting formulas (in black): constitute the basis of accounting recording, are most widely used and are based on explanatory documents. The amounts in an accounting formula can be written: - In black (they are added); - In red (or in a frame): amounts written as such are subtracted from the total of the debit or credit where they are written. This form is used to rectify prices or costs.

2. Cancellation accounting formulas: are used to correct, rectify of cancel a previous accounting formula. Cancellation can be done in two ways: - In black, meaning that the accounting formula that needs to be rectified is written again, with the same amount, but in opposite form. Example:

Formula that needs to be rectified x Amount Account 1 = Account 2 x Cancellation in black x Amount Account 2 = Account 1 x Amount Amount

After cancellation, the correct formula is written. The situations in the accounts will be as follows:

D Amount RD = Amount TSD = Amount

Account 1 Amount RC = Amount

D Amount RD = Amount TSD = Amount

Account 2 Amount RC = Amount TSC = Amount

TSC = Amount

- In red: the accounting formula that needs to be modified is written again, but the amount is written in red ink (black in the frame), thus canceling the formula that needs to be modified; after that, the correct formula is written again in dark (black) ink. Generally, cancellation in red is done in the following way: The formula that has to be canceled / rectified: x Amount Account 1 = Account 2 x Cancellation in red x Amount Account 1 = Account 2 x Amount Amount

The correct amount is then written. In account, it will be presented as:

Practical example for accounting cancellation:

Based on a bill, the patrimonial unit buys 500 lei worth of consumable materials from supplier X. In the accounting formula, the account Assets is used by mistake instead of the account Consumable materials. The accounting formula wrongfully written is:

x (1) 500 Assets = x After the mistake is discovered, the situation can be solved using one of the two cancellation methods. Cancellation in black: x (2) 500 Suppliers = x Correct formula: x (3) 500 Consumable materials = x Suppliers 500 Assets 500 Suppliers 500

The situation in accounts will look as follows: D (1) RD TSD 500 500 500 Assets (2) RC TSC C 500 500 500 RD TSD 500 500 D (2) Suppliers 500 (1) (3) 500 500 C

RC 1.000 TSC 1.000 SFC 500

D (3) RD TSD SFD

Consumable materials 500 500 500 500 RC TSC 0 0

We observe that in the Assets account we have recorded both credit and debit movements, although in practice there was no economic operation that modified these patrimonial elements. In the Suppliers account, the final balance of 500 provides an accurate representation of existent obligations toward suppliers, but the movements are not correctly represented; Tsc shows that obligations toward creditors increased with 1.000, although in reality it only increased with 500, while Tsd shows that obligations decreased with 500, although no payment was made. Thus, the accounts offer inaccurate information, but this disadvantage can be eliminated by cancellation in red. For the aforementioned example, the situation will be the following: The accounting formula that needs to be rectified is: x 1) 500 Assets = x Cancelation in red : x 2) 500 Assets = x The correct accounting formula: x 3) 500 Consumable materials = x Suppliers 500 Suppliers 500 Suppliers 500

The situation in the accounts will be presented as follows:

D (1) (2) RD TSD 500 500 0 0

Assets

Suppliers (1) (2) 500 500 500

RC TSC

0 0 RD 0 TSD 0

(3)

RC 500 TSC 500 SFC 500

D (3) RD TSD SFD 500 500 500 500

Consumable materials C

RC TSC

0 0

We observe that the final situation is the same as in the case of cancellation in black, but the movement reflected in the formula and accounts is now accurate and in accordance with reality.

4.2.8. Case study number 3: The accounting analysis Operation 1. Economic operation: the patrimonial unit buys an asset from the suppliers SC Supplier SA, with bill number 212234/12.12.2012, valuing 10.000 lei. Stage 1. The nature of the operation: buying assets from suppliers. Stage 2. Balance sheet modifications: the operation is a modifying one, that will increase the patrimony following the equation A + x = P + x. Stage 3. Balance sheet items and accounts in which the operation will be recorded. In Active, it modifies the balance sheet item Assets and the homonymous account. In Passive, it modifies the balance sheet item Suppliers and the homonymous account. Stage 4. Applying the general functioning rules of accounts. By buying an asset there is an increase of assets actives and according to the functioning rules of accounts, active increases are registered in the debits of accounts; considering that the Assets account is and Active account, it will be debited (increased) with 10.000. The economic transaction also determines an increase of obligations toward suppliers; the Suppliers account, being a Passive account will be credited (increased) with the same amount. Stage 5. The accounting formula. x 10.000 Assets = x Suppliers 10.000

Operation 2. Based on a check, 5.000 lei are withdrawn from the bank and deposited the cashier of the patrimonial unit. Stage 1. The nature of the operation: cash withdrawal from a bank. Stage 2. Balance sheet changes: the operation has the following equation: A x + x = P. Stage 3. Balance sheet items and accounts in which the operation will be recorded. In Active, it modifies two balance sheet items: House (and the homonymous account) and Current bank accounts (and the homonymous account). There are no modifications in Passive. Stage 4. Applying the general functioning rules of accounts. Active decreases are recorded in the credit of accounts, thus the account Current bank accounts will be credited (decreased) with 5.000. Active increases are recorded in the debit of accounts, thus the House account will be debited (increased) with 5.000. Stage 5. The accounting formula. x 5.000 House = Current bank accounts 5.000 x

4.2.9. Accounts classification In order to better understand their economic content, their function and the reciprocal relation between accounts and the balance sheet, accounts need to be systematized in classes or groups. Accounts can be grouped by multiple criteria: 1. Depending on their accounting function; this permits the correct application of their functioning rules. - Active accounts - Passive accounts By-functional accounts are included in one of the two groups, depending on the balance they have at a certain moment.

