We welcome your comments and suggestions. Every product can be improved, including this one.

The idea behind the Terra Libra Trust is to create the framework for a new kind of company that operates according to the Code and Rules of Terra Libra as defined on pages 8 and 9 of the Terra Libra Trust Document. Terra Libra Holdings is the first such company, further described in Report #TL02A.

A Terra Libra Trust is not subject to the laws of any country. However, there are people in those countries with clubs and guns who believe that their laws apply to everyone subject to their jurisdiction. Anyone conducting business in such a country should take this into consideration.

The Terra Libra Trust has also been designed so it can function as a public company listed on a share exchange such as the Free Market Share Exchange in Orange County, California. We expect that in time there will be many Free Market Share Exchanges around the world to compete with current exchanges such as the New York Stock Exchange.

The Terra Libra Trust Document is designed to combine the equivalents of the "articles of incorporation" and the "by-laws" of other kinds of companies.

The unit of account of a Terra Libra Trust is the gram of gold.

The rest of this document attempts to explain how the accounting of a Terra Libra Trust could be handled.

Theory Behind the Selection of an Accounting Unit
Money is both a means for storing value and a means for measuring value. One goal we might have in choosing our monetary unit is stability of the unit in storing value and in measurement. Now, any measurement unit we might choose is likely to fluctuate in value as time moves along -- at least compared to any other measurement unit. Gold, dollar bills, seashells, cows, and corn are examples of possible value measurement units that change constantly in value relative to each other as market conditions change. Why might we choose one of these value measurement units over any of the others?

There is nothing we can do about shifting values of these units compared to each other. But we can make sure that when we talk about a "unit" - gold, dollar bill, cow, etc. -- it is the same thing as when we talk about it a year from now, or a year ago. Also we can find a unit whose definition is not subject to any ambiguity -- how would we know what size of cow the word "cow" means?

Most of the time people use "dollar bills" or "dollars" -- or some other country's currency -- as value and measurement units. But is a "dollar" today the same as a "dollar" from one year ago? The answer is almost always "no." Inflation, primarily caused by government, makes "dollar" (or almost any other currency) a poor choice for a standard of value and measurement. The superior alternative: GOLD!

A gram of gold is the same today as a gram of gold a year ago or a gram of gold a year from now. The price of gold in terms of dollars or cows does change, but as indicated above this is true of all units. But when we say "a gram of gold" the meaning is unchanged over time. So when we engage in accounting-type record keeping, we know that "a gram of gold" always means the same thing.

Now, most people still need to transact most of their monetary affairs in "dollar bills" (or other currency) as a matter of functional necessity. In Terra Libra we aspire to gradually eliminate this need. When you sell your company's products, you will probably be paid in dollar bills. To conduct your accounting affairs using the much superior unit of "grams of gold," you will need to make "conversions" between "dollar bills" and "grams of gold."

How to Convert between Gold and Dollar Bills and When to Change the Conversion Rate
We suggest choosing an approximate exchange rate based on the market price of gold in terms of dollar bills. For example, the market price of gold has recently been about 11 dollar bills per gram of gold. We suggest changing the conversion rate whenever there is a significant change in the price of dollar bills relative to gold -- a 15% price change might be a good guideline.

Usually you might think of this as "a change in the price of gold" since psychologically most people think in terms of dollar bills (or other currency). If you begin to think of gold as your standard, then it makes much more sense to speak of a "change in the price of dollar bills relative to gold."

The balance sheet shows the value of all the accounts on a specific date. Usually this is the end of a month, quarter, or year. The income statement shows revenues, expenses, and net profit or loss during a time period. Usually this is a month, quarter, or year. Please note this important distinction: the balance sheet shows values at a given point in time. The income statement shows transactions that occur over a period of time. If you are new to accounting, you will save yourself lots of headaches by always keeping this distinction in mind.

