You can imagine the scene, Henry Ford is looking to expand car production and he knows to do that he has to buy another factory and a lot of machinery - it takes a lot of capital investment and that is all upfront. He also needs a workforce and they need wages, heating and lighting - that is revenue spend. Add the two together and there is a balance of financial needs, the machinery might last 10 years, each weeks wages last just, erm, 1 week so if we can buy machines that do the work of many it is good because although the machines cost more they actually reduce the ongoing costs.
This is a simple analogy because machine produces the parts for 100 cars per day and it can therefore be measured. It might be the latest and greatest machine in the market but over time it will become the worst machine in the market. On the other hand, the workers over time actually become the best in the market after (often) starting as the worst in the market. So what’s happening is that we are replacing machines (humans) that can improve with machine (physical) that actually get worse with time. Does that sound like a good idea? No, not to me either.
But what has this got to do with Stone Age accounting. Well a client recently asked me to separate out the revenue (ongoing) element from the capital (major project) for his rolling monthly contract. This is proving quite tiresome to do and he is paying for my time to plough through timesheets and control systems to dig out the information and it crossed my mind that we really need to update our accounting systems, practices & taxation in the 21st Century.
I can see the point of having capital and revenue systems in a world of big machinery but I struggle to see how the procedures and practices sit in this new world, a world heavily focussed on services. Maybe everything becomes revenue expenditure but I know that causes problems for the corporate world as they like to invest in capital projects.
Best of all - we are paid to think, to create novel approaches and great ideas that transform businesses. This items come under the somewhat grubby title of consultancy when the are central to much of the business process and generate the highest RoI.