Database technology may eliminate the need for double-entry accounting

Some people believe database technology may eliminate the need for double-entry accounting. This creates three possibilities:

 

(1) the double-entry model will be abandoned

(2) the double-entry model will not be used directly, but an external-level schema based on the double-entry model will be defined for accountants’ use, or

(3) the double-entry model will be retained in database systems.

 

Which alternative do you think is most likely to occur? Why?

Technological disruption is something that every business must be aware of, lest they lose market share or the capability of remaining as a going concern. So too must individuals be mindful of technological changes in the market place that may impact their marketable skills.  It can be argued that the proliferation of computing power and database technology may make the methodology of double entry accounting obsolete, and possibly place pressure on accountants to learn new skills in an ever-changing market. This week’s question provides three possible options for accountants in response to this disruptive technology. The first option is that the double entry method of book keeping will be abandoned. The second option is that the double entry method will still be used; although it will be implemented outside of an information system that provides the data of the business. The third option is that the database systems themselves will fully incorporate the double entry methodology.

 

It is important to note that technological disruption in the marketplace is “a process that plays out over time, sometimes quickly and completely, but other times slowly and incompletely.” (Wessell, 2012) Despite the existence of digital video recorders and Blu-ray players, “box office receipts are still an enormous component of film revenues.” (Wessell, 2012) Despite the “invention of air transport, cargo ships still crisscross the globe.” (Wessell, 2012) Even though database information systems can record, organize and produce most of the necessary data accountants need in order to produce the financial statements, there remain many nuanced aspects of accounting that demand human intervention. Such things as accruing expenses and recognizing revenues appropriately in a closing period. (Spiceland, Sepe, & Nelson, 2013, p.33) To this end, option number two or option number three seems the most plausible for the near future. Considering that double-entry book keeping has been the accounting standard for quite some time, it would be incredible challenging to have all of the experts and regulating agencies agree that change is needed. Especially when one considers that the double entry method works quite well at balancing all of the transactions within the business entity.

 

As an example of businesses using a database information system to record business transactions, then using an external platform for double entry accounting, one needs to look no further than the restaurant industry. Any major restaurant chain utilizes a point of sales system that records sales transactions. This data is then either uploaded through data merging or via manual input into a third-party accounting software. The accounting software utilizes double entry accounting which is then used to produce the financial statements and other important reports to be relayed to managers. Some businesses are large enough and specialized enough that they will have custom built enterprise information systems that will accommodate the double entry book keeping that accountants desire. Though database systems are incredible helpful to businesses, firms still need to provide their accountants with software that they can use to remain in compliance with regulatory agencies and to be able to produce financial information within the appropriate format. Users of double entry bookkeeping will likely continue to demand this functionality of the software that firms adopt, thus driving a continuation of the double entry method’s existence.

References

Spiceland, J., Sepe, J., & Nelson, M. (2013) Intermediate Accounting. New York, NY. McGraw-Hill Irwin.