2. Depending on the sphere of coverage 1. Synthetic accounts: reflect patrimonial elements in numeric expression, by groups that are homogeneous in their economic content. All synthetic accounts form the synthetic accounting, which reflect the general situation of the patrimonial unit, by groups of patrimonial elements. For example, all the

obligations a patrimonial unit has toward suppliers are included in a single account named Suppliers. 2. Analytic accounts: are used to reflect component parts of patrimonial elements and are extensions of synthetic accounts. Analytic accounts are necessary as they provide more information about the structure of the patrimony, both active (types of raw material, categories of assets, categories of merchandises and so on) and passive (names of suppliers, creditors and so on). The number of analytic accounts that can be developed from a synthetic one depends on the nature of the patrimonial element reflected in the synthetic account. Some analytic accounts can express both a quantitative and nominal information (Raw materials, Materials, merchandises), other just the nominal information (Clients, Suppliers, Debtors). Accounting that uses analytic accounts is called analytic accounting and its usage by patrimonial entities has the following advantages: - Allows control of stock management; - Ensures the integrity of the patrimony; and - Provides reliable information regarding the rights and obligations of the patrimonial entity in relation to its partners: other patrimonial units, the state, banks, individuals and so on. The functioning rules of synthetic accounts also apply to analytic accounts, as they have the same economic content and accounting functions.

3. Depending on their content - Balance sheet accounts: active or passive accounts; - Results accounts: revenues or expenditures accounts; - Management accounts; and - Accounts that operate outside the balance sheet (order accounts): commitments accounts. Most accounts encountered in accounting are balance sheet accounts.

4.2.10. Normalization (uniformization) of accounting in Romania Normalization consists in defining norms and applying them. In Romania, this process is coordinated by the Ministry of Finance (MF), through the General Direction of Accounting and based on the national Accounting Law that requires all patrimonial units to organize and implement their accounting.

Based on article 4 from the Accounting Law, MF created the General accounting plan which contains all synthetic accounts utilized to maintain evidence of patrimonial elements. The plan is organized as a table, in which each account is written with its name, numeric symbol and accounting function, being thus systematized in classes and groups. Depending on how accounts are systematized, three plans can be identified: ordinal, decimal and mixed. The ordinal plan of accounts is based on the ordinal system for symbolizing accounts. In this system, a synthetic account can be formed in two ways: 1. From a variable number of digits: synthetic accounts are symbolized starting with digit 1 until the last account. The analytic accounts are symbolized as fractions, where the numerator consists of the synthetic account and the denominator consists of the analytic account (for example: 300/4, meaning synthetic account 300, analytic account 4). 2. From a constant number of digits: all synthetic account have the same number of digits, as the last synthetic account, the count being made in a reverse order; the highest orders being symbolized as 0. For example, if the last account is 89 the first will be 01 and if the last is 998, the first will be 001. Analytic accounts are represented with the symbol of the synthetic account and the number allocated to them in order of appearance. For example, the synthetic account number 212 has 5 analytic accounts, and the analytic account number 3 is symbolized as 212.3 or 212/3. The disadvantage of this system is that latter (new) accounts cannot be included in the group that indicates their economic content.

The decimal plan of accounts: divides all accounts in 10 classes according to their economic content. Each class is then divided in 10 groups that generalize a number of synthetic accounts. As such, classes are symbolized with 1 digit, groups with 2 digits and synthetic accounts with 3 digits (information about the economic content of accounts is derived from their symbols, by referencing to groups and classes).

The mixed plan of accounts: combines the first two plans. Accounts are divided in groups according to their economic content (groups are symbolized with digits from 0 to 9) and synthetic accounts are symbolized by three digits, following the rules of the ordinal system. For example: Group 0 Group 1 synthetic accounts synthetic accounts 001, 002,099 101, 102,199

Group 9

synthetic accounts

901, 902,999

The General Chart (Plan) of accounts used in Romania is based on the decimal system and utilizes 9 classes of accounts, symbolized as follows: Class 1: capital accounts Class 2: assets accounts Class 3: inventory and production in progress accounts Class 4: third parties accounts Class 5: treasury accounts Class 6: expenses accounts Class 7: revenues accounts Class 8: special accounts Class 9: internal management accounts In Romania, accounting is organized after the French dual circuit model. The distribution of account in the two circuits is done as follows: 1. The circuit of financial accounting contains three main categories of accounts: - The classes of balance sheet accounts that reflect the existence and movements or patrimonial elements and whose final amounts (balances) compose the balance sheet. Includes the classes 1 to 5. - The classes of processes and results accounts: class 6 and 7. - Special accounts from class 8.

2. The circuit of managerial accounting includes the accounts from class 9. These accounts are used to make calculations regarding: production costs, expenditures, price differences, current production and so on. Thus, the way in which accounts are symbolized can be schematically presented as: X Y Z Classes 1 to 9 indicates the category of elements represented in accounting Groups 0 to 8 indicate the economic and juridical nature of patrimonial elements group 9 indicates provisions for depreciation of assets in each class Synthetic accounts 0 to 8 indicate the patrimonial element reflected in the account. Synthetic account 9 indicates elements opposite to those that are ended with digits from 0 to 8.