The balance sheet and income statement can both be listed in grams of gold as well as dollar bills. Choose an exchange rate based on market value. In this example, the rate used is 11 dollar bills per gram of gold. Use one exchange rate during the calendar period (month, quarter, year). When you calculate your next balance sheet, do it in gold and dollar terms. (Multiply grams of gold by eleven to convert from gold to dollar bills if the exchange rate is 11. To convert from dollar bills to grams of gold, divide by eleven if 11 is the exchange rate.) When that next balance sheet is completed, you should immediately decide what the exchange rate will be for the following income statement calendar accounting period (month, quarter, year). For example, if the price of gold went up relative to dollar bills each gram of gold might equal 12 dollar bills. Then just repeat the above process. (One important calculational detail here to note: if you did an exchange rate change at the time of your second balance sheet, you should calculate income statement transactions that occur between the second and third balance sheets in grams of gold converted, of course, using the new exchange rate. Then when you do your third balance sheet simply calculate the dollar bill values using the new exchange rate (in this example, 12).)

Each balance sheet and income statement can be in both gold and dollar bills. AIl accounts on both statements should be converted to show both gold and dollar bills.

How to Follow this Example
Gold is often abbreviated "Au" (the chemical symbol). "Five grams of gold" could be abbreviated as "5g Au."

For this example we will assume you will prefer the convenience of conducting your money transactions in dollar bills. When you prepare your financial statements you should use the procedures outlined above. For illustrative purposes values in dollar bills and grams of gold are listed [the latter in brackets]. On the income statement and balance sheets this is reversed: dollar bills are in brackets.

Another name for a dollar bill is a Federal Reserve Note (FRN). The price of FRN's per ounce of gold [g Au] is listed on the financial statements.

What follows are examples of most types of routine accounting you might use in a small business (or a larger one). No formal accounting background is assumed, although if you have "kept the books" for a small company before, it will help in your understanding of the material. The formal accounting terms "debit" and "credit" have been avoided for easier understanding by those with no accounting background; "add" and "subtract" are substituted in their place. Those with some accounting background will probably find the material concerning accounting in grams of gold intriguing -- since this is not taught in conventional schools.

Each transaction is referenced by a series of cross references ("REF" in short). In double entry accounting (which this is), transactions always occur in pairs. Here this is referenced by REF-A and REF-B in each case (for example, REF 5A and REF 5B refer to each of two entries for transaction 5). The selection of which entry is entry A and which is entry B is completely arbitrary and of no particular significance.

If either of the two entries for a transaction involve more than one step, this is referenced by REF-A1 and REF-A2 (e.g., 5A1 & 5A2).

If multiple transaction entries for any one account occur during November, the single entry for that account is a total net figure with multiple REFS referring to it. For example, the cash account has many entries during November. Only one total cash account transaction entry figure is given. This is the sum total of all additions and subtractions to cash during November. We felt it would have been too jumbled a presentation to have listed each cash transaction entry separately.

In accounting, a balance sheet lists the value of each item at any given point in time. So, we start with a value for everything in the company at October 31.

During November, transactions occur. Each transaction consists of two entries, either on the income statement or on an internal worksheet we might call the company's "balance sheet changes worksheet." The balance sheet changes worksheet is for your calculational purposes only, as well as to make this example easier to follow.

Technically all transactions during an accounting period should be done on internal worksheets only. Then the net totals for each account are, as applicable: (1) transferred to the appropriate income statement account or (2) added to or subtracted from the appropriate previous balance sheet account to form a new cumulative total for each account on the next balance sheet. In this example the transaction entries involving the income statement have been entered directly onto the income statement to make the example easier to follow (you can observe right where that entry goes, clearly, with no other steps). With the balance sheet we could have listed the entries in the same way (directly to the next balance sheet). We elected instead to use an internal worksheet we are calling the "balance sheet changes worksheet." By entering the entries on this worksheet it is much easier to see how each entry is treated. Entering final cumulative figures on the next balance sheet might have left some readers wondering what transaction(s) caused the figures on the next balance sheet -- since all succeeding balance sheets list cumulative figures, not the actual net transaction entry figures.

