Financial Accounting: Blockchain Technology in Accounting Practices

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Financial Accounting Theory and Practices
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Contents
Introduction......................................................................................................................................3
1.......................................................................................................................................................4
2.......................................................................................................................................................7
3.......................................................................................................................................................8
4.....................................................................................................................................................10
Conclusion.....................................................................................................................................11
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Introduction
Under this report, it shows the uses three phases of block-chain technology and also show the use
of such technology in accounting practices. This report also reflects and demonstrates an
understanding of the triple-entry accounting system which is considered and regarded as an
important and essential for the organization which is dealt with in the technology of block-chain.
Through this report also find the issues with the use of block-chain technology used in the
accounting system.
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1
Block-chain technology
It is a technology-related with the accounting purpose which is used for various purpose such as
transfer business assets ownership and keep all accounting records systematic to provide accurate
accounting and financial information. This is a digital ledger system which enables the owner of
the firm to record business transactions by following accounting practice and maintains a record
on the digital platform. Thus its involvement cannot be altered retroactively until without change
in all the subsequent records (Rückeshäuser, 2017).
Nakamoto initiated to block-chain technology in 2008 in which he started using a chain of blocks
to create decentralized, public-available, and cryptographically secure digital currency system.
This will be known as bit-coin that aid in trading daily. The blocks which are using in this are
arranged in chronological order, linear, and shared to a network (Davis, 2016).
Phases of Block-chain technology:
In compromise three-phases of block-chain such as;
Block-chain 1.0
This system of digital accounting involvement of transfer of money, make payment and also
included remittance via the use of digital mode as it entirely focuses or concentrates on the
trading of crypto-currency. This also compromises a new ecosystem which is known as “Internet
of Money”.
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Block-chain 2.0
This type block chain is almost the same as block-chain 1.0 but this is an extended part of and it
has a wider scope of financial application such as ownership of digital assets, derivatives and
smart property and other. It focuses on changes and focuses on a smart contract which is a new
type of application of financial. Szabo was a person who introduced the concept of smart
contract in 1994 which focus on execution and monitor contract. Smart contracts are the program
based and work on a computer such verify, enforce execute the contract terms are done
automatically and this will allow encoding of task and other and this one is also based on
decentralized (Chaoxin, and Lu, 2017).
Block-chain 3.0
It is beyond business and financial application. Another novel application is IoT which is linked
with the block-chain technology. Cloud storage products, voting rights, government
administration can be transferred in the direction of decentralized; manage by self and
monitoring also. With the use of a smart contract, it will allow control and trading on physical
objects and services.
Block-chain system in accounting:
This provides a big advantage to the organization whose work or field is related to the
accounting and it has benefited its pattern can be changed and adopt with the help of technology.
Block-chain and smart contracts, both are related to the process of record data related with
accounting and its purpose, use only relevant information that will be related to the parties who
are interested and it also increases the transparency of business via as it verifies each transaction
with the system. With the use of these two, it helps in providing important and relevant
information to the parties such as shareholders, management and creditors and others who are
interested in the company financial performance and data. This is done due to its record
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transaction after validating on secure ledgers and this which do not involve transaction related
with money such as collection etc.
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2
With the use of single-entry accounting, it records each transaction but records only one book.
Due to this, it is found that this is a simple and convenient method to record transaction but it
contained a chance of fraud and risk due to it not a simple to track and repair. While using old
accounting that was based on the double-entry system it creates an accuracy of the bookkeeping
system. With the use of this, it generates several benefits but it includes lack of assuring the firm
financial statements (Uddin, et. al., 2017.).
Heilman, et. al., 2016
The advantages of triple entry system are that it provides the reliability of the company financial
position as it uses transactions independently and considered as a secure system. This system has
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a requirement of an intermediary who can check and verify each transaction that creates a burden
on such person or intermediary (Li, et. al., 2016). Block-chain technology provides various
advantages and helps in solving issues such as when the entries are put by an intermediary it
creates a chance of loss and make any fraud, this will track by the use of block-chain. With the
use of this, it automatically stores and verifies also by playing its role as an intermediary which
help in prevention and close to real-time auditing due to non-acceptance of alternation and as not
destroyed by the block-chain and accounting. Triple accounting system includes those
transactions which store the information of block-chain ledger along with the relevant entries.
Business is enabling to create a self-verifying, transparent and cryptographically system for
accounting information securely by the applying of third entry into the block-chain. Through
this, it aids in sharing information between shareholders and parties. Provide different
information to the interested person such as shareholders it only possible when the block-chain is
placed on a hierarchical structure which aggregate data (Crosby, et. al., 2016).
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3
The author view about the accounts in the block-chain is true and it validates by the use of such
in a hierarchical structure to aggregate the data at various levels which help in balancing the
accounting information at a different level (Coyne, and McMickle, 2017).
To understand this take an example of the sale-purchase business cycle. When the company
purchases raw material or product from its supplier it will create a time to record inventory and
account payable in the digital system. It will digitally submit such transaction via using a token
system and transfer between block-chain systems to block gain ledge. The value of block-chain
and bit-coin is the same which unite current balance, unique number and relevant information for
verification. With the help of smart contracts, balance sheet automatically confirmed by the
personal accounts at the bottom, equity in the mid and company at the top. The hierarchical
structure facilitates view and checks data information from different levels (Heilman, et. al.,
2016). The information is required by various people who are interested in the business such as
shareholders, creditors, and others.
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4
Using of block-chain accounting system, it faces various problems. Operations of the block-
chain need to compute each resource and need to store data properly (Guo, and Liang, 2016).
The use of this system is mainly used by the big companies and the use of this depends on
project improvement for transfer data easily and effectively and creates a facility of store data in
the big amount of space. It is the matter of concern for the block-chain which is required to post
the system that offers transparency and also accuracy and thus it leads to preventing it from the
demanding of additional resources (Watanabe, et. al., 2016). Through the use of this, it protects
confidential information from the parties where the company does not want to share and disclose
it. By the adoption of technology of EDI, it aid in the rising in benefits to the company as every
party need to protect and be ensure about information which is provided by them. Though it
provides various advantages, it also has issues with the use of block-chain technology in
accounting system such as:
 Complexity
 Network size and speed
 Transaction cost
 Error by human
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Conclusion
This report is based on the use of block-chain in an accounting system in digital form. From this,
it was concluded that block-chain included three phases which evolved in their different era of
time, the block-chain which is developed such as block-chain 1.0, 2.0 and 3.0. The report finds to
provide the advantage of block-chain and help to find the issues which can be resolved with the
use of block-chain in transactions. It also reflected the use of triple accounting system and shown
the difference between single and double-entry accounting system with the use of a block-chain
in a triple system of accounting.
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Reference
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hybrid blockchain-based approach. U.S. Patent Application 15/154,555.
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