Since its inception in 1989, Triple Entry Accounting has gone largely unnoticed in the grander scheme of things. So, why are we discussing it now? Its use in securing cryptocurrency transactions potentially makes this system the backbone of digital economies in the future.
To understand why Triple Entry Accounting is so special, it’s important to take a deep-dive into the history and evolution of accounting.
Accounting goes back to the evolution of written work; the early explored texts have been transcribed as common lists of livestock and groceries. The Sumerians of Mesopotamia, about 500 decades ago, used Cuneiform or wedge sized identifying marks as a base-60 number shape, that we still recall as seconds and minutes, and squares known as degrees in a circle. Maths and writing itself is a derivative of the need to add, subtract and calculate the ordinary stocks assets and inventories of early society.
Over the years, accounting has evolved from ancient civilizations to modern economies. The Single Entry and Double Entry accounting systems that form the basis of modern accounting have both played a significant role in their time. As useful as they have been, they have reliability and security limitations that need to be addressed.
Single entry accounting is how ‘everybody’ used to do accounting: make a list, and add to the entries that classify every other item. A more sophisticated method would be to construct a set of lists. — List or ‘book’ would reflect a class, and each entry would report date, a number, and probably a comment. To transfer an object around, one will cross it off one list and add it to the other list.
Single-entry accounting has restrictions on the trust of books. It is possible that either the owner’s people or, in periods long past, his servants might be trusted with the books of the company, contributing to a benevolent effect on large families or slavery as an economic activity.
Double Entry Accounting provides an extra valuable attribute to the accounting system, such as a solid plan to recognise and eliminate problems. However, it still might cause issues and errors.
It is facilitated by three features that are the separation of all books into two groups or sides, named assets and liabilities, the redundancy of duplicate entries with each entry matching from the other side, and the balance sheet equation. Balance sheet states that the total amount of all entries on the financial assets should equal the total amount of all entries on the liability side.
The Problem with Single Entry and Double Entry
In single book entries, the fraudster added his number to the row of preference. That quantity has to come somewhere in double-entry books. If it’s coming from nowhere, it’s excluded as an unintended mistake, and if it’s coming from anywhere in specific, the spot is marked. In this way, fraud leaves a trail; and its objective is made clear in the other book, so because the value of the book also must have come from somewhere. These problems led to the emergence of triple entry accounting.
The Solution? Triple Entry Accounting!
Triple-entry accounting Is a new method of accounting that was suggested in the 1980s. It’s in recent times gained fame when Ian Grigg linked it to blockchain technology. Triple entry accounting is an expansion to the standard double-entry method where all accounting entries affecting external parties are cryptographically encrypted and connected to the third entry by a smart contract.
Advantages of Triple Entry Accounting
Most blockchains are publically accessible or readily open for global access, rendering them transparent. For blockchain networks, the registration becomes a sale, since the funds are on the database, the ledger is not a record of what happens since the ledger is a tamper-evidence it allows it trustworthy. For auditing, blockchain accounting is perfect because it generates a registry of transactions, thereby providing an eternal database of all trades inside the network that could be extracted through analytics.
Accounting has evolved, and so have auditors. In today’s rapidly digitizing world, it’s important for traditional accounting practitioners to catch up with the times. With virtual back-office teams, cloud accounting support, and digital transformation services, Pransform provides a complete suite of support services for CPAs and Accountants. Need support with future-proofing your CPA and accounting practice? Get in touch with our team today.