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Date: 2024-06-21 Page is: DBtxt003.php L0300-Accountancy
ACCOUNTANCY
WHAT IT IS!

What used to be a respected profession is now just another business!


Original article:
Peter Burgess COMMENTARY

Peter Burgess
The point of accountancy.
The point of accountancy is the use of data that costs as little as possible to create value that is the biggest possible. This is what has been central to accountancy for a very long time and has served the (limited) objectives of profit maximizing business and capital markets very well. TVM has the same central idea, except that the goal is to create the maximum of social value. Accountancy collects and organizes data in a systemic way ... data that are neutral and representative of reality.

Accountancy is a system.
Corporate Accountancy is a system, and TVM has been developed as a variant of this system. Both based on the same basic principles for record keeping and accounts that have been used for several centuries.

Universality of accountancy.
Accountancy has universality, but we have become accustomed to seeing accountancy being used only in an organizational setting, whether it is a company, or in government or an NGO ... and in recent years accountancy has been used creatively without respect for basic principles. But the powerful logic of accountancy applies wherever there are economic transactions and it is logical to apply the principles of accountancy to the Community and the public in much the same way that the system applies to an organization and its stakeholders.

Core principles of accounting.
The old fashioned principles of accounting are timeless ... though sidelined in much of modern accounting practice and accounting education. The reason is quite simple ... most of the leadership of our modern global society has favored a regime of minimal accountability that allows greed to flourish.

The central point to accounting is to get data about facts into a record that is reliable. How it is done is very much a secondary level set of issues. The data are neutral ... and they are about facts. Measuring facts may be difficult ... but accounting aims to have data about facts on the record. When you have data ... there can be analysis ... and reports ... and conclusions. And if there is organizational structure there can also be decisions and improved performance.

Double entry concept.
Double entry is a powerful idea, now almost 500 years old ... and perhaps somewhat diminished in its importance with the use of computerized accountancy over the past 40 years. This is problematic because of the checks and balance that double entry enforces.

There are two sorts of accounts that together balance ... (A) Balance Sheet Accounts; and, (B) Income and Expenditure Accounts.

Changes in the balance sheet accounts over a period are the same as the difference between income and expenditure over the same period.

Reporting entity.
In corporate accounting the accounting is about the activities of the organization. In TVM the accounting centers around an economic activity which may be 'rolled up' to reflect the performance of an implementing organization or 'rolled up' to inform people of the performance of the Community.

Oversight information.
This concept of “balancing the books” has deep significance for the control of economic resources. It is a whole lot more than the accountancy done as a step towards filing a tax return or satisfying a legal requirement imposed by some regulatory agency. Balancing the books helps to identify problems in the activities of an economic entity through the simple process of equating what has been used with what has been achieved ... and if this is not right, something needs to be addressed.

The point of accountancy.
The point of accountancy is the use of data that costs as little as possible to create value that is the biggest possible. This is what has been central to accountancy for a very long time and has served the (limited) objectives of profit maximizing business and capital markets very well. TVM has the same central idea, except that the goal is to create the maximum of social value. Accountancy collects and organizes data in a systemic way ... data that are neutral and representative of reality. The point of accountancy is the use of data that costs as little as possible to create value

Accountancy ... a system.
Corporate Accountancy is a system, and TVM is a variant of this system. Both based on the same basic principles for record keeping and accounts that have been used for several centuries. Accountancy has universality, but we have become accustomed to seeing accountancy being used only in an organizational setting, whether it is a company, or in government or an NGO ... and in recent years accountancy has been used creatively without respect for basic principles.

But the powerful logic of accountancy applies wherever there are economic transactions and it is logical to apply the principles of accountancy to the Community and the public in much the same way that the system applies to an organization and its stakeholders.

It is a whole lot more than the accountancy done as a step towards filing a tax return or satisfying a legal requirement imposed by some regulatory agency.

The core principles of accounting.
The old fashioned principles of accounting are timeless ... though sidelined in much of modern accounting practice and accounting education. The reason is quite simple ... most of the leadership of our modern global society has favored a regime of minimal accountability that allows greed to flourish.