You do not show the balance sheet changes worksheet outside of your "internal accounting department." To the world, you show the income statement. You also show a new balance sheet after transactions have occurred during an accounting period (month, quarter, year). Show the world changes to your balance sheet by adding or subtracting the amounts in your "balance sheet changes worksheet" to your starting balance sheet (e.g., balance sheet at October 31) and compute cumulative totals for each account on your next balance sheet (e.g., balance sheet at November 30).

In line with this proper accounting procedure, we show in this example a:

1. Balance sheet for October 31;
2. Income statement for November;
3. "Balance sheet changes worksheet" for November;
4. Balance sheet for November 30.

A Little Bit of Accounting Theory
Think of a balance sheet as a scale. On one side of the scale are assets. On the other side are liabilities and equity.

Assets are things like equipment, inventory, supplies and cash. In accounting, "cash" includes physical cash, checking accounts, and other completely liquid assets -- what you can spend immediately.

Conventional accounting might not normally include gold coins as cash, but there is no theoretical reason for this to be so. In fact, with a gold-based system gold is the most liquid asset and therefore best fits the theoretical definition of cash. Other examples of assets are notes receivable, accounts receivable (what others owe your company, to be paid in some future accounting period, as a result of sales of your products), and value of a reference library your company owns.

Liabilities are things your company owes to others. Examples are account payable (what your company owes to others, to be paid in some future accounting period, as a result of purchases your company makes), salaries & wages payable, notes payable (for money others loan your company short-term), and bonds (for money others loan your company long-term).

Equity covers ownership value in your company. For an ownership interest in your company you might issue capital units or shares of stock. For what of value might you grant ownership interest in your company? You might give ownership to yourself or others as a result of "founding" your company and the expertise, time, energy and "sweat" needed to start the company. You might grant subsequent ownership rights in your company for expertise, time, energy, and "sweat" given to your company after company formation as long as you could do so in a way that would not cause conflict with existing ownership interests. You might grant ownership interests for contributions to your company of cash, equipment, or other valuables. Publicly-traded companies such as those listed on stock exchanges often issue new ownership interest rights (called stock) in return for contributions of capital. Whether the exchange of cash in return for ownership interests is in a small privately-held company or a large publicly-traded company, proper attention must be paid to the rights of existing owners and new owners. New owners are contributing something of value in return for some degree of ownership interest -- but is the amount of ownership interest granted to the new owners proportional to the value of the new contributions they are making to the company? Reducing the ownership percentages of existing owners is called dilution and occurs when new ownership percentages are granted. Parties to these transactions often disagree on what is fair; dilution is the subject of much litigation.

ASSETS = LIABILITIES + EQUITY. This is always true. This is a fundamental axiom of double-entry accounting.

Accounting transactions always occur in pairs because "what you do to one side of the scale, you have to perfectly balance on the other side of the scale." Think of the "equal sign" in the above equation as the fulcrum of an equal-arm balance scale. The scale must always balance.

A point not raised in some beginning accounting texts might be: Where does the income statement fit into this equation? Conceptually the income statement belongs under EQUITY because the income statement results for each accounting period (whether profit or loss) are added to or subtracted from retained earnings, which is an EQUITY account.

The scale must always be in balance, but that does not mean the two entries for each transaction necessarily have to be on opposite sides of the scale. We could add to LIABILITIES and subtract from EQUITY and the scale would still balance.

In most beginning accounting courses the terms "debit" and "credit' are introduced almost immediately. We have decided that you may find the material easier to follow using "add" and "subtract." Please consult with us further if you would like more information about "debit" and credit."

Book Sales and Book Purchases for Inventory
Sold 30 copies of How to Find Your Own Personal Freedom Now, authored by one of your company's "in-house" writers. At $22 each x 30 copies = $660 [2 g each x 30 copies = 60 g]. This total figure of $660 [60 g] should be added under the account "Book Sales." SEE REF 1A. Also, add this amount to your cash account. SEE REF 1B.