The main objective of accounting uniformization is to create a language common to all those who activate in this domain, by establishing principles, rules and general norms that will ensure the same understanding, reflection and recording of economic processes. J.F. Casta defines accounting normalization as being the process that harmonizes synthesis documents, accounting methodology and terminology with two aims: - To make sure that the state will obtain homogenous data regarding patrimonial units; - To provide accounting information to external uses for comparisons. Normalization has the following objectives: - To determine the terminology and principles of accounting; - To define the information contained in synthesis financial reports; - To establish the way in which financial situations are presented; and - To elaborate a chart of accounts and functioning rules for these accounts. In Romania, uniformization is based on: the Accounting law and its regulation for implementation, the General plan of accounts, Methodological norms to utilize accounts and so on. In recent years, many actions have been initiated to harmonize accounting systems at the international level, due to the work of intergovernmental organizations (the UN, EU, and OECD), professional accounting organizations and even international union organizations. Normalization and harmonization are two essential and sometimes complementary processes. The first is concerned with the design of standards (norms) and the second is concerned with the compatibility between standards. At the international level, the EC tries to harmonize while what IASC does is to normalize. (Feleag, 1998, p. 186) The efforts made by the EU in order to harmonize accounting have resulted in directives and guidelines that need to be implemented by member states via national legislation. The most important steps made by the EU (EC) on this direction, refer to: - The 1st Directive (March, 1968): requires limited liability companies to publish their annual accounts; - The 4th Directive (July 25th, 1978) aims to coordinate national provisions regarding: the structure and content of annual accounts and management reports, evaluations modes, publication of evaluations (particularly for limited liabilities companies and shareholder companies); - The 7th Directive (June 13th, 1983): tries to harmonize the preparation of consolidated accounts; - The 8th Directive (April 10th, 1984): refers to the professional qualifications of accountants.

5. THE INVENTORY OF THE PATRIMONY 5.1. Definition, requirements and functions of the inventory. There are situations when, between the data recorded in accounting and the empirical reality of the patrimonial unit, quantitative and/or qualitative differences may occur. Such differences are due to subjective or objective factors such as: - Weight loss of stocks due to their physicochemical properties that determine evaporation, drying, dehydration and so on; - The management of material assets and money; - Storage conditions for stocks; - The state of measuring and control devices; - Transportation conditions; - Miscalculations in accounting documents; - Errors of recording/transcription accounts; and - Human error. Considering the aforementioned factors as well as legal requirements established by Romanian law, periodic reviews of the status of the patrimony are required in order to obtain a detailed, accurate and complete reflection of the patrimony. The inventory process tries to establish empirically, quantitative and qualitative the existence of patrimonial elements, at a certain moment in time; the process is based on the accounting document called inventory. Inventory is interrelated and conditioned by other procedures of the accounting method, such as documentation, account, trial balance and the balance sheet. All patrimonial units are required to carry inventories in the following cases: - At the beginning of their activity to establish and evaluate the patrimony (contribution in kind); - During their activity at least once a year or whenever there is any doubt about the integrity of the patrimony; and - In case of liquidation, merger or division. Inventory is the process that ensures the preparation of a real balance sheet, which will reflect a fair and true image of the situation of the patrimony. As a procedure of the accounting method, the inventory fulfils several important functions: 1. Control function: verifies the factual existence of patrimonial elements;

2. Ensures the integrity of the patrimony (by comparing accounting data with its own empirical findings; if the two data do not overlap, further actions are to be taken). 3. Determines the real value of the patrimony at the end of a management period. 4. Calculates and keeps record of stocks, consumption and sales. Smaller patrimonial units use the intermittent inventory method in order to keep track of their stocks; in the stocks accounts new recordings are made at the beginning and at the end of the month. From the difference between the two, consumption (reflected in the material expenditures account) and production (reflected in the revenues) are obtained.

5.2. Types of inventory Inventory can be classified after a series of criteria, such as: 1. According to their character (periodical or annual) - Periodical inventories: establish by each patrimonial unit according to its internal logic and the nature of the activity. - Annual: mandatory due to legal dispositions and more ample in scope; serve as basis for other accounting procedures.

2. According to their scope: - General: include all patrimonial elements (annual inventories are usually general). - Partial: include only certain patrimonial elements (periodical inventories are usually partial).

3. According to the way in which they are performed: - Complete inventory: done by checking all goods forming a patrimonial or managerial element. - By random sampling: only certain patrimonial elements are verified; is significant irregularities are found, a new complete inventory will take place.

4. Depending on the causes that determine them, inventories can be: - Ordinary (planned in advance and follows a predetermined plan). - Unannounced inventories that are caused by exceptional circumstances such as: delivery receipt of managerial duties, the request of control bodies, price changes, division, consolidation, dissolution, natural disasters, theft and burglary, whenever there are any doubts regarding the integrity of the patrimony.

5. According to their purposes, inventories can: - Establish the factual existence of property items (measuring, counting, weighing). - Determine their utility values of patrimonial items (via market prices).

5.3. Inventory organization According to the Romanian law, the administrator of the patrimony is responsible for the organization and implementation of the inventory procedure. Inventory is usually carried in three stages: preparation, actual realization and analysis of results.

