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Double Entry Accounting and The Printing Press

By ttadeleye | All Things Blockchain | 18 Apr 2020

The printing press is to the Internet, as double entry accounting is to Blockchain. Both the printing press and double entry accounting came to be in the 15th century, while the internet and blockchain came to life in the 20th and 21st century respectively. How can inventions that are so distant in time be so similar? It comes down to what they are at their core, and the impact they had on society. It is within our human nature to think of ways to improve our daily lives. To operate more efficiently and cut out the excess that is slowing us down. We have shown our innovation and creativity throughout the years and it has helped bring society to where it is today. At night we couldn’t see so we invented the light bulb. We decided horseback was too slow, so we invented the wheel. We wanted the ability to communicate with one another from a distance, so we created the telephone. Constantly iterating upon our ideas is what we do as humans. Striving for a better life by utilizing the resources around us leads us to create products that have an impact on the world. The printing press and double entry accounting left their mark. Their relationship to one another as well as their timing in history mirrors the innovation we are seeing today.

               Life before and after the printing press was drastically different. Before it became widely adopted, information was reserved for the elite. Ideas didn’t have the ability to spread and current events were only known by the people that were involved in them. Literacy was at an all-time low during the 15th century simply because text wasn’t mass produced or shared. Throughout history knowledge has always meant power, and that rule still applies today. The invention of the printing press meant more people had access to information and because of this the world grew rapidly in terms of knowledge gained. After the printing press news spread further than ever before. People learned to read and with this brought out ideas inspired by literature. Scientific developments flourished and were shared among friends and family. Information was no longer reserved for the elite and became readily available for all who were interested. Fast forward 54 years later and double entry accounting is now invented. Double entry accounting at its core is a form of trust. It verifies the exchange of items between two entities by recording their transactions using debits and credits. All credits must be reciprocated with their corresponding debits, and all debits must be reciprocated by their corresponding credits. Doing this creates balance within the records of each entity and helps detect errors or fraudulent behavior. Double entry accounting enables those involved to look at the history of their credits and debits and agree on the fact that certain transactions did indeed take place. This practice is widely used today among businesses that require accurate financial information. Single entry accounting by contrast only records one-line item for each transaction using a negative or positive amount. This allows errors to go undetected and can lead to inaccurate information.

So, what do the printing press and double entry accounting have in common with the internet and blockchain? The internet is simply the modern-day version and upgrade of the printing press. It provides information from all around the world at unfathomable speed. Anybody with an internet connection can acquire knowledge on any topic with the click of a button. Some may not understand the impact the internet had on the world because it has always been there for them. Those born much earlier can remember a time without the luxury and have seen the world grow with the novelty.

But what about Double entry accounting? Where’s its upgrade? Invented only 54 years after the printing press, together they successfully spread the truth behind all recorded transactions. The birth of blockchain in 2009 was the upgrade for double ledger accounting. Blockchain is simply a ledger. Like any other ledger it records all transaction. What makes this ledger different lies in the concept behind blockchain. Also known as triple entry accounting, blockchain forms an ecosystem that begins with a distributed ledger. This distrusted ledger publishes all transactions on the blockchain for all entities involved in a transaction to see. This may not seem very significant at first, but this breakthrough in technology is slowly changing how we view trust.

Let’s use an example. Looking first at double entry accounting:

 Entity A has decided to buy goods from entity B. In the books of entity A it shows that it has credited their cash account for the goods, and debited its goods account for the items it has received. In the books of entity B, it has debited their cash account and credited its goods account. Later in the future both parties can reference their books and confirm that they made a transaction with each other. The set back with this is the fact that their books are separate. If entity A wants to fabricate information in its records, it can. Today at an organizational level, companies provide financial statements that summarize the health of their business. It is imperative that what they share is accurate.

Now let’s look at an example with blockchain, AKA Triple-Entry Accounting.

Blockchain enables the history of transactions to be published on a separate ledger available for all to see at any point in time. Taking the previous example with entity A and B, lets now add a third entity C. This third entity C contains all transactions that have occurred between both entity A and B. Just like the previous example, Entity A has decided to buy goods from entity B. In the books of entity A it shows that it has credited its cash account for the goods, and debited its goods account. In the books of entity B it has debited its cash account and credited its goods account. The key difference here is that later in the future both parties can now reference the books of entity C to confirm that they made a transaction with each other. The novelty here is that the books of both entity A and B are reconciled on a ledger that is decentralized and separate from their own record. Entity C is not a central authority. The details of the transaction can’t be altered or removed. Entity A can no longer fabricate the information of the transaction.

                              This simple concept of triple-entry accounting is revolutionary for business today. The cost associated with auditing would drastically decrease due to less time and resources needed. Blockchain eliminates the need for trust among parties because it captures all information using a system that can’t be controlled by a single authority. Together the printing press and double entry accounting were able to communicate the truth. With the ingenuity we as humans possess, we have successfully iterated upon two inventions that changed our world. We found the inefficiencies in each and made technology that improves the way we learn, interact, and exchange.

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