Let us suppose you had an initial print run from a small-press book publisher of 100 copies, and this publisher charges your company $5.50 [0.5 g] per copy. 100 copies x $5.50 each = $550 [100 copies x 0.5 g each = 50 g] book cost in terms of what printer charged you.

Next: -- Add to your inventory account 100 copies of the book and hold in inventory at cost; that is $550 [50 g]. SEE REF 2A. If you pay the printer on the spot, then subtract a corresponding $550 [50 g] from your cash account. If the printer gives you billing privileges, then instead add the $550 [50 g] amount to your accounts payable account. Assume for this example you paid by cash (or by check -- that's equivalent for accounting purposes), so subtract $550 from your cash account. SEE REF 2B.

-- Now, to account for the 30 copies sold during the month:

1. Compute your "cost of goods sold." This means your company's cost to provide that product itself (direct cost), excluding other administrative costs, etc.
   e.g. 30 copies sold x $5.50 cost per book = $165. [30 copies sold x 0.5 g cost per book= 15 g]
2. Subtract the books you sold this month from inventory.
   e.g. subtract $165 from inventory [subtract 15 g from inventory] -- SEE REF 3A.
3. Add this cost to your monthly expense report.
   e.g. add $165 to "cost of goods sold" expense account [add 15 g to "cost of goods sold" expense account] SEE REF 3B.

Manuscript and Report Sales and Expenses
For this company, the methods for accounting for manuscript and report sales are similar. Let's say a manuscript is something you can have copied at a photocopying store and bound with a plastic binder. A report is much shorter and could be stapled. In both cases you are assembling the manuscripts/reports "in-house" and are not just saying to someone else (like a printer): "Do it!" But to keep the accounting easy, take your total internal cost of producing the goods and treating that cost as a whole as your "cost of goods sold."

In this example, the company sold $3300 [300 g] worth of manuscripts and $2200 [200 g] worth of reports. Assume the sales were for cash (or check) -- i.e., no accounts receivable. Add $3300 [300 g] to manuscript sales account (SEE REF 4A1) and $2200 [200 g] to report sales account. SEE REF 4A2. Then, add the total of $5500 [500 g] to your cash account. SEE REF 4B.

We might not need an inventory for these since we might produce them on an "as needed" basis only. In fact, let us assume this was the case in this example. So, simply add the production cost of $330 [30 g] for manuscripts (SEE REF 5A1) + $220 [20 g] for reports (SEE REF 5A2) = $550 [50 g] total cost to "costs of goods sold" expense. (If a larger production run was made, we would simply have added the excess to inventory and treated it like the book inventory example). Furthermore, let's assume we paid cash during the month (or other accounting period) for all production costs for the manuscripts and reports. Account for this by subtracting $550 [50 g] from the cash account. SEE REF 5B.

Widget Sales and Inventory Changes (with Cash and Credit Sales & Expenses)
Let us say the company makes a physical item: widgets. To keep the example simple, let us assume all widgets are assembled and completed in the same month they're started. (It is possible to account for partially completed work in a month, but the accounting methods are beyond the scope of this manual.)

Now, let's say we made 1,000 widgets this month at a cost of $11 each [1 g each]. The total amount is $11,000 [1,000 g]. Let's say half of this amount we have to pay this month. Let's say the other half is due in 30 days. Account for this as follows:

1. Add the amount to inventory -- $11,000 [1,000 g]. SEE REF 6A.
2. Subtract half the amount from the cash account $5,500 [500 g]. SEE REF 6B1.
3. Add the other half to accounts payable -- $5,500 [500 g]. SEE REF 6B2.