5.3.1. Inventory preparations It is the stage that ensures that the conditions necessary to make the inventory are met. For this purpose, two types of measures will be taken: organizational and accounting ones. Organizational measures refer to: - Establishing what, when and how will be inventoried (patrimonial elements and their storage place). - Inventory provisions are issued by the competent persons, referring to: the members and chairman of the inventory commission (and sub commissions), the objects that will be inventoried, the nature of the patrimonial elements, starting and finishing date of the procedure and usage of the inventory results. At the beginning of each fiscal year, the administrator (body) issues a written decision that stipulates who will be included in the central commissions that is accountable for all inventory processes of the patrimonial unit. Accountants and managers that are directly involved in the original recording and registration of the patrimony cannot be appointed in the inventory commission. - Creating favorable conditions for the inventory commission: (1) create an up to date technical evidence of the patrimony; (2) ensure that all commission members will attend the inventory; (3) ensure that personnel is provided (to maneuver material goods) and that specialists (that can accurately identify patrimonial goods) are available, (4) ensure that measuring and control equipment and other required documents are available. - The inventory commissions will also implement organizational measures: (1) It will seal storage units or any other locations where patrimonial goods are kept whenever inventory work is interrupted (sealing closing or opening locations can be done only in the presence of the management).

(2) A written statement is taken from the manager, statement that includes information regarding: other material goods managed by him in other places than those that will be inventoried, economic goods belonging to third parties that are in his management, if he has documentary evidence regarding economic operations that are not reflected in accounting, his awareness of pluses or minuses regarding assets and liabilities, cash, material values not reflected in accounting. (3) The last entry or exist documents, that were drafted before the beginning of the inventory process are stamped. (4) All entries or exists from managements cease; if such operations do occur, documents must be marked entry/exist during inventory. (5) All storage locations (of any nature) are identified. (6) All measuring and control equipments are checked to observe if they are in working order. (7) In the case of retail units, the manager will draft a final report, that will include the value of the last entry and exist documents of merchandise and packaging as well as the cash deposited at the cashier. (8) Economic goods that will be inventoried are grouped under different types and price ranges, separating degraded or damaged goods from the rest.

Accounting measures include: - Up to date recording in accounting of all economic operations; - Verifying the correctness and accuracy of accounts by comparing accounting information with technical and operational records; and - preparing synthetic and analytical trial balances.

5.3.2. The actual realization of the inventory It is the stage that requires the most amount of workload and it depends on the size of the patrimonial unit. The most important activities include finding, identifying and evaluating patrimonial elements. The existence and size of patrimonial elements is established directly and concrete by measuring, weighting, counting and other technical calculations. Goods that are still in their original packaging are unpacked and randomly verified. The existence of some material goods cannot be established directly by the inventory procedure, thus they are inquired upon using accounting data. This procedure is done for the following patrimonial elements:

- Economic goods that belong to the patrimonial unit but have been rented or goods maintained by third parties; - Products shipped to third parties that have been refused by them but remained in their preservation; - Money kept in bank accounts; - Debts and obligations toward third parties; and - Money held at the cashier. The goods identified during the inventory are written in the inventory list, which is then dated, signed by each member of the commission and by the manager; on the last page of the inventory list the manager specifies that goods were inventoried in my presence, properly established, are still in my responsibility and there are no economic goods that are not inventoried or written on the list without existing in practice. Other notes can be made regarding the inventory procedure. Empty spaces on the inventory list need to be crossed and any corrections or modifications done will be confirmed by the signature of all the persons that signed the initial list. Patrimonial elements that have been inventoried are then evaluated based on their initial value (accounting value) and are verified on the basis of explanatory documents of entry or exit from the patrimony. In order to better reflect the value of the patrimony, during the inventory process patrimonial elements are evaluated as follows: - Stocks and assets are evaluated according to their accounting value (the prices recorded when they entered the patrimony); - Goods that lose value in time are evaluated according to their market value and their utility for the patrimonial unit; as such, there can be to possibilities: Vi >Vc or Vi < Vc, where Vi = inventory (utility) value and Vc = accounting (entry) value. If Vi >Vc, Vc is recorded in the inventory list and if Vi < Vc, Vi is recorded in the inventory list. - Certain liabilities and debts are evaluated at their nominal value; - Uncertain liabilities and debts are evaluated according to their nominal value and the odds of settling them (thus an utility value is obtained); - Cash, debts and credits in foreign currency are calculated according to the official exchange rate in force on the last day of the year; - Long term investments are evaluated according to their utility value; and

- Investments in securities are valued at the average of the last month of the managerial year or according to what it may be possible to negotiate.

5.3.3. Establishment and usage of results The results of the inventory procedure are recorded in an inventory report (minute) that includes: - The date (period) when the inventory procedure was conducted and the date of the previous inventory; - The content of the inventory; - The persons who participated in the inventory; - Pluses or minuses in the patrimony: identified by comparing current results with the results of the previous inventory; - Compensations between patrimonial elements that are suitable to this procedure; - Economic goods that have depreciated (loses or minuses in the inventory) and the people responsible for these negative developments; - Debts or claims that are in litigation or uncertain; - Written explanations from the persons found responsible for degradations, lacks (minuses) or pluses in the patrimony; - Accounting situations that present movements of patrimonial elements between the current and previous inventory; and - The signatures of the members of the inventory commission and the manager who acknowledges the results of the inventory procedure. After the inventory results are established, accounting records must be corrected; accounting entries are amended with the pluses or minuses found during the inventory process. Three possible scenarios can follow the inventory: 1. There is equality between the factual (inventoried) and accounting (documented) situation of the patrimony; 2. The factual (inventoried) situation provides evidence that there are more economic goods than presented (recorded) in accounting; and 3. The factual (inventoried) situation provides evidence that there are less economic goods than presented (recorded) in accounting; The excess patrimony is then recorded in accounting as any other entry of patrimonial goods, reducing operating costs or increasing revenues. Minuses found during the inventory can be of two types:

- Attributable, generated by negligence, theft or improper management; these values are to be recovered from the persons responsible for the diminishing of the patrimony; these patrimonial elements well be paid at the market price at the time when the damage was observed; - Not attributable, caused by handling, storage, natural conditions, technical characteristics or natural disasters. These minuses are recorded in accounting as follows: - Attributable deficiencies (minuses): as exits of economic goods by creating claim rights toward the persons found responsible; - Not attributable deficiencies (minuses): as exits of economic goods by increasing production (or other type of) spending. Each economic unit must complete a stock ledger at the end of the financial year, based on inventories and inventory reports; this document is mandatory and can serve as evidence in court.

