Triple entry accounting system is a new form of bookkeeping that emerged as an alternative to double entry system.
he origin of accounting traces back to the ancient Mesopotamian civilization. It was mostly used to record the growth of crops and herds. Since then, accounting has evolved into several nuances of auditing and bookkeeping. Industrial revolution to the digital revolution, accounting has witnessed different forms and systems. Lately stepping into the triple entry system, a whole new transformation of accounting is in the making.
Before diving into triple-entry accounting, let’s understand what single-entry accounting and double-entry accounting is.
Skip to Triple entry accounting if you are not a fan of backstories.
Single entry system
A single-entry system is a method of accounting where each financial transaction is entered only once. It is called single entry system as the transaction is done as a single entry in journal. Here, it mostly records the cash inflow and outflow of a company in the record book. It is like having your own personal checkbook. Single entry system works only if the business is small or simple.
Double entry system
In Double entry, the transactions are recorded as an effect of two financial events – amount entered as debit and amount entered as credit, otherwise called as liabilities and assets. Most of the businesses follow double entry system for its accuracy and error-free conduct.
Having an existing practice of accounting systems like single entry and double entry, what was the need for a triple entry system? how does it become the gamechanger in accounting?
Triple entry accounting is as fascinating as it sounds due to its connection with blockchain technology. Now, let’s dig deeper into triple entry system and the role of blockchain in it.
Triple entry accounting system is a new form of bookkeeping that emerged as an alternative to double entry system. The triple entry system works by the documentation of three entries. The credit entry, debit entry, and an additional entry of receipt.
The credit and debit entries occur as in the double entry system. The feature that makes triple entry stand out from the traditional accounting system is the third entry, a receipt. This receipt is an audit that is cryptographically verified by the network that ensures security.
These entries include purchase of supplies and products, sales, expenses, and taxes. In fact, every penny spent and taken goes into the entry. This receipt is advocated by blockchain technology, the decentralized way of operations.
Blockchain is a digital record or public ledger of transactions which is distributed among the network to ensure security and ease of access worldwide.
To explain this more illustratively, consider a situation where a person sells an item. The seller records a debit in his account for the money gain while the buyer records credit for the amount spent. Two different occurrences are performed and filed in separate accounting records in the same transaction. This is where the double-entry stops at.
Here is when blockchain technology comes into role. The triple entry system takes it from there by introducing a public ledger. These separate accounting records are now filed in a single distributed, public ledger. It creates an interconnection between them making a transfer between two wallet addresses. All entries are cryptographically secured and distributed in the network. Thus, it is credible, encrypted, and not falsifiable.
How does Blockchain become a part of triple entry system?
Rather than including blockchain as an element in this system, it’s better to say that, the advent of blockchain triggered to develop an alternative accounting system. The necessity for a trusted and neutral third party to audit the business system was inevitable. The emergence of bitcoin backed by blockchain technology thus came as a solution for this shortcoming. This third public ledger is decentralized, secure, automated, and immutable using blockchain protocol.
Hence, triple entry system can be accounted as a double entry system with a cryptographically locked method enabled by blockchain. This opens to a more secure, reliable, and tamperproof way of accounting.
- Automatically validates transactions
- Secure and private accounting system
- Decentralized network – not controlled by a single authority
- Double-entry system with cryptography
- Blockchain – distributed public ledger
- Smart contract – immutable contract between parties
- Tamper proof record of data
All these undeniable features make triple entry system stand out from the traditional bookkeeping solutions. Switch your business accounts to this novel accounting system for a safe, secure, and reliable way of managing books. Enable it now with SimpleVAT and take future in your hands.