Now, how do we treat this on the sales side? Let's assume we sold fewer widgets than we produced. The excess we have already accounted for by placing them in inventory. Let's say we sold 400 widgets during the month, at a sales price of $22 cash [2 g each]. So, sales revenue from widget sales was 400 x $22 = $8,800 [400 x 2 g = 800 g]. Let us further assume we sold half these widgets for cash and the other half we allow 30 day billing privileges to our customers. Account for these transactions as follows:

1. We sold 400 widgets. So add to widget sales on the income statement 400 widgets x $22 each = $8,800 [400 widgets x 2g each = 800 g]. SEE REF 7A.
2. Half the sales were for cash. So add $4,400 [400 g] to the cash account. SEE REF 7B1.
3. The other half of the sales were for credit 30 days to our customers. So add $4,400 [400 g] to the accounts receivable account. SEE REF 7B2.
4. We needed to take the widgets out of inventory in order to sell them. We took out 400 widgets. Now, compute this amount at cost (not at the sales price!): 400 widgets x $11 each of cost = $4,400 [400 x 1 g each = 400 g].
5. Subtract the $4,400 worth [400 g worth] from inventory. SEE REF 8A.
6. Add the $4,400 [400 g] to "cost of goods sold" expense account. SEE REF 8B.

Other Expenses
For cash expenses generally, treat each transaction in the cash sales examples above -- except here it is less complex. Here we only need to worry about the expense side and not the corresponding sales. The general format:

1. For cash (or check) expenses paid in full that same month (or quarter or year), simply add that quantity to the appropriate expense account and subtract the quantity from the cash account.
2. For credit expenses (expenses you are allowed to pay in some future month (or quarter or year)):
   1. At the time the expense is incurred, add the quantity to the appropriate expense account and add the quantity to the accounts payable account.
   2. At the future time when the creditor is paid, subtract the quantity from the cash account and subtract the quantity from the accounts payable account.

In this example, assume phone cost is $110 [10 g] and paid in cash. SEE REFS 9A AND 9B. Assume transportation & travel cost is $330 [30 g] and paid in cash. SEE REFS 10A AND 10B. Assume office supplies & non-direct-mail postage is $220 [20 g] and paid in cash. SEE REFS 11A AND 11B.

Assume advertising expense is divided between cash and credit expenditures. Let's say we had $1,100 [100 g] of direct mail expense such as postage & envelopes and paid cash. Account for this by adding $1,100 [100 g] to advertising expense (SEE REF 12A) and subtracting $1,100 [100 g] from cash. SEE REF 12B. Let's say we placed $2,200 [200 g] of magazine ads and $330 [30 g] of classified ads but we don't have to pay the magazines and newspapers until later. Account for this as follows:

1. Right now, add $2,200 + $330 [200 g + 30 g] to advertising expense (SEE REFS 13A1 AND 13A2) and add those same amounts to the accounts payable account. SEE REF 13B.
2. In the later accounting period when those expenses are paid, subtract those same amounts from the accounts payable account and also subtract those same amounts from the cash account.

Sales Commissions
In this example there are no sales commissions. If your business has distributor or sales commissions, account for them in the following manner:

1. In general, count the total sales price as "gross revenue." Sales commissions are subtracted from gross revenue on the income statement. The resulting figure is called "net revenue." An argument could be made that if you in part have a distributor system that calls for distributor checks to be made payable by your customers directly to distributors other than yourself, you should not include those checks in your company's sales figures at all. Which way you handle this is largely a matter of administrative convenience. Please consult with us if we can assist you in making a decision on this matter.
2. If any commissions are paid by cash or check in the month (or quarter or year) earned ("cash commissions") and you included the total sales price -- with commission -- in your gross sales, then:
   1. Subtract the quantity from your cash account and
   2. Subtract the quantity from gross revenues.
3. If any commissions are paid in a later accounting period and you included the total sales price -- with commission -- in your gross sales, then:
   1. At the time of the sale, add that commission quantity to the commission payable account.
   2. In the future accounting period when the commission is paid, subtract the same quantity from the commission payable account and subtract the same quantity from the cash account.

