Blockchain Is on Track to Redefine Accounting

While accounting goes through the difficulties of manual recording-keeping, data duplication, and inefficient verifications, blockchain can overcome these shortcomings. In addition, the technology guarantees data security and eases reconciliations.

Where Accounting Stands Now

Accounting works in such a way that every new record is to be checked several times. This comes from the genuine double-entry approach. Also, it’s because record details come from different sources, and after all the data manipulations the result needs to be balanced.

This data is typically kept in a centralized storage allowing only accountants and auditors to access. Although this approach is easy-to-hack, data forging is complicated because various third parties such as auditors, tax authorities, banks, and courts verify all the records regularly.

At present, there is still a lot of manual work here, and technological innovations are pretty hurdled. The key reason behind this is that accounting is intensely regulated in terms of data validity and integrity, and any disruptive innovations are hence difficult to adopt.

Disadvantages coming with it:

• There are a lot of duplicated and manual tasks
• Any centrally managed system can be hacked
• Services provided by third parties are costly and time-consuming

Where Blockchain Comes In

Serving as a distributed ledger, blockchain protects against duplicated data, secures information, and brings in extra cost- and time-efficiency.

No Need to Double-enter Data

Currently, all records entered into accounting systems are based on transaction details. Double-entering of both records and transaction details is what secures data from forging. But blockchain allows entering transactions directly into the register.

How is it possible? Blockchain can encrypt data and store it in a decentralized way, which prevents any data forgery.

Smart Contracts Ease Reconciliation

To date, a lot of tasks in accounting are done manually, so that all the records are checked and errors are avoided. Blockchain-based smart contracts allow eliminating human errors when adding new records. For instance, smart contracts can trigger a payout automatically once vacation is over.

Decentralization Protects from Hacking

The distributed blockchain storage means that each node in a chain stores every piece of the data that’s there in the system. To hack such a storage, it is necessary to access all the nodes in this blockchain simultaneously. Since it is extremely cost-consuming, blockchain thus guarantees data integrity. Additionally, blockchain permission schemes provide access only to authorized members.

Digital Ledger Is Cost-efficient

Calling on third parties to validate data is both time- and cost-consuming. Blockchain acts as a public ledger that doesn’t allow adding, removing, or altering records without the approval by the blockchain’s members. This approach can help to avoid using third parties’ services and make the system more transparent.

Internal verifications take unbelievably much time too as looking for details on a particular transaction may take hours. Yet, since every new element of a blockchain inherits all the previously entered data, it all becomes easy to trace. This reduces the record tracking time.

How to Adopt Blockchain

Companies in need to strengthen their accounting operations can benefit from blockchain either by building their own solution or by adopting an out-of-the-box one. In the former case, it’s more cost-efficient to develop a solution on top of the genEOS blockchain ecosystem. In the latter case, it’s possible to choose from such options as PeaCounts or Accounting Blockchain.

Summary: How Blockchain Can Redefine Accounting

• It acts as a digital public, and automated ledger and thus reduces errors.
• Automated reconciliation procedures reduce the associated workload.
• Traceability cuts costs on searching for any details in the database.
• Inherent decentralization and permission schemes prevent fraud.
• The record-witnessing rules help to take third-party audits out of the equation.