Evolution of Accounting Model


Accounting is the language of business. The double-entry accounting model plays a vital role in financial and management accounting. This core accounting model mandates that every business transaction can have at least two sides of recording but recognizing that every business transaction could well be associated with multiple accounting entries.

Taking retail businesses as an example, every sales transaction of a retail shop can involve changes in net assets, cash flow and financial performance and each relevant accounting entry for each sales transaction can involve the recording of relevant changes in inventory, cash, receivables, sale of goods, sales discounts, and some form of sales tax. Without implementation of this accounting model in real time and on a transactional level basis, any incomplete recording of business transactions will result in imperfect and untimely reporting. 




Nowadays all international accounting systems have implemented this accounting model  in order to support the generation of at least one report with the most typical one being the generation of a Trial Balance as at a certain date but the real vale comes from being able to look at key results against relevant comparatives, forecasts and budgets.   


The first written documentation of this accounting model was in the year 1494, some 500 years ago and, ever since, there has been a continual evolution of this model to handle the increasing levels of complexity that arise from globalization and complexities in business. These enhancements are encapsulated in the following points:-  




► moving from single measurements to multiple measurement scenarios including the recording of transactional currencies / amounts, functional currencies /amounts, presentation currencies /amounts and varying types of units and quantities.

 moving from limited dimensions of tagging of measured and recognizable business transactions (i.e. transaction date, account etc ) to an explosive number of taggable dimensions (i.e. document date, document number, due date, company, project, department, branch, contracting party, movement type etc).

 extending the recording and reporting of each account balance for different kinds of asset, liability and equity accounts in order to eliminate matched debit and credit entries of the relevant accounting history.

 extending the recording of accounting entries for each business transaction in order to generate accounting entries based on a set of assumptions and raw data for group consolidation and budgeting purposes.

The implementation of a modernized accounting model is far from perfect for several reasons. This imperfection, to a certain extent, motivates the use of spreadsheet tools on a piecemeal basis and as a last resort to support the preparation of all relevant reports for internal management and statutory compliance purposes. 


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