Everything You Need to Know About Triple Entry Accounting
Triple Entry Accounting aka 3E Accounting
It is one of the great innovations by blockchain technology. Triple entry refers to a new method of accounting, which was first proposed in the 1980s. It burst on the scene when Ian Grigg, the inventor of the Ricardian Contract and pioneer in financial cryptography, linked it with blockchain technology. 3E accounting also brings improvements to the outdated double-entry system. It’s a process by which all accounting entries with outside party involvements are cryptographically sealed and connected through a smart contract to a 3rd entry. These include utility and tax payments, sales, the buying of inventory & supplies, and other expenditures. Since the entries are cryptographically sealed and distributed, it’s nearly impossible for anyone to imitate or destroy them to conceal the activity.
A buyer keeps a record of credit for cash spent. While a seller keeps a record of a debit for cash received in the same transaction but in different sets of accounting archives. This is where blockchain comes in. Instead of documenting these entries discretely in independent sets of ledgers, they happen in the form of digital transfer between multiple wallet addresses in the same public, distributed ledger, forming an interlocking system of objective and permanent accounting records.
Know More About This New Method
In triple-entry accounting, the transaction goes through a specific contract which has everything about the transaction. It also may record the prices, what the product was, who’s the buyer, who’s the seller and more. They can sign it digitally and can have a hash linking to further public documentation. Thus, the books link together using the third entry called tripled entry, which can potentially access for external auditing purposes. 3E or triple entry is quite a confusing term as we’re not making a third entry, we’re just connecting two different double entries. That connection is through a smart contract that ensures that two double entries in different legal entities always stay the same; it is auto-enforced using smart contract, and as with such contracts it’s tamper-proof.
The Benefits
The advantages of triple entry are numerous in terms of transparency, reconciliation, auditing, and trust. Triple entry accounting also allows us to reconcile the transaction, the balance, and the reporting procedure. It is for companies to trust their own books. Normally, each party is accountable for maintaining and keeping their own monetary records. It can lead to frauds and other errors. The use of triple entry accounting diminishes this risk by having a non-biased record. Most of the blockchains are publicly feasible and can easily expose to outside viewing making them more transparent. So for financial auditing, blockchain accounting is an ideal choice. It makes a list of transactions, creating an irreversible record of all exchanges in the system.
What’s your take on Triple Entry Accounting or 3E Accounting? Have something relevant to say about this topic? Please feel free to use the comment box below to share your valuable feedback with us.
