Double-Entry Accounting in Modern Times

From Accounting Onion
May 17, 2017 - 5:54pm
My Shareholder Oriented Financial Accounting (S-OFA) Standards will require that debits equal credits. Duh.  But if I am truly going to start with a clean sheet of paper, then I am compelled to explain how double-entry bookkeeping serves a purpose.  I see three possible justifications: Error checking — But I expect we can readily agree that the days of writing down a number twice in order to verify that the two numbers match are long gone. Deterrent to financial statement manipulation — The basic idea is that a trial balance is like a balloon filled with water:  if you squeeze in one place (e.g., revenue), some other place will bulge (e.g., accounts receivable). Realistic economic model of a business enterprise — The informational value of double-entry accounting as economic model would be the most compelling justification. I am going to explain that this is no longer not even close to being true. How Double-Entry Parted Ways with Economics In 1494, the Gutenberg printing press made it possible for Luca Pacioli, an Italian monk, to publish an exposition of double-entry accounting as practiced during his lifetime.  Pacioli showed that the claims on the assets of an enterprise can be [Read More...]

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