ACCT6007: Blockchain and Triple-Entry Accounting Systems

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ACCT6007 Financial Accounting Theory
and Practice
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Contents
Introduction.................................................................................................................................................3
1...............................................................................................................................................................4
2...............................................................................................................................................................5
3...............................................................................................................................................................6
4...............................................................................................................................................................8
Conclusions.................................................................................................................................................9
References.................................................................................................................................................10
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Introduction
This report reflects the different phases of blockchain technology and explains the use of this
technology in accounting. The report demonstrates the understanding of the triple entry system in
accounting which is very essential for the firm which is dealing with the blockchain technology.
The report analyses the issues and problems in the organization and the problems which occur
during the use of blockchain technology in secretarial.
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1
Blockchain Technology
It is a kind of accounting technology which involves the functions such as the transfer of
possession of the assets of the business and keeps maintain the accurate financial information
ledger. It also includes the communication and measurement of financial information and
analyzes that information.
This technology was initiated by the Nakamoto in which he created the decentralized and
cryptographical secure digital currency system by using the chain of blocks which came to be
known as the bitcoin, that made possible the day to day digital currency trading (Jun Dai, 2017).
Phases of Blockchain technology
It has evolved through the three phases which are as follows:
Blockchain 1.0
It involves the process of digital transfer of money, payment, and remittance and comprises of
the new ecosystem which is referred to as the internet of currency. This phase of blockchain
completely focuses on the trading of cryptocurrency.
Blockchain 2.0
It involves the same as of 1.0 in trading but it is a wider scope of the financial application such as
the smart property, derivatives, and digital asset ownership. The concentration of this blockchain
is to move forward to a new application called smart contract. These smart contracts are the
computer programs that are used to enforce, verify and execute the contract terms.
Blockchain 3.0
In this phase, the Blockchain system expands beyond the business and financial applications.
Another novel application that performs the linking of IoT with the blockchain technology which
further allows trading and control of the physical objects with the help of the smart contracts
(Zheng, et, al., 2017).
Use of Blockchain system in accounting
Accounting organizations have huge advantages by using this system and its pattern can be
changed with the help of emerging technology. Both smart contracts and the Blockchain involves
the process of storing the accounting data, using relevant information with the parties who are
interested and further helps in increasing the business data verifiability. This technology helps
the companies to produce a new accounting information system that further records connections
that are validated on secure ledgers, those transactions excluded the monetary transactions such
as the collection of payment, cash deposits, etc. This system makes it possible to broadcast
important information and timely reporting to the managers, auditors, stakeholders, creditors and
the interested parties (Jun Dai, 2017).
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2
Triple entry accounting
The mechanism about the single-entry accounting is that each transaction is recorded in only one
book. Such a mechanism is easy and efficient but involves the risk of errors and fraud because in
this system it is difficult to track and repair. Traditional financial accounting is located on the
double-entry system which improves the accuracy of the bookkeeping. There is the various
advantage of the double-entry system but it does not assure the firm’s financial statements (Jun
Dai, 2017).
The triple entry accounting system was introduced as it is a transparent, independent and secure
pattern for improving the reliability of the firm’s financial statements. This accounting system
involves the two parties doing the financial operation and the intermediary which creates the
record of transactions results in three entries total. This system needs an intermediary which
verify individual transaction that put the burden on such intermediary. There are also problems
when entries are stored by the intermediaries which involve the risk or loss or any unofficial
changes due to the cyber attacks. So, blockchain technology helps in tackling and solving such
kinds of issues. It can help in automating storage and the verification process by playing the role
of intermediary which makes it possible to stop tampering and close to real-time analysis. Since
because of the nature of the blockchain, the accounting system can not be destroyed or altered.
By applying the third admission into the blockchain, firms can create a self-verifying, transparent
and cryptographically protected system of accounting information which makes it possible to
share data between the business parties and reporting to the shareholders. A simplified triple
entry accounting system includes transactions that would store the record of blockchain ledger
along with the entries which were included in the conventional form of triple entry system. To
show the flows in the organization the blockchain ledger entries will be recorded in the
appearance of transfer between financial records which involves an interlocking system of
enduring accounting records. The balancing of the accounting equation and providing different
views of in order to the users is made possible by organizing the blockchain ledger in a
hierarchical structure which aggregate data (Wang, and Kogan, 2018).
