The Financial Accounting Model from a System Dynamics' Perspective
AbstractThis paper explores the foundation of the financial accounting model. We examine the properties of the accounting equation as the principal algorithm for the design and the development of a System Dynamics model. Key to the perspective is the foundational requirement that resolves the temporal conflict that resides in a stock and flow model. Through formal analysis the accounting equation is redefined as a cybernetic model by expressing the temporal and dynamic properties of its terms. Articulated in that form the accounting equation is enabled to be defined as a dynamic stock and flow model expressing the two dimensions of the double-entry accounting system. With that formal foundation it is argued that the accounting model is capable to simulate financial dynamics as well as be integrated with models that express operational and world dynamics. Thus we prove that it is possible to design and build a dynamic business model that can meet requirements of management accounting (ex ante, before the fact) as well as financial accounting (ex post, after the fact). We conclude that the dynamic accounting model can be made relevant for strategic planning and control purposes and be integrated within a System Dynamics model designed for such purposes.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 7624.
Date of creation: Jul 2006
Date of revision:
dynamic accounting model; accounting simulation; System Dynamics;
Find related papers by JEL classification:
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
- M40 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - General
- M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
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- A. W. Coats, 1996. "Introduction," History of Political Economy, Duke University Press, vol. 28(5), pages 3-11, Supplemen.
- Ijiri, Y., 1989. "Momentum Accounting And Triple-Entry Bookkeeping: Exploring The Dynamic Structure Of Accounting Measurements," GSIA Working Papers 88-89-35, Carnegie Mellon University, Tepper School of Business.
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