5.4. Case study number 4 regarding the inventory procedure At the general inventory of the patrimony conducted at the end of 2011 the following differences were found and recorded in the inventory report: 1. Additional (pluses) raw material in worth of 500 lei. 2. Minuses of raw materials (that fall within the legal norms of perishable materials) that worth 1.500 lei. 3. Minuses of inventory items worth 2.000 lei that are imputable to the manager. 4. Minuses of merchandise worth 3.000 lei (perishable). 5. Plus of finished products in value of 3.500 lei. 6. Plus of fixed assets amounting to 7.000 lei. 7. Plus at the cashier amounting 500 lei. 8. Additional goods worth 1000 lei. 9. Older than three years uncollected receivables from customers amounting to 500 lei. 10. Overdue obligations valuing 1.000 lei.

Practical application: record in accounting the differences found in the inventory. The accounting formulas are: Operation 1. x

(1) 750

301

= x or x

601

750

(2) 750 750

% 301 601

401

x The second formula is more suitable as it does not distort the turnover of account 601 Expenses for raw materials.

Operation 2. x (1) 1.500 601 = x 301 1.500

Operation 3. x (1) 2.000 461/x= x 303 2.000

Operation 4. x (1) 3.000 607 = x 371 3.000

Operation 5. x (1) 3.500 345 = x 709 3.500

Operation 6. x (1) 7.000 214 = 131 7.000

Operation 7. x (1) 500 531 = x 751 500

Operation 8. x (1) 1.000 371 x Or x (2) 1.000 1.000 % 371 607 x = 401 = 607 1.000

Operation 9. x (1) 500 4118 = x 411 500

Operation 10. x (1) 1.000 401 = x 7514 1.000

6. THE TRIAL BALANCE 6.1. The definition, content and functions of the trial balance Daily, there are several economical and financial operations that ensure the fulfillment of economic activities of a patrimonial unit. These operations, as they are reflected in the active and passive of the balance sheet, cause permanent changes in the structure and size of patrimonial elements. The account is the specific procedure used in order to reflect the changes and status of patrimonial elements in a certain period of time. However, the information necessary for patrimonial decision making procedures require generalization and highlighting of patrimonial activities. Furthermore, the accuracy and reality of account recording must also be verified. These requirements, as well as the complexities of economic operations, imposed the need for another procedure specific to accounting, namely the accounting trial balance. The accounting trial balance is a specific procedure that ensures centralization and grouping of accounts data, verifies the correctness of account entries, the connection between analytic and synthetic accounts, the relationship between accounts and the balance sheet and provides synthetic information necessary for managerial decision making during the financial year. Formally, the trial balance is presented as a table containing all synthetic accounts used by the patrimonial unit, for each account presenting the initial balance, turnovers, the total amounts and the final balance for each month included in the trial balance. The annual drafting of the trial balance is legally required from each economic entity, according to article 122 of the Accounting Law number 89/1991. The functions of the trial balance result from its definition:

Control function (regarding the accuracy and correctness of entries made in accounts) Errors that can occur at any stage of this procedure must be sought and corrected. The trial balance takes the initial balance from the balance sheet and the credit/debit turnover, total debit and credit amounts and closing debit and credit balances from accounts. The correctness of entries in accounts and the balance sheet equality is reflected in the three series of equalities of the trial balance: 1. Total debit (receivable) opening balance (SiD) = Total credit opening balance (SiC) = final balance TOTAL ACTIVE = final balance TOTAL PASSIVE; 2. Total debit (receivable) turnover (RD) = Total credit (RC) turnover; 3. Total debit (receivable) closing balance (SfD) = Total credit closing balance (SfC).

These equalities are not verified only when there are errors in accounting, errors that must be found and corrected. Currently, by utilizing advance IT techniques and equipments, the possibility for the existence of errors has decreased drastically, this function gradually losing its importance.

First relationship function (between synthetic accounts and the balance sheet) The trial balance includes all the accounts utilized in accounting by the patrimonial unit. At the beginning of the financial year, balance sheet accounts representing the final balance at the end of the previous period (31 December) are taken as initial accounts, thus the trial balance acquires the first series of equalities (SiD = SiC). At the end of the period, the final balance from the synthetic accounts that form the forth series of equalities in the trial balance (SfD = SfC) are transferred to the balance sheet, processed and grouped according to the requirements of the balance sheet. Schematically, this function can be presented as follows:

Second relationship function (between synthetic and analytical accounts) Trial balances are prepared for analytic and synthetic accounts. As such, the trial balance can be used to verify the concordance between each synthetic account and the analytical accounts in which it is developed; this is mainly done by verifying the accuracy of the data recorded in the analytical accounts that develop synthetic accounts.