Prepaid Expenses
All prepaid expenses are treated in the same general manner:

1. At the time an expense is prepaid, subtract the quantity from cash and add the quantity to the appropriate prepaid expenses account.
2. At the time it becomes appropriate to "use up" a prepaid expense, simply subtract that quantity from the prepaid expense account and add the same quantity to the appropriate expense account.

In this example, our initial balance sheet shows a prepaid office expense for 6 months of $1,320 [120 g Au] that we intend to use up at the rate of $220 [20g Au] per month. In our first accounting period (one month), we don't touch the cash account for office rent payment. Instead, we subtract $220 [20 g Au] from the prepaid rent account (SEE REF 14A) and add the same amount to the rent expense account (SEE REF 14B) for this month.

Depreciation
In this example there is no depreciation. Should your company wish to use depreciation, you may find these guidelines helpful.

The theory behind depreciation is to allow for the regular and predictable deduction from income of a quantity which closely approximates the gradually declining value of an asset. This is done (1) to make sure the company balance sheet as accurately as possible reflects the current value of long-term assets such as machinery and equipment and (2) to cushion the blow to the income statement when long-term assets are replaced.

For example, let's say you buy a car or a computer for your business. You expect the car or computer to last for several years. On your company balance sheet it would be most accurate to have current value (you couldn't resell it for the brand-new price one year after purchase). On the other hand, just because the car or computer is used doesn't mean it's worth nothing. Furthermore, it's not really accurate on your income statement to show the entire purchase price of big-ticket items in the year of purchase.

There are many different ways of implementing depreciation. The simplest (and the method we recommend unless there is some good reason to do otherwise) way to depreciate is "straight-line depreciation." Here is how to do this:

1. Choose each "long-term asset" (assets held over one year) you wish to depreciate.
2. Figure out the value of each asset, such as a car or computer. Normally this would be the purchase price.
3. Estimate how many years the asset will last (i.e., how long will you be able to use the asset for its intended use?).
4. Divide the asset value by the number of years of useful life. This yields the annual depreciation amount.
5. Each year this amount is subtracted from income.
6. The specific accounting entries each year (for each asset being depreciated, then totaled for the income statement and balance sheet):
   1. The asset starts out with its initial value on the balance sheet. Say you bought a computer for $2,000. Add this amount to the "computer long-term asset account" and subtract the same amount from your cash account.
   2. You estimate a useful life of four years for this computer. The computer might work for longer, but technological obsolescence means you believe you must replace it after four years -- a good illustration of the depreciation theory of "useful life." Useful life does not mean whether the machine works or not. Useful life means: when will you need to replace the long-term asset? So, $2,000 divided by 4 years means $500 depreciation amount each year.
   3. At the end of each of the four years, subtract $500 from net income. Each time, also subtract $500 from the computer long-term asset account. To be technical, the precise way this is done is by using accumulated depreciation. Add the $500 each time to the accumulated depreciation account. Then, on the balance sheet where asset values are listed, write "long-term asset(s) -- less accumulated depreciation." The annually increasing accumulated depreciation amount is just subtracted from the asset's gross/initial value each year to yield a net long-term asset value.

There are methods to account for salvage value, e.g., when you replace the computer, you may be able to resell it for some nominal amount. There are several methods of "accelerated depreciation" such as sum-of-the-years'-digits and double-declining balance. These methods are beyond the scope this text. Please consult with us if you need further help.

Bonds and Bond Interest
A bond is a long-term loan to your company by a "bondholder." The bondholder loans your company money in return for regular periodic interest payments. The bondholder does not share in profits or losses of your company. All he or she wants is reliable payments of interest, usually done semiannually. A bondholder does care about the financial condition of your company to make sure the principal (loan amount) of the bond is not at undue risk of loss.

When the bondholder agrees to lend your company money, your company issues a bond with a "maturity date" some number of years in the future. On that date the bond principal (loan amount) is due to be paid back to the bondholder. The rate of interest to be paid is called the "coupon rate," and the payments are normally made by your company to the bondholder every six months based on this coupon rate.

