From my last post I was mainly concerned with ties between the business world and the natural sciences. I started with the business world here and looked for a tie in the natural sciences between Accounting and Economics.
Accounting I feel is mainly concerned with classification. In accounting sums of money move and wind up in a place. You then as the accountant ask yourself two main questions:
1. How do we classify that movement?
2. How do we classify that money now?
You may argue that accounting deals with more than money in terms of its recognition of physical as well as intangible assets. However, valuation, which is required for all assets in order to record their monetary value on the financial statements, simply capitalizes these physical objects which essentially means they are simply money.
So my task then is to think about a science that is all about classification. I instantly thought of Chemistry. Chemistry looks at the world and tries to answer two questions:
1. I saw something. What just happened?
2. What is this made of?
The first question is mainly concerned with chemical reactions. Much like the way that when an acid and a base are combined a precipitate and water result – when there is a debit to cash and a credit to accounts receivable expected revenue is recognized.
The second question relates to chemical composition and this process is usually approached by a number of processes (distillation, gas chromatography, mass spectrometry to name a couple) which all are means of finding out the nature of the compound. Accounting has the same inductive process. A firm has a sum of money whether it is on its way in or on its way out and the firm must accurately reflect what this money is according to the Generally Accepted Accounting Principles, which set the limits much the same way that the Periodic Table outlines the available elements.
I may have gone a bit far with that last one, but hopefully you see the comparison. All that remains is economics. More later…