The emergence of triple-entry accounting

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Triple-entry accounting, a not-so-new concept made possible with blockchain technology, has the potential to disrupt the bookkeeping industry using a tamperproof ledger system to ensure complete transparency in all digital transactions.

Double-entry accounting is our modern ledger keeping system––first used by Venetian merchants during the late 1400s––which records the accounts on both sides of a transaction to represent total profits, losses, and changes in equity.

Before double-entry accounting, keeping records of goods bought and sold boiled down to a single-entry system that operated by reviewing transactions impacting only the seller’s fiscal balance (which allowed for shady financial ambiguity in business practices.) Double-entry accounting is meant to capture the outcome of a transaction from both ends. To do so, debits and credits are recorded to confirm an equal closeout between the purchaser and the seller––though this also relies on honesty from both parties.

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Enter triple-entry accounting, the improved version of double-entry accounting which all but eliminates the possibility of fraudulent bookkeeping through the use of blockchain technology.

How does blockchain fit into triple-entry accounting?

Blockchain is a globally accessible digital ledger designed to encourage transparency by publicly broadcasting every transaction to be recorded and authenticated, thus ensuring no tampering or falsification can occur. Most commonly associated with popular cryptocurrencies such as Bitcoin, blockchain is a composite of proven, existing technologies that have been strategically combined to create a foolproof system.  

The concept of triple-entry accounting shares the same core ideology as blockchain technology––implementing the use of an additional ledger outside the buyer and seller––however, the two are considered mutually exclusive.

In 1989, Yuji Ijiri, a professor at Carnegie Mellon University, presented his more complex approach to the modern double-entry method of accounting. It necessitated an additional variable to create better transparency within an exchange––namely a third, decentralized ledger to confirm the nature of any transaction.

So, as its name implies, triple-entry accounting presents three dimensions. The first two being the tracking of credit and debit between the parties involved in an exchange (just like double-entry accounting) with a third, decentralized ledger to authenticate the transaction.

The differences between triple-entry accounting and blockchain

Misconception surrounding triple-entry accounting and blockchain technology frequently confuse the two as interchangeable, which to be fair, isn’t entirely wrong. Sometimes. Understanding that these are actually two separately existing concepts, especially when they so often coincide within real-world applications, is like breaking down macaroni and cheese.

Yes, together they create one incredible dish––but they’re also two different things.

Triple-entry accounting came first

Remember, triple-entry was the brainchild of Professor Ijiri back in 1989, so it had a solid 19-year head start before blockchain made its first public debut in a whitepaper by Satoshi Nakamoto.

The 2008 financial crisis inspired the conception of blockchain as a solution to prevent further unreliable business transactions. With the massive economic crash and self-serving attitude demonstrated by numerous Wall Street businesses, the motivation to create an objective third-party ledger to prevent future abuse was greater than ever.

Blockchain is only one type of digital ledger (it just happens to be the best so far)

Blockchain is a near-limitless technology, and while it isn’t the only existing digital ledger capable of triple-entry accounting, it is currently the best option due to its accessibility and familiarity (thank you Bitcoin.)

Blockchain technology presents a globally accessible receipt of any transaction made within its system. If a business sells to a customer, blockchain will act as the third-party ledger in the triple-entry accounting process and confirm the activity of every party involved in the exchange using a decentralized ledger––the tamper-proof nature of blockchains crypto technology also prevents corruptive practices, ensuring a more secure and honest system.

Team of consulting auditors auditing the financial report data of the company (balance sheet, income statement) on computer screen with business charts, fintech

End of an era for double-entry accounting?

There are still ongoing debates about whether blockchain technology is a temporary fascination (a fad, if you will) or whether a new approach to our long-standing double-entry accounting method is even necessary.

Those who oppose the adoption of triple-entry accounting suggest that moving away from our standardized system would be a massive, global undertaking in itself, affecting (and possibly uprooting) professionals and existing business firms unable to adapt quickly enough.

On the other-hand, blockchain and cryptocurrencies have been gaining more traction over the last decade, and show no signs of stopping. If implemented strategically, the benefits of triple-entry accounting are incredibly compelling, and not just when it comes to monetary transactions.

Advocates have also voiced the favorable impact triple-entry accounting could have on voting. Claims of fraudulent elections and the miscounting of votes could be a thing of the past with the assurance triple-entry accounting provides.

Currently, in the United States, voter booths are private to ensure anonymity, meaning citizens must put their full faith into voting machines and those managing them, but by applying blockchain technology, anonymity can still be maintained while a decentralized ledger assures every citizen who enters a booth has their vote counted.

What do you think?

The constant value flux of bitcoin and other cryptocurrencies has millions of backers on the edge of their seats, waiting for the scale to tip in their favor. There’s plenty of evidence to support the notion that blockchain technology as we know it is only in its infancy stage, but can it become prevalent enough to disrupt entire industries, as indications have shown?

What we know for sure is that blockchain technology––via triple-entry accounting––is opening up new opportunities and possibilities in the world of auditing and record keeping. However, whether triple-entry accounting will genuinely “take off” largely depends on public demand for wide-scale adoption, and so far, momentum is building.

Have an opinion to share on the future of triple-entry accounting, or its relationship to blockchains? Leave a comment below and help us drive the discussion!