Surely you know and are aware of the existence of bitcoin and other cryptocurrencies and the importance they have gained over the last year. You have also probably heard about blockchain and the potential to change and revolutionize various industries around the world.
As a result, a new concept has emerged which is triple-entry accounting. In a nutshell, triple-entry accounting is an alternative method of accounting where a component is added in addition to the world standard debit and credit.
It is basically an interesting new alternative that will definitely revolutionize the accounting industry in the business world as it would change the way the accounting system has been handled for hundreds of years.
In this post, we will explain why triple-entry accounting with blockchain is more secure. To start with, we will explain double-entry accounting and blockchain in-depth to finally delve into the concept of triple-entry accounting.
Background of Accounting
Accounting has its roots in civilizations from over 5,000 years ago. There is evidence of single-entry accounting during the Mesopotamian era.
Single-entry bookkeeping was a simple system to manage, however, it was soon realized that this system could not be authenticated or examined for transparency. So a more transparent system had to be devised based on accountability and answering questions such as:
- Who paid what?
- Who owes how much?
- Why is money missing?
- Where was the money lost?
- What generated the most profit?
- What debts remain to be paid?
Double-entry Accounting
Double-entry accounting was developed in the late 15th century. As explained above, the problem with single-entry accounting was that cash flows did not provide complete information about financial transactions.
In double-entry accounting, it takes into account the other side of the transaction that generates profits or losses and changes in the owner’s equity, which is essential to take into account when managing the finances of a business or company.
Double-entry accounting requires a full evaluation of a transaction. Debits are required to equal credits so the owner must determine the account coding for both sides of a transaction. For example, when a company buys goods, or the company pays its employees.
Blockchain
A blockchain is a ledger that is distributed digitally across multiple locations to ensure security and facilitate worldwide access. Currently, this technology is used for cryptocurrencies such as bitcoins.
Blockchain has the ability to record all the information of a transaction in real-time and in multiple parts, which makes it incredibly powerful. The applications for automating business processes, especially in making payments, are seemingly endless.
There is a misconception that blockchain is the third entry but this is a misconception.
Triple Entry Accounting With Blockchain
Triple-entry accounting is an accounting system in which all accounting records are reviewed and maintained by a third party. This third party can be a service provider with a blockchain platform and recorded in a joint ledger. Transactions are recorded in a shared ledger managed by a third party rather than recorded in separate ledgers managed by the parties involved.
Blockchain’s involvement makes accounting processes simpler and easier.
Why Triple Entry Accounting With Blockchain is Safer
Unlike double-entry accounting, ledgers can be merged into one, which is managed by an external service. One of the benefits of triple-entry accounting is that the people involved can easily track all transactions and get clear overviews of cash flows.
It requires a reliable and efficient platform that manages the ledger. Blockchain as a public network can easily meet those needs.
The Blockchain-based system allows a decrease in operational costs and saves time which makes it highly efficient. In addition, the cryptographic fingerprinting of records in blockchain reduces the possibility of altering original data making it a secure and reliable platform for storing data.
Here are the reasons why you should consider adopting triple-entry accounting with blockchain:
- More secure: Triple-entry accounting with blockchain significantly reduces the possibility of manual fraud as the system performs all recording, comparison calculation and verification work automatically.
- Better management: Blockchain allows managers to view and query data in real time as well as get a clear picture of cash flows. This facilitates and streamlines decision making, strategy and the overall operation of the company.
- Reduces costs: The Blockchain accounting system allows tasks to be completed quickly and accurately which means time savings in reporting and business operations.