Double Entry Accounting vs Triple Entry Accounting
Double entry accounting and triple entry accounting are the terms used to describe a way of recording financial transactions. However, they are quite different from each other. In this article, we’re going to let you know what makes them stand apart from each other.
What is Double Entry Accounting System?
Although bookkeeping has been used for ages, the first introduction to the double entry system was proposed in the 13th century. Double entry accounting is a method of recording monetary transactions, where each transaction involves two accounts. Developed by Luca Pacioli in 1494, double entry accounting is the scientific way of keeping monetary records that runs on the principle of duality. It means that every transaction affects two accounts at once. One account is credited while the other one is debited.
Due to the dual effect, the double entry system has accuracy and completeness. It matches the generally accepted accounting principles. An all-inclusive system is there for keeping a track of every transaction. The process begins from source documentation, followed by the ledger, journal and trial balance, and at the end financial statements are prepared. There’s less danger of embezzlement and fraud because a comprehensive recording of financial transactions is performed in this system. Unintentional mistakes can easily be spotted and accounts can be reconciled, thanks to the aspect of duality. However, a person should be certified to record financial transactions using double entry system.
What is Triple Entry Accounting?
Triple entry accounting or 3E accounting system is a scholarly concept that offers a framework for a new method to do accounting. It was first proposed in the 1980’s and later got popular when Ian Grigg linked it with blockchain technology. It mainly addresses the issues not covered in double entry accounting. It’s an advanced level of accounting that’s reliable and accurate. In the triple entry accounting system, all accounting parties with outside party involvement are cryptographically sealed and linked via a smart contract to a 3rd entry. The third entry in the Triple entry system, entered into the Blockchain, is both a transaction and a receipt. It is proof that something has happened between both parties, which goes beyond receipts that each party possesses in the double entry system.
Since the entries in triple entry accounting are cryptographically sealed and distributed, destroying them or imitating them is nearly impossible. A buyer records a credit to account for cash spent. While a seller records a debit for cash received in the same transaction but in different sets of accounting books. That’s where Blockchain technology comes in: rather than recording entries separately in different sets of records, they are recorded in the same public ledger as a transfer between different wallet addresses, making an interlocking system of objective and permanent accounting records. The benefits of a 3E accounting system are numerous in terms of the trust, auditing and transparency.
How do you look at double entry accounting and triple entry accounting? Please feel free to share your valuable feedback with us in the comment section below.