The main idea herein is the importance of time for measurement purposes. There is a need for a flow-oriented perspective in accounting measurement. We interpret the algebraic structure of DEB by Ellerman (2014) and argue that the T-account is the mathematical object to convey accountants’ view that the value of present resources, the assets, match the value of future demands by stakeholders, the liabilities – which include the shareholders’ goal to make a profit. In short, the flow perspective is inherently embedded within the structure.
A conceptual consequence thereof is that assets cannot/should not be defined independently of liabilities. Already, the current standard (i.e. by the IFRS as of March 2018) defines an asset as a present economic resource, whereas an economic resource is predicated on future benefits. A symmetrically similar definition applies to liabilities. Despite a liability being a present obligation, it is settled in the future. The definitions ought to emphasise the connection between present and future by imposing the ‘primacy of the T-account’ over the ‘asset/liability’ view.
Doing so would have implications for measurement. The standards allow for various measurement bases. By building upon the primacy of the T-accounts, one would impose a consistency constraint on the preferred basis, since a particular asset would not be measured independently from some other, properly matched liability. Further, this matching is at the basis of ratio analyses, as illustrated by the above example. Accounting numbers convey meaning in relative terms only.
In terms of future developments, focusing on T-accounts and their built-in matching feature is likely to help frame managerial issues concerned with decision-making. We refer specifically to those issues arising from the analyses of costs and prices. Already, costs (e.g. life-cycle costing) tend to be predicated on the future rather than on the past. The present framework, wherein the zero T-account is partitioned in relevant activities, addresses at its most fundamental level the concept of strategies and how to manage them. Indeed, the strategy concept is that which connects present resources to future goals while mapping how different but concomitant steps combine coherently towards achieving intermediate and final goals.
This paper is just a first step in that direction. Subsequent steps would require extending the algebraic structure to address vectors and how to deal with them in the classroom. Indeed, they are already present in Ellerman’s (2014) discussion. We do not engage with vectors here to keep a narrow focus. We have limited ourselves to a partial response to that earlier paper. However, those who understand linear algebra will not miss the possibilities that extending the analysis towards vectors may offer. Elsewhere, we will claim a multiplicative accounting equation, such that assets multiplied by liabilities equal 1. This is a natural development when taking the structural approach to T-accounts, since by satisfying the axioms of a group, the operation to combine them can be represented either as addition or as multiplication.
Doing so opens up the possibility of modelling accounting processes by means of neural networks, and thus benefiting from the literature that addresses AI’s learning processes. Finally, in response to an anonymous referee for whom this paper, along with Ellerman’s, makes DEB more complicated than it is, our paper is not intended to address classroom issues. It is intended to interest programme designers who must integrate different subjects within a single degree or qualification. Given the current nature of our modern and globalised economy, one would expect current accounting graduates to be able to go beyond bookkeeping and deal with complex issues of measurement, AI simulations, and strategic analyses.