The function of grouping and centralizing data from accounts Covering all analytic and synthetic accounts used at a certain time, as well as all data recorded in these, the trial balance provides information about: the size and structure of the patrimony at that time, financial and economic results and the evolution of the patrimony in time. As a result, information regarding the quality and efficiency of managerial decisions and actions are obtained. Analysis function (regarding economic and financial activity) Providing a point of comparison for accounts data from the beginning and the end of a financial period, the trial balance can represent an effective tool to analyze in detail the effectiveness of financial and economic activity during the year, between the two accounting balance sheets. Using data from the trial balance, financial and economic indicators can be calculated to asses the status of the patrimony and to diagnose economic activities of the patrimonial unit.

6.2. Types of trial balances Depending on the assessment criteria used, trial balances can be categorized: 1. By the type of accounts presented: - Trial balances for synthetic accounts: include all synthetic accounts and are compiled based on the data taken from these accounts; - Trial balances for analytic accounts: prepared for each synthetic account that has an analytic development. These balances are compiled before the balance for synthetic accounts in order to check the correspondence between a synthetic account and his analytic ones. The number of trial balances of analytic accounts depends on the number of synthetic accounts that are developed (detailed) in analytic accounts.

2. By the number of equalities sets contained: - Trial valances with one equality set: can have two types of contents, either the final balances or total debit and credit amounts. Briefly, the equalities of these balance sheets can be expressed as: Total debit (receivable) closing balance = Total credit closing balance (SfD) Or: Total amounts receivable = Total amounts payable (SfC)

(TSD)

(TSC)

- Trial balances with two equality sets: contains four columns that group together two series of equalities; two columns correspond to final debtor and creditor balances and two columns correspond to final debit and credit amounts. Briefly, the equalities of these balance sheets can be expressed as:

Total debit amounts = Total credit amounts (TSD) and Total final debit balances = Total final credit balances s (SfD) (SfC) (TSC)

- Trial balance with three equality sets: is obtained by separating the opening balances and the turnover for that period and can be presented in two graphic forms: Table trial balance, comprising six columns grouped in three equality sets, as follows: Total opening debit balance = Total opening credit balance (SiD) (SiC)

Total debit turnover = Total credit turnover (RD) (SfD) (RC) (SfC)

Total closing debit balance = Total closing credit balance

This trial balance can also be used to check the equality between the total turnover from the trial balance and the total turnover from chronological records (taken from the Ledger). - chess (matrix) trial balance: allows to present and check the correspondence of accounts depending on their economic content. This trial balance is designed as a matrix, with rows and columns; equalities are obtained at the intersection of such rows and columns. The turnover of accounts (for a certain period) is also mentions in these accounts, thus obtaining information about the nature of the economic operations (for that given period).

- trial balance with four equality sets: is a combination of the trial balance for amounts and the trial balance for initial balances and turnovers. Depending on the time of completion, it can be presented as:

Option one: this form is used usually in January when the balances from the previous financial year are transferred. Briefly, the equalities can be expressed as: Total debit opening balance = Total credit opening (SiD) (RDc) (SiC) (RCc)

Total (cumulated) debit turnover = Total (cumulated) credit turnover

Total amounts receivable = Total amounts payable (TSD) (SfD) (TSC) (SfC)

Total closing debit balance = Total closing credit balance

The following relationship is established between the four sets of equalities: SiD + RDc = TSD SiC + RCc = TSC Option two: mostly used at the end of other months (February to December). This version contains the following equalities: Total previous amounts receivable = Total previous amounts payable (TSDp) (RDl) (TSCp) (RCl)

Total monthly receivable turnover = Total monthly payable turnover

Total debit amounts = Total credit amounts (TSD) (SfD) (TSC) (SfC)

Total final debit amounts = Total final credit amounts

The following relationship is established between the four sets of equalities:

TSDp + RDl = TSD TSCp + RCl = TSC

6.3. Drafting the trial balance The trial balance needs to be compiled every month (mandatory) and whenever it is necessary to verify the correctness of entries made in accounts. Its realization includes the following steps: - To record all the documents from that period by indicating the accounting formula; - To record all operations in systematically and in chronological order; - Account calculations: total turnover, total amounts and closing balances; - Transfer data from accounts to the trial balance, respecting all equality sets; - Add up the amounts in each column; - Check the equality of each series of columns; - Verify the relationship between series of columns; and - If errors are identified they must by corrected; as such, previous steps will be implementing one again in order to accommodate the newer accurate data.

6.4. Accounting errors that can be identified with the trial balance The trial balance can be used to detect accounting errors that affect the equalities and correlations that exist between the columns of the trial balance and its equalities. Depending of the possibilities to identify them with the help of the trial balance, it can be distinguished between two types of accounting errors:

1. Accounting errors that cause inequalities between the columns of the balance sheet. As these errors are identifiable they can be corrected in the reverse order of the operations that could have determined these errors, as follows; - errors in the preparations process of the trial balance that could have appeared in the following situations: when adding the columns of the balance sheet, if amounts from accounts were transferred in the trial balance with material errors, erroneous transcription in the columns of the trial balance of other amounts than those corresponding to accounts, reversal of figures during calculations and so on. These errors are identified by verifying (comparing) data from the trial balance with data from accounts by repeatedly adding the values in columns. - errors of account calculations that can occur when the turnover of accounts was determined or when total amounts or final balances were calculated by incorrect additions and subtractions or by reversing numbers.

