As we have previously seen, on a global level, Accounting & Finance professionals use the “Monthly Average” method, or the “Net Present Value” method, or the IRR method, to perform “Investment Plan Evaluation”, Budgeting and CashBudgeting, despite all their known problems, because an accurate method to perform those tasks, previously didn’t exist. The real question behind those tasks is “Profit & Loss”, and it is still not being answered in an accurate and satisfactory way, that can stand up to scrutiny and verification.
The interesting thing is that humanity has been using for centuries a method to calculate “Profit & Loss”, whose validity and accuracy is unquestionable and accepted by all. That is the “Double Entry bookkeeping system” or in other words “Accounting 101”.
Some people might be thinking by now, that since “Accounting 101” is implemented so well by the hundreds of ERPs that currently exist, why don’t we enter the forecasts in an ERP and calculate thru it the “Profit & Loss”.
That kind of suggestion can only come from an inexperienced person. Unfortunately, that plan can never work under any circumstances. There are three reasons for that. There is one incompatibility of data between Accounting and Financial Analysis, and there are two missing mechanisms from all ERPs. Each of these reasons, by itself, is capable of bringing such an attempt to a halt.
Stick around, as we are going to discuss that incompatibility and those missing mechanisms.
