Accounting Measurement and Methodological Characteristics of Accounting Dynamics

Abstract

Accounting Dynamics is a methodology for modeling and simulation of accounting using System Dynamics. Our reasons for presenting Accounting Dynamics are as follows.

• a) Accounting is a primitive quantification of social processes composed of everyday transactions between economic entities.

• b) Therefore, accounting models, which consist of such transaction data, have their actual counterparts in the real economic world.

• c) On the other hand, accounting measurement (including double entry bookkeeping) is very adaptable to the System Dynamics observations.

• d) So that, Accounting Dynamics modeling and simulation seem to be very effective tools for depicting, analyzing, predicting and improving the actual state of resource allocation in social systems.

We believe there is no other system that measures each and every routine transaction as completely as business accounting. Furthermore, in most System Dynamics research on social systems, e.g., the System Dynamics National Model, it is emphasized that there is no macrostructure, other than the aggregation of many microstructures. If the national economy’s behavior results from its microstructure, a realistic and reliable model of that microstructure will be an indispensable premise for building a National Model. The accounting Dynamics model will provide such a macrostructural building block at the business level or at the upper social level.

In our presentation, we analyze accounting measurement and identify the methodological characteristics of Accounting Dynamics. Accounting measurement has axiomatic rules (primarily represented by double entry) and institutional constraints. Traditionally, accounting measurement is periodic (discrete) and lacks the feedback concept. We introduce the feedback concept into the accounting model and present generic Accounting Dynamics models in some detail.