Generally Accepted Accounting Principles

Many high net worth individuals can get involved in some rather exotic investments ranging from venture capital to other hybrid securities. Options trading may be an integral part of their strategy (covered calls) and alternative investments such as hedge funds may populate the list of investments.

Notwithstanding the fact that these are private companies in many cases (investment holding companies) there is still a requirement for many tax authorities that these entities report under generally accepted accounting principles in the absence of any mandated tax treatment. So as such, it would be appropriate that the books and records reflect this prior to the accountant initiating any adjusting journal entries.

Admittedly it is a fine line between accounting and bookkeeping in this area, but it would seem to me that the more the books and records reflect what is actually going on prior to a host of adjusting journal entries to "fix things up" makes sense. So again I reiterate my earlier point that in the absence of a knowledgable bookkeeper, things can get a bit out of hand.

Legal documents would be the source of many of the original entries through, likely, the cash disbursemenst journal. The question is whether the bookkeeper is responsible in the first instance to, say, review investments for impairment or conduct whatever other tests are required to ensure that the books properly reflect what's going on.

In the end, considerable care is needed. And the task is greater than simply recording a few cash transactions and the receipt of dividends.

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