- errors in recording accounting formulas in accounting. Such errors can include incorrect transcription of amounts, by recording in a different part of the account that supposes (in active instead or passive or vice versa) or by recording in another account. - errors in preparing accounting formulas from explanatory documents. Such errors can include wrongful registration of an account as debit or credit, omission to record an amount in an account (debit or credit), reversing digits, recording wrong amounts in accounts and so on. These types of errors (b, c and d) are identified by comparing accounting records with their explanatory documents and by redoing calculation in accounts. Although searching these types of errors is laborious and required a lot of effort, modern computer equipments and techniques limited these types of errors.

2. Background accounting errors These errors are identified by observing lack of correlation of inequalities between the trial balance of analytic accounts and the corresponding synthetic account and do not affect the equalities of the synthetic trial balance. The main errors are: - Not recording economic operations in accounting due to omissions. These errors are identified by logically analyzing the correlations of the trial balance and are noticed due to the existence of nonspecific balances (credit on active accounts or debit on passive accounts) or as a result of third party claims (amounts that need to be paid as there is a legitimate obligation of payment). - Compensation errors: usually occur when amounts are wrongfully transcription from one register to another. Thus, an extra amount is recorded in a part of one or more accounts, while in the same part of another account (accounts) the same amount is written as a minus. Although the overall situation is correct, maintaining balance sheet equality, the situation in accounts is not. Such errors are detected due to the unnatural balances they lead to or as a result of third party complaints. - Transcription errors: occur due to erroneous transfer of amounts from the chronological to the systematic evidence, in the debit and credit of other recounts than those from the accounting formula and which do not correspond to the economic content of that operation. These errors do not determine inequalities and lack of correlations but they distort the results of account movements and balances. Such errors are detected due to the unnatural balances they lead to or as a result of third party complaints.

- Recording errors in the chronological evidence as a result of: incorrect establishment of corresponding accounts, recording the same economic operations two or more times, reversal of corresponding accounts or material errors regarding amounts. These errors determine unspecific balances and turnovers and they can be corrected by redoing accounting operations (rewriting the accounting formula, corresponding amounts and so on).

7. PRACTICAL APPLICATIONS Practical application number 1 regarding the influence of economic operations on the balance sheet A patrimonial unit presents the following synthetic balance sheet at the end of the financial year (December 31st, 2011): Balance sheet December 31st, 2011 Active Item name Fixed assets Clients House Current accounts Total Active 45.000 Total Passive 45.000 bank Amount Item name Passive Amount 35.000 2.000 8.000

15.000 Goods fund 15.000 Suppliers 500 Short term bank 14.500 loans

In January 2012, the following economic operations take place: O1: 1.000 lei are transferred from the client Client to the current bank account O2: The supplier Supplier is paid 1.500 lei from a short term bank loan.

O3: A fixed asset in worth of 10.000 lei is bought from a supplier. O4: 5.000 lei are paid to suppliers, via a payment order from the current bank account. Requirements: prepare the balance sheet after each economic operation.

Practical application number 2 regarding the relationship between balance sheet account, account balance sheet and the structure of accounts On the 1st of January, 2012 a patrimonial unit has the following balance sheet. Initial balance sheet January 1st, 2012 Active Item name Fixed means (assets) Raw materials Current account House Total Active Amount Passive Item name Amount 15.000 15.000 5.000

15.000 Means fund 3.000 Suppliers 15.000 Bank credits 2.000 35.000 Total Passive

35.000

The following economic operations take place in January 2012: O1: The supplier Gama is paid 500 lei form the cashier, based on a receipt. O2: 1000 lei are taken from the current bank account. O3: Materials worth 1.000 lei are bought from supplier Beta based on a bill. O4: The supplier Beta is paid 2.000 lei from bank credits.

Requirements: Transfer the initial amounts from the balance sheet in accounts and then transfer in the balance sheet the final amounts from accounts (at the 31st of January, 2012).

Practical application number 3 regarding accounting analysis The following economic operations take place in January 2012: O1: Raw materials in worth of 5.000 lei are bought from the supplier SC Supplier SRL. O2: Goods amounting to 2.000 lei are sold based on an invoice. O3: 10.000 lei are transferred from clients to the bank account of the patrimonial unit. O4: The payroll records salaries for December (2011) amounting to 10.000 lei. O5: Salary deductions are calculated, paid and recorded, as follows: - Tax on wages: 1.350 lei; - Staff contributions to supplementary pension fund (5%): 500 lei; - Staff contributions to the unemployment fund (1%): 100 lei; - Rates, rents and other attachments: 1.200 lei; - Staff contributions to health insurance fund (7%): 700 lei. O6: Advanced salary payments (fortnight I) amounting to 3.000 lei are retained. O7: The obligations of the patrimonial unit in relations to salaries are calculated and recorded, as follows: - CAS (30%): 3.000 lei; - contributions to the unemployment fund (5%): 500 lei; - contributions to the health insurance fund(7%): 700 lei; O8: Maternity leaves are calculated and retained from the CAS amounting to 800 lei. O9: 3.150 lei are taken from the bank, based on a CEC, to pay the second fortnight. The opening balances of accounts at January 1st, 2012 are:

- 371 "Goods" - 5,000 lei; - 411 "Customer" - 10,000 lei; - 425 "Advances to employees" - 3,000 lei; - 401 "Suppliers" - 18,000 lei. Requirements: 1. Record the aforementioned economic operations in accounts, according to the accounting analysis; 2. Prepare the trial balance and the balance sheet at the end of the month.