In this example, we have a bondholder willing to loan the company $5,500 [500 g Au]. The 10% is the coupon rate, meaning $550 [50 g] of interest is due every year. This is actually paid every six months to the bond holder at $275 [25 g] per payment. The amount stays fixed in whatever units the bond is denominated in. [If the company issues a bond in gold (Au), the payments will be constant in gold. The interest amounts in dollar bills likely will change every six months as the price of dollar bills fluctuates relative to gold.] To account for bond issuance and interest payments:

1. Upon issuance of a bond, add the loan amount to the cash account and add the same amount to the "bonds account."
2. When an interest payment is made, subtract the amount from the cash account and add the same amount to the interest payment expense account.

Notes and Notes Payments
Notes are loans like bonds, except the term (time period) of the loan is much shorter. Notes are frequently less than one year, but sometimes could be for longer (seldom longer than three years). Notes do not necessarily have semiannual payments like bonds. Notes often include both a principal and interest component in their payment schedules.

In this example, the company has issued two notes, both with principal amounts of $1,100 [100 g Au]. Monthly interest is due at 1% per month simple interest. So at the end of each month, the company must pay each noteholder $11 [1 g Au]. Here is how to account for this:

1. When each note is issued, add the amount to the cash account and add the same amount to the notes payable account.
2. When an interest payment is made, subtract the payment amount from cash and add the same account to the interest expense account. In this example, we must pay each of two noteholders $11 [1 g Au] per month = $22 [2 g] monthly. So for this month subtract $22 [2 g] from cash (SEE REF 15A) and add the same amount to the interest expense account. SEE REF 15B.
3. When a note is "paid off" (i.e., the principal amount is paid back to the noteholder), subtract the amount from cash and subtract the same amount from the notes payable account. When the "maturity date" of a bond is reached the procedure is similar. Subtract the bond principal amount from cash and subtract the same amount from bonds held account. The paying off of a bond is called "retiring" the bond.

Equity Accounts
Even if your company is a one-person company, you will probably want to issue capital units. The value you set on these initially issued capital units is rather arbitrary and can be based on multiple factors.

What can be exchanged for capital units are such things as cash/gold, equipment, owner's expertise, and other things of value. When you decide the value of each of these contributions, simply add the values to the capital unit holders equity account. The same total amounts then need to be added to the appropriate asset accounts such as the cash account or the equipment account.

Each accounting period (month, quarter, year) you will have a bottom-line amount of net income (gain or loss) from the income statement. This amount should be added to (for a gain) or subtracted from (for a loss) the retained earnings account. The retained earnings account starts at zero for a new Company.

In this example, there is a net income of $8,124 [738 g Au]. SEE REF 16A. After we have completed the income statement for this month, we can make the appropriate balance sheet change of "zeroing out this month's income statement" by adding $8,124 [738 g Au] to the retained earnings account. SEE REF 16B. If there had been a loss, that loss amount would have been subtracted from the retained earnings account.

Salaries and Wages
Salaries and wages generally are handled much as other expenses are handled. If you pay them in cash or otherwise in the current accounting period (month, quarter, year), simply subtract the amount from cash and add the same amount to the salaries & wages expense account.

In this example, salaries & wages total $3,300 [300 g Au] and are paid in cash in this accounting period. So:

1. Add $3,300 [300 g Au] to salaries & wages expenses. SEE REF 17A.
2. Subtract the same amount from the cash account. SEE REF 17B.

If you pay wages in a different accounting period than when they are earned, treat it much as you would treat an account payable:

1. In the current accounting period, add the amount to salaries & wages expense and add the same amount to the wages payable account.
2. When the salaries & wages are paid later, subtract the amount from cash and subtract the same amount from the wages payable account.

