Triple Entry Accounting

Why Everyone Missed the Most Important Invention in the Last 500 Years

​You’ve never heard of Yuji Ijiri. But back in 1989 he created something incredible.

When people look back hundreds of years from now, only the printing press and the Internet will have it beat for sheer mind-boggling impact on society. Both the net and the printing press enabled the democratization of information and single-handedly uplifted the collective knowledge of people all over the world.

So what am I talking about? What did Ijiri create that’s so amazing?

Triple Entry Accounting

Triple entry accounting is an enhancement to the traditional double entry system in which all accounting entries involving outside parties are cryptographically sealed by a third entry. These include purchases of inventory and supplies, sales, tax and utility payments and other expenses. Placed side by side, the bookkeeping entries of both parties to a given transaction are congruent. A seller books a debit to account for cash received, while a buyer books a credit for cash spent in the same transaction, but in separate sets of accounting records.

This is where the blockchain comes in.

Rather than these entries occurring separately in independent sets of books, they occur in the form of a transfer between wallet addresses in the same distributed, public ledger, creating an interlocking system of enduring accounting records. Since the entries are distributed and cryptographically sealed, falsifying them in a credible way or destroying them to conceal activity is practically impossible.

The Public Book 

The companies using triple entry bookkeeping would derive two immediate benefits from adoption: First, since auditors could quickly and easily verify a large portion of the most important data behind the financial statements, the cost and time necessary to conduct an audit would decline considerably. Audits would still be necessary, but auditors could spend more time on higher risk areas such as internal control.

Second, the integrity of a company’s financial statements would be essentially unassailable. Revenue and expense transactions could not be falsified if they required the encrypted signature of the counterparty in order to be accepted as valid. In the case of Bitcoin, transactions only occur when wealth is transferred, so there is no incentive and considerable cost associated with spurious activity.

Taken together, both of these effects would have a strong positive effect on stock prices, borrowing rates, and a variety of other fundamentals.

Triple-entry accounting can be thought of as a way of agreeing on objective economic reality, a single source of the truth. Triple entry accounting is an enhancement to the traditional double-entry system in which all accounting entries involving outside parties are cryptographically sealed by a third entry.

Thus placed side by side, the bookkeeping entries of both parties to a given transaction are congruent. The third entry in the system, entered into the blockchain, is both a receipt and a transaction. It’s proof that something happened between two parties, which goes beyond the receipts that each party holds in double entry.  

How It Works

Triple-entry accounting can be thought of as a way of agreeing on objective economic reality, a single source of the truth. Triple entry accounting is an enhancement to the traditional double-entry system in which all accounting entries involving outside parties are cryptographically sealed by a third entry.

Thus placed side by side, the bookkeeping entries of both parties to a given transaction are congruent. The third entry in the system, entered into the blockchain, is both a receipt and a transaction. It’s proof that something happened between two parties, which goes beyond the receipts that each party holds in double entry.  

Beyond Recording
Only Financial Transactions

There are many other activities that can occur on a construction project beyond simple accounting transactions. Many of these parameters are just as important to record and document as the financial transactions themselves. These can include scheduling performance at the individual task level, inspection failures, product failures, safety infractions, etc. In our case, all of the construction project parameters are recorded to a common ledger as an immutable record.