How Blockchain changes the Accounting we know
As we have demonstrated in many blog posts before, blockchain has the potential to revolutionize many industries. In our case, blockchain is revolutionizing the accounting world.
One concept in specific has re-emerged as a result of this technological innovation. This new approach of bookkeeping creates an interlocking system of enduring accounting records. This is due the fact that all entries are distributed and cryptographically sealed, falsifying or destroying them to conceal activity is practically impossible.
To discuss this new approach of bookkeeping that is enabled by blockchain technology, we will first give an insight on double-entry accounting, which the world of business has relied on for years.
Double-entry Bookkeeping
Modern financial accounting is based on a double-entry system. Double entry bookkeeping revolutionized the field of financial accounting during the Renaissance period. This accounting approach takes into account the other side of the transaction, which drives profits or losses and changes in owner’s equity — all of which are critical to consider when managing a business’ finances.
Double-entry bookeeping solved the problem of managers knowing whether they could trust their own books. However, to gain the trust of outsiders, independent public auditors also verify the company’s financial information. Each audit is a costly exercise, binding the company’s accountants for long time periods.
How Blockchain revolutionizes Accounting
Blockchain technology represents the next step for accounting: Instead of the double-entry approach in which records are kept separately based on transaction receipts, companies can write their transactions directly into a joint register, the new approach creates an interlocking system of enduring accounting records. This is due the fact that all entries are distributed and cryptographically sealed, falsifying or destroying them to conceal activity is practically impossible. It is similar to the transaction being varied by a notary — only in an electronic way.
Benefits of a revolutionized Accounting System
Companies would benefit in many ways: First of all, standardisation would enable auditors to verify a large portion of the most crucial data behind the financial statements automatically. Thus, the cost and time necessary to conduct an audit would decline considerably. In consequence, auditors are noe able to spend freed up time on areas they can add more value, for instance on very complex transactions or on internal control mechanisms.
We from Intrachain strongly believe that blockchain takes accounting to the next level. And when that time has come, we strongly believe you should be aboard. Stay tuned :)
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