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3
Yes, the author’s argument about accounts in the blockchain would be prearranged in
hierarchical arrangement to collective data at various levels which will enable immediate
balancing of accounting equations and dissimilar views of information to the diverse users
(Zheng, et., al. 2017).
(Jun Dai, 2017)
This figure explains the working process of the system, by taking the example of the purchase-
sale business cycle. Whenever a company purchases the products from the suppliers it will
record the inventory and accounts payable in the ERP system. It will surrender the events in the
manner of digital token transfer between two blockchains to the blockchain ledger. A blockchain
account is corresponding to the bitcoin file, which includes the accounts' unique identifier,
current balance and the related transaction for the confirmation. Blockchain accounts are shaped
in the hierarchical configuration that aggregates the data into three levels. Individual financial
statement are at the underside, assets, liability, and equity in the centre and at the top concern as
a whole. This structure helps in routinely prove the balance sheet equation with the help of the
smart contracts (Jun Dai, 2017).
For example, the equilibrium of the business accounts is taken and set as the stability in the
assets account less than the balances of the liabilities and the equity accounts, which further
shows the warning when the steadiness is not equal to zero. Another advantage of the
hierarchical structure is that it allows the view of data through different levels. Various peoples
who require this information are the managers, investors, business partners and the creditors who
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have different restrictions and demands on the acquisition of the accounting data. So, users
should be granted different views of the data.
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4
Problems of Blockchain technology with the use of accounting
There are several problems arises during the use of the accounting system. Operations of the
blockchains require the calculation asset and appropriate stockpiling, the utilization of the
blockchain framework in the enormous association relies upon the task improvement of more
extensive transmission capacity for exchange of information, development of computational
power and the huge stockpiling framework. Extent of the bookkeeping information is
additionally the matter of concern which is required to post the blockchain framework for giving
the exactness and the straightforwardness just as keeping the framework from ending up all the
more requesting for assets. A lot more issues are to be comprehended, for example, shielding the
exposure of touchy data from the unimportant gatherings (Crosby, et. al., 2016).
Same as the EDI Blockchains can build the advantages of the association by embracing the
advancements, sinch enough members are expected to guarantee the security of the record which
gives solid confirmation of the exchanges and shields from illegal conspiracies. By the data
shared by the different associations, an enormous assortment of dependable reviews can be
given. In any case, while the information stream of exchanges may not be enormous enough,
many streamline blockchains, for example, bitcoin are requested very of capacity and calculation
control in for giving the security to the information. Setting this corporate information volume
into this framework would be profoundly requesting and pricey for the present business
calculation. such substantive assets can block the advancement of this innovation, particularly
among the little and medium firms. For diminishing such overhead costs the arrangement
incorporates the utilization of permissioned blockchain rather than the permissionless chains
which makes less exorbitant calculations (Jun Dai, 2017).
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Conclusions
This report explained about the use of blockchain system which is used for the accounting
transaction, the report includes the three phases of the blockchain technology which evolved
from time to time such as the blockchain 1,2 and 3. The report reflects the use of blockchain in
the accounting process and discussed the problems or issues while using the blockchain
technology in accounting transactions.
This report defines the triple entry system in the organization and how it is different from the
single and double accounting system by using the blockchain technology. The report showed
how the blockchain technology used the hierarchical structure for the efficient working of the
organization.
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References
• Crosby, M., Pattanayak, P., Verma, S., and Kalyanaraman, V., 2016. Blockchain technology:
Beyond bitcoin. Applied Innovation, 2(6-10), p.71.
• Jun Dai, 2017. Three essays on audit technology: Audit 4.0, Blockchain, and Audit app,
Graduate school – Newark Rutgers, pp 7-66
• Rückeshäuser, N., 2017. Do we want blockchain-based accounting? Decentralized consensus
as an enabler of management override of internal controls.
• Wang, Y. and Kogan, A., 2018. Designing confidentiality-preserving Blockchain-based
transaction processing systems. International Journal of Accounting Information Systems, 30,
pp.1-18.
• Zheng, Z., Xie, S., Dai, H., Chen, X. and Wang, H., 2017, June. An overview of blockchain
technology: Architecture, consensus, and future trends. In 2017 IEEE International Congress on
Big Data (BigData Congress) (pp. 557-564). IEEE.
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