The Necessity of Accounting Knowledge and Business Understanding in the IT Era

As IT advances, there is a question of whether it will become unnecessary to spend time understanding the essence of business operations. However, understanding business mechanisms is beneficial for imagining the movements in the world. By understanding accounting, one can imagine the movement of goods, amounts, and cash, and see the structure of company operations.

The Critical Awareness: "Will IT Advancements Eliminate the Need to Understand Business Operations?"

The question "Is accounting knowledge necessary now that accounting operations are systematized?" can be rephrased as "Will IT advancements eliminate the need to spend time understanding the essence of business operations?" This is a very important issue for me, who is involved in the development and implementation of business systems.

Even as systematization progresses, business operations involve irregular processes that require judgment based on company circumstances, such as "When is it appropriate to record sales and expenses?" and "What is the appropriate valuation for machinery that has been alternately active and inactive according to economic cycles after purchase?" These situations often require discussion and coordination among stakeholders, which has been an obstacle to complete automation.

This difficulty arises from the lack of unified judgment criteria for the dual aspects of acquisition cost (cost) and current valuation (market value), and the challenge of evaluating and creating invisible transaction journal entries in a two-dimensional world of accounting software and ledgers while considering the concept of time.

However, with Indonesia's accounting standards PSAK (Pernyataan Standar Akuntansi Keuangan) aligning with the global standard IFRS (International Financial Reporting Standards), there is less room for debate in accounting processes.

In Indonesia, ATM cards from banks function as debit cards, and electronic payment methods like GoPay, OVO, and ShopeePay, which offer cashback and point rewards, are widespread.

I also rarely use cash in daily life, and if all transactions in companies become cashless, with systems that automatically create journal entries and reconcile accounts with bank accounts, accounting operations will be fully automated, and automation will advance in other back-office operations like sales and purchasing.

In such a scenario, the knowledge needed after departmental operations are automated is the structure of company operations as an organization, specifically "the movement of goods, amounts, and cash," which can be considered the essence of business operations.

Understanding Mechanisms Means Imagination Works

By learning accounting, one gains the essence of double-entry bookkeeping, where the difference that arises when dividing the amounts aggregated in the trial balance into B/S (balance sheet) and P/L (profit and loss statement) accounts matches. There is a difference in the ability to imagine the movement of goods, amounts, and cash between merely understanding how to read financial statements and understanding how the numbers on financial statements arise.

For example, today I topped up Rp.300,000 to ShopeePay, purchased a light bulb at ACE and paid with ShopeePay. This accumulated points, and I ordered from KOI Cafe via GoFood, using points for a discount when paying with GoPay. Additionally, I purchased a PLN electricity token for Rp.500,000 and paid via BCA mobile banking.

The points accumulated on ShopeePay today will eventually be returned as miscellaneous income, but even if one feels benefited at the time of payment, it is difficult to imagine the relationship between goods, amounts, and cash movements just by checking the transaction history of BCA accounts and GoPay, ShopeePay balances at the end of the month.

Even without studying accounting, one can understand the structure of financial statements, but by learning accounting, one can imagine the movements on the ground. In other words, being able to imagine the movement of goods, amounts, and cash leads to being able to imagine the structure of company operations.

This is why accounting is mentioned alongside English in discussions about what to study during student days. Recently, programming is also mentioned for similar reasons. Even if one does not work in IT-related jobs, knowing the mechanisms of programs in today's IT-driven world allows one to imagine the movements in the world.

Understanding Company Operations is Necessary Even as Systematization Advances

Recently, I heard from a friend who runs an accounting firm in Jakarta that they are starting an accounting course for Indonesian accounting staff at Japanese companies. It made me realize that there are no specialized accounting schools like TAC or Ohara Accounting School in Indonesia.

Accounting operations are easy to standardize and are a field where systematization progresses easily within back-office operations. In jobs centered on inputting into systems, even personnel with little accounting knowledge can manage. However, as complete automation progresses, mere input operators may be subject to reduction.

In a world where internal operations are fully automated due to systematization, mere operators will no longer be needed in corporate back offices, and only highly skilled personnel who can analyze numerical data output from systems and make proposals for business strategies will remain. The essential knowledge for these highly skilled personnel is understanding the structure of company operations.

In times like now, when a pandemic is declared by WHO and an economic crisis greater than the Lehman Shock is approaching, it is crucial to be able to make accurate proposals for survival while viewing on-site operations and management from a bird's-eye perspective.