Practical application number 4 regarding the preparation of the trial balance On the 1st of January 2012, the situation of the accounts of a patrimonial unit was the following: - 15.000 lei were available in a bank account; - 1.000 lei were available at the cashier; - the patrimonial unit had rights of claim toward clients amounting to 15.000 lei; - the patrimonial unit had unpaid debts to suppliers amounting to 31.000 lei. The following economic operations take place in January 2012: O1: 3.000 lei were taken from the bank account based on a check. O2: Based on the wage list, 3.500 lei were paid as the first fortnight. O3: Based on a settlement referral, the administrator takes 500 lei from the cashier to buy consumable materials. O4: The administrator returns 500 lei to the treasury, based on a receipt. O5: Based on a payment order, the checkbook is supplied with a limit amounting to 5.000 lei. O6: 10.000 lei are paid by customers in the current bank account.

O7: Fiscal stamps in value of 150 lei are bought. Requirements: 1. Based on the accounting analysis, record the aforementioned economic operations in accounts and establish their final balance. 2. Draft (prepare) the trial balance.

Practical application number 5: comprehensive approach of accounting At the end of 2011, the patrimonial unit presents the following synthetic balance sheet: Balance sheet Active 31 December 2011 Passive lei Fixed assets Finished products Current account House Clients TOTAL A: 18.000 14.000 22.000 1.000 25.000 80.000 TOTAL P: 80.000 Social capital Bank credits Suppliers 45.000 20.000 15.000

The following economic transactions take place in January 2012: O1: Fixed assets are bought with the delivery price of 19.000 lei. O2: The patrimonial unit is supplied with raw materials amounting to 8.000 lei, based on an invoice. O3: Based on a payment order, 10.000 lei are paid to suppliers of fixed means, from the current account.

O4: Finished products amounting to 13.000 lei are sold, based on an invoice. O5: 8.000 lei are paid by customers in the current account. O6: The fortnight for January is paid (8.000 lei are transferred to the employees bank cards). O7: 2.000 lei are transferred from the bank account to the cashier (based on a check). O8: Bank loans amounting to 5.000 lei are paid from the current account. O9: An employee is given 1.000 lei in advance. O10: The employee justifies the advance he received with a bill for purchasing consumable materials amounting to 1.000 lei. Requirements: 1. Record the aforementioned economic operations in the chronological and systematic evidence of the patrimonial unit. 2. Prepare the trial balance and the final balance sheet.

Bibliography: 1. Capron, M., Contabilitatea n perspectiv, Editura Humanitas, Bucureti, 1994. 2. Colasse, B., Contabilitatea general, Editura Moldova, Iai, 1995. 3. Demetrescu, C.G., Istoria contabilitii, Editura tiinific, Bucureti, 1972. 4. Dicionar explicativ al limbii romne, Editura Univers enciclopedic, Bucureti, 1998. 5. Donoaica, t., Contabilitatea general. Concepte i aplicaii din doctrina francez, Editura All, Bucureti, 1996. 6. Epuran, M., Bbi, V., Bazele contabilitii, Editura de Vest, Timioara, 1997. 7. Esnault, B., Hoarau, Ch., Comptabilit financire, Presses Universitaires de France, Paris, 1994. 8. Feleag, N., Controverse contabile, Editura Economic, Bucureti, 1996. 9. Feleag, N., i colab., Contabilitate aprofundat, Editura Economic, Bucureti, 1996. 10. Feleag, N., mblnzirea junglei contabilitii, Editura Economic, Bucureti, 1996. 11. Greceanu-Coco, V., Contabilitatea instituiilor publice comentat i actualizat, , Editura Societatea Adevrul SA, Bucureti, 2002 12. Gisberto Chiu, Alberta, i colectiv, Contabilitatea instituiilor publice dup noul sistem contabil, Editura IRECSON, 2005 13. Ionescu, L., Contabilitatea instituiilor din administraia public local, Editura Economic, 2002. 14. Ionacu, I., Epistemologia contabilitii, Editura Economic, Bucureti, 1997. 15. Macarie, F.C., 2004, Bazele contabilitii, Editura Polirom, Iai, 16. Macarie, F.C., Dragan, A.C., 2004, Bazele contabilitii lucrri practice, Ed. Aletheia, Bistria, 17. Negescu, I., Bazele contabilitii, Editura Didactic i Pedagogic, Bucureti, 1998. 18. Pntea, I.P. i colectiv, Contabilitatea general a economiei de pia, Editura Dacia, ClujNapoca, 1992. 19. Pntea, I.P. i colectiv, Contabilitatea financiar a agenilor economici din Romnia, Editura Intelcredo, Deva, 1995. 20. Prochon, C., Prsentation du plan comptable franais, Les Edition Foucher, Paris, 1983. 21. Roman, C., Gestiuna financiar a instituiilor publice, Editura Economic, 2000. 22. Roman, C., Gestiuna financiar a instituiilor publice, Editura Economic, 2006 23. Tiron, T., A., Gherasim, I., Contabilitatea instituiilor publice, Editura Dacia, ClujNapoca, 2002

Normative acts: 1. Legea contabilitii nr. 82/1991, republicat 2. OMF nr. 1917 /2005 pentru aprobarea Normelor metodologice privind organizarea i conducerea contabilitii instituiilor publice 3. OMF nr. 3512/2008 privind documentele financiar contabile 4. OMF nr. 2861/2009 pentru aprobarea Normelor privind organizarea i efectuarea inventarierii patrimoniului 5. IFAC, Standarde internaionale de contabilitate pentru sectorul public, Editura CECCAR, Bucureti, 2005