Startup Asset
YOU SHOULD BE CAUTIONED THAT USING A STARTUP ASSET ACCOUNT SUCH AS ILLUSTRATED HERE IS NOT COMMONLY DONE IN ACCOUNTING IN THIS MANNER. ITS USE IS PURELY OPTIONAL.

On the initial balance sheet in this example is a "startup asset." We have set this equal to the contribution made by "founders' sweat equity." The latter refers to the efforts of a company's founders to do the initial organization of the company and sets a value on that. The amount you select is rather arbitrary and can be based on multiple factors. When you issue capital units this value should be added to the owners equity/capital unit holders equity account, as well as added to the startup asset account.

You may use the startup asset account for two purposes:

1. To shield the income statement from some of the anticipated losses most businesses can expect to face early in their existence;
2. To amortize the value of company founders' contributions over time, beginning at some point in the future (such as several years from now).

The amortization of founders' contributions is discussed parenthetically since that is not being done in the company in this example at the time period covered in the example. How to shield your company's early losses on the income statement is covered in this example with REFS.

If you wish to use the startup asset account in both of these two ways, it is important to note that it does not make conceptual sense to use both procedures simultaneously. The reasons for each of the two uses are completely different. Since the two uses cause transactions entries going in "opposite directions," simultaneous use would result in cancellation transactions. This would not make sense. If you wish to use both features, we suggest:

1. Use the loss shielding feature in the early years of your company.
2. Use the feature for amortization of founders' contributions (and the amortization of early loss shielding, if applicable) starting several years into your company's existence and continuing far into the future -- depending on the length of your amortization period.

To use the startup asset account for early loss shielding, choose a logical time period in which you expect your business to become profitable. That might be, say, one to three years.

What will be done here is a sort of "reverse amortization." Amortization is similar to depreciation (see depreciation section). Doing an amortization in reverse simply means adding a monthly adjustment to income (instead of the normal subtraction) and adding the same amount to the startup asset account. Another point of interest is that the primary difference between depreciation and amortization is that depreciation is normally applied to equipment, while amortization is normally applied to intangible assets.

In this example we have selected 36 months as a time period in which we believe we will need early loss shielding. We have arbitrarily selected an amount to be "reverse amortized" equal to a portion of the value of founders' contribution. In particular, we selected the value of "Founders' Sweat Equity" of $220,000 [20,000 g Au]. (You could select any amount for this, of course). So the amount to be reverse amortized is $220,000 [20,000 g Au]. The monthly amount is:

$220,000 [20,000 g Au] divided by 36 months = $6,111 [555 g Au] per month.

So for November, add $6,111 [555 g] to the income statement account called "Monthly Startup Asset Adjustment" (REF 18A). Add the same amount to the Startup Asset Account (REF 18B).

In order to amortize the startup asset, choose an amortization period. This can be a fairly long time period (typically the case with both depreciation and amortization) such as five, ten, or twenty years. Let's say you choose ten years.

The value to be amortized will be (1) the initial value of the startup asset (equal to the value of equity issued for founders' contributions) plus (2) the cumulative additions made to the value of the startup asset account over the months or years due to use of the startup asset to shield early income statements from losses.

The monthly amount to be amortized is the total value of the startup asset account on the day you begin the amortization divided by the number of months in your amortization period. In this case, divide the total value by 120 since ten years equals 120 months.

Each month, simply list this "monthly amortization amount" on the income statement in a similar manner as you would depreciation (see depreciation section). Net income is of course reduced during the 10-year amortization period much as it would be with depreciation.

Each month, add this amount to "amortization expense" on the income statement. Subtract the same amount each month from the startup asset account. Technically this should be done using an "accumulated amortization" account. If you wish to do this, please see the depreciation section and use the same procedure as for "accumulated depreciation."

At the end of ten years (or other amortization period), the value of founders' equity plus early loss shielding will have been properly accounted for.

Personnel from Terra Libra Holdings are available to provide consulting services on the creation, use, and management of Terra Libra Trusts.

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