Data reliability.
The central point to accounting is to get data about facts into a record that is reliable. How it is done is very much a secondary level set of issues. The data are neutral ... and they are about facts. Measuring facts may be difficult ... but accounting aims to have data about facts on the record. When you have data ... there can be analysis ... and reports ... and conclusions. And if there is organizational structure there can also be decisions and improved performance.

Double entry.
Double entry is a powerful idea, now almost 500 years old ... and perhaps somewhat diminished in its importance with the use of computerized accountancy over the past 40 years. There are two sorts of accounts that together balance ... (A) Balance Sheet Accounts; and, (B) Income and Expenditure Accounts. Changes in the balance sheet accounts over a period are the same as the difference between income and expenditure over the same period. In corporate accounting the accounting is about the activities of the organization. In TVM the accounting is for the activities of the Community and embraces everything.

This concept of “balancing the books” has deep significance for the control of economic resources. Balancing the books helps to identify problems in the activities of an economic entity through the simple process of equating what has been used with what has been achieved ... and if this is not right, something needs to be addressed.


Logical Framework ... of Accountancy
The logical framework of accountancy is a key to why accountancy is such a powerful management tool and reliable as a way to organize a very large amount of data.

The double entry concept.
TVM has been developed from the corporate system of financial accountancy that has been used for a long time used in modern corporate organizations ... and in turn evolving from a system of accounting developed several hundred years to enable merchant adventurers to keep accounts and report to their investors. Double entry is a simple technique that requires both action and response to be recorded ... when money is paid out, it is expected that value comes in ... when some good is delivered, it is expected that money is paid in for the good.

Financial balance sheet.
Corporate accountancy uses the balance sheet to describe the state of the organization. The balance sheet describes the financial state of the organization at a given point of time. The balance sheet provides a listing of assets, a listing of liabilities, and shows the difference between the two.

Changes in the balance sheet over time are a result of activities in the time period. The net change from one period to the next in the balance sheet is the same as the net of revenue and cost or profit in the activity report. The net change in the balance sheet from the beginning of the period to the end of the period is the same as the net result reported in the activity statement. The assets and liabilities of a balance sheet are accounted for at their cost ... reflecting the double entry of cash used equals asset acquired ... and liability acquired will be satisfied by cash paid. The listing of assets and liabilities can be in summary or detailed.

Activity reporting.
The activity report ... the profit and loss account ... describes the operations of the organization for a specified period of time and the relationship of revenue to cost and therefore profit. There are innumerable formats for activity reports ... and many different names. They may be prepared with a lot of detail or be very much summarized. To a great extent the public and external stakeholders get summary reports and internal managers and staff work with reports at the appropriate level of detail.

The data contained in activity reports that is usually hidden from external view would serve very well to improve transparency ... but few corporate organizations embrace this.

Integration of balance sheet and activity reporting.
This integration of balance sheet and activity statement comes about because of the double entry characteristic ... and provides a powerful way of understanding a lot about an organization without needing to know everything about an organization ... or community.

This concept underlies the ideas of balance sheet, operating statement and the relationship they have to each other ... specifically that the the net change in balance sheet value between two dates equals the income from the operating statement between these two dates. Corporate accountancy uses both balance sheet and an activity report to describe the organizations performance. The balance sheet describes the financial state of the organization at a given point of time and the activity report ... the profit and loss account ... describes the results of operations of the organization for a specified period of time.

The net change in the balance sheet from the beginning of the period to the end of the period is the same as the net result reported in the activity statement.

Cash flow statement.
A cash flow statement is similar to an activity statement but has a focus only on those transactions that have a cash impact. For example, some accounting costs, such as depreciation related items, do not have a cash element. In the logical framework, changes in the balance sheet, activity reporting and cash flow are all different views of the same comprehensive set of data.
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Issue
Accounting
Basic observation
Accounting is the most basic of management tools, but also one of the most powerful. It is simple accounting that provides the definitive measure of financial performance, especially in corporate organizations.
Prevailing response
Accounting in the Relief and Development Sector (RDS) is weak. There is little use of analytical accounting for RDS management and accounting systems are incapable of being used for much meaningful analysis.
A better response
Accounting is the most basic management tool. Pre-1960, modern analytical accounting was rare, but it is now so commonplace that it is taken for granted. The norm should be for good accounting to be everywhere, with organizations readily sharing their performance information for the guidance of the public.


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