The Structure of Company Operations is the Movement of Goods, Amounts, and Cash

The purpose of a company is to conduct business and make a profit. Indonesian subsidiaries need to remit royalties and sales commissions to the Japanese headquarters from sales and contribute to the group's overall profit as part of consolidated financial statements. To achieve this, subsidiaries procure goods from suppliers, employ staff for production and development, and sell products to customers. This raises monthly revenue, which is ultimately collected as cash (cash and deposits).

The price of procured goods, shipping costs, and employee salaries are the cost of goods sold, while sales staff salaries and campaign expenses are selling, general, and administrative expenses.

To clarify what costs were incurred in the process of selling products and making a profit, it is necessary to clearly separate the cost of goods sold (COGS) and selling, general, and administrative expenses (SGA). The selling, general, and administrative expenses for the month are the costs incurred during the month (period cost), while the goods included in the cost of goods sold are those shipped during the month.

Purchases, production, and sales are recognized on an accrual basis and recorded as revenue and expenses. When looking at the movement of income and expenditure for cash flow, it is necessary to convert the movement of amounts into a cash-based cash accounting.

Case: Understanding Real Events Based on Basic Knowledge

Here is an example from a conversation with a customer in Indonesia where the conversation could not develop without understanding the structure of company operations.

In general store or restaurant operations, the idea is to first cover fixed costs with gross profit (marginal profit), which is the sales amount minus the cost of goods or materials purchased (variable costs), and then build up profit. This is the basic form of business where the difference between selling and buying, or gross profit, covers various expenses, making it an intuitively understandable concept.

Although fixed costs should be covered by gross profit, there is a scene where, despite showing a large profit on the P/L, there is little income, and the president has no choice but to call the Japanese bank's loan officer because they cannot pay employee salaries. Transactions that occur on the P/L are all recorded as expenses and revenue based on the accrual principle, so it is necessary to replace the P/L with cash accounting for expenditures and income to know how much cash and deposits have increased through operating activities.

Unlike the idea of covering fixed costs with gross profit in trading companies, manufacturing industries, where there are many types of fixed costs, have a strong awareness of cost of goods sold, which includes variable costs and fixed costs, and selling, general, and administrative expenses incurred to sell products.

Last month, the joy of (beginning inventory + materials purchased during the month - excessive ending inventory = understated cost of goods sold) leading to (sales - understated cost of goods sold = excessive profit) was short-lived, as this month (beginning excessive inventory + materials purchased during the month - ending inventory = excessive cost of goods sold) resulted in a red P/L, and I received an angry call, but this was not a system issue, it was an operational issue due to overstatement in inventory.

Manufacturing costs are expenses that only occur in the month of manufacturing, while depreciation, which is a fixed cost, occurs regardless of manufacturing (beginning work in progress inventory + manufacturing costs during the month - ending work in progress inventory = manufacturing cost), resulting in a case where there is an amount but no visible movement of goods.

The system automatically records transactions based on the accrual principle, but it frequently happens that it does not match the movement of goods flowing on the ground, so it is necessary for humans to analyze the cause and address it by understanding the process of cost occurrence.

Knowledge to Search Online and Knowledge to Memorize in the Mind

In an era where anything can be searched on a smartphone, why is it necessary to understand and memorize the structure of company operations? It is because it is necessary to have creative discussions based on real events. Even with real-time translation machines, it does not mean that learning English becomes unnecessary. Even if one can read and write with a translation machine, ideas born within the framework of converting between Japanese and English are limited.

The risk of discrepancies due to differences in thinking methods between English-speaking and Japanese-speaking regions cannot be avoided. The basics of company operations, which are the movement of goods, amounts, and cash, are the essence of business knowledge and differ from fragmentary knowledge. It is the source of new ideas for problem-solving, and it is important to understand essential knowledge and systematically organize it in the mind rather than spending time memorizing searchable fragmentary knowledge.

Even in a future where systematization advances, understanding this essential knowledge is considered necessary.

Frequently Asked Questions: The Importance of Accounting Knowledge in the IT Era

Based on the content of this article, frequently asked questions are briefly organized.

Is accounting knowledge necessary even as IT advances?

Yes, accounting knowledge is necessary even as IT advances. Understanding business mechanisms helps imagine the movement of goods, amounts, and cash, aiding in understanding the essence of company operations. Especially in manufacturing, industrial accounting knowledge is useful.

How will accounting operations change as systematization advances?

As systematization advances, accounting operations will be automated, focusing on input tasks. However, as complete automation progresses, mere input operators may be reduced, and highly skilled personnel who can analyze data output from systems and make proposals for business strategies will be sought.

What knowledge is necessary to understand the structure of company operations?

To understand the structure of company operations, it is important to grasp the movement of goods, amounts, and cash. By learning accounting, one can understand how the numbers on financial statements arise and imagine the essence of company operations.