I submitted grades for my public financial management class last night. I told my students there are two critical takeaways from this class. The first is that if you need to make an assumption about inflation, growth, or anything else in the economy, you should pick two percent. The second is that when creating budgets, financial statements, or anything else like this, a huge part of being correct is convincing me your are correct.
This is an important and understated point. Especially at the lower levels. When journalling a transaction, how a split occurs is largely at the discretion of the person entering the transaction and prior practice of the organization. In other words, consistency is more important than clarity, in some cases. Frequently, it is feasible to deviate from the norms provided there is a good explanation and you document the explanation. This is all subject to conforming to legal and ethical requirements, but there is usually enough wiggle room that most any reasonable thing that can be done is permissible.
Also, the first takeaway is a subset of the second. Select something different from two percent only if you know a good reason to pick something else.
This kind of flexibility dominates many professional fields. In my EA and data science work, I often review documents, proposals, and recommendations with the words, “Well, I wouldn’t do it that way…but it’s not wrong.” And by that, I mean I would have picked a different approach. And for good reason. But someone could legitimately pick another approach also for good reason. They are not wrong. Just different.
Unless, of course, they are wrong; then all bets are off.
Image by SNIJLAB Rotterdam.