forked from cheng/wallet
7674b879eb
many files updated with trivial fixes. modified: docs/design/TCP.md modified: docs/design/peer_socket.md modified: docs/design/proof_of_share.md modified: docs/estimating_frequencies_from_small_samples.md modified: docs/libraries.md modified: docs/libraries/scripting.md modified: docs/manifesto/May_scale_of_monetary_hardness.md modified: docs/manifesto/bitcoin.md modified: docs/manifesto/consensus.md modified: docs/manifesto/lightning.md modified: docs/manifesto/scalability.md modified: docs/manifesto/social_networking.md modified: docs/manifesto/sox_accounting.md modified: docs/manifesto/triple_entry_accounting.md modified: docs/manifesto/white_paper_YarvinAppendix.md modified: docs/names/multisignature.md modified: docs/names/petnames.md modified: docs/names/zookos_triangle.md modified: docs/notes/big_cirle_notation.md modified: docs/number_encoding.md modified: docs/scale_clients_trust.md modified: docs/setup/contributor_code_of_conduct.md modified: docs/setup/core_lightning_in_debian.md modified: docs/setup/set_up_build_environments.md modified: docs/setup/wireguard.md modified: docs/writing_and_editing_documentation.md
206 lines
9.8 KiB
Markdown
206 lines
9.8 KiB
Markdown
---
|
||
title: >-
|
||
Triple Entry Accounting
|
||
...
|
||
See [Sox accounting], for why we need to replace Sox accounting with triple entry accounting.
|
||
|
||
[Sox accounting]:sox_accounting.html
|
||
"Talmudic Ritual Purity"
|
||
{target="_blank"}
|
||
|
||
[Talmudic ritual purity]:sox_accounting.html
|
||
"Sox accounting"
|
||
{target="_blank"}
|
||
|
||
# What is triple entry accounting
|
||
|
||
Double entry accounting ensures that the books of the corporation are
|
||
internally consistent. Triple entry accounting ensures that the books of the
|
||
corporation are not only internally consistent, but that its account of its
|
||
obligations and transactions with clients and partners is consistent with their account.
|
||
|
||
This requires a shared pool of data shared between several entities who
|
||
have long lasting and repeated durable business relationships with each
|
||
other, and if it is a lot of data, a blockchain.
|
||
|
||
Blockchains are designed with considerable care against various subtle
|
||
forms of cheating, and this design is profoundly difficult, complex, and
|
||
notoriously subtle and difficult to correctly implement.
|
||
|
||
The way of the future will be to move bookkeeping, accounting, and
|
||
various other measures against cheating to the blockchain.
|
||
|
||
The fundamental force moving us to a blockchain based world is an
|
||
untrusted and untrustworthy elite.
|
||
|
||
# Triple entry accounting and corporate sovereignty
|
||
|
||
A corporation is not so much a legal fiction, as a book keeping fiction. The
|
||
first double entry accountants wanted to know how an enterprise was
|
||
doing, so they created double entry columns that made the books of the
|
||
enterprise balance, rather than the merely the books of the owner balance.
|
||
And by enough people believing and acting as though the enterprise was
|
||
itself a real thing, it became a real thing, the real thing being those people
|
||
acting as if with one will, the will of the enterprise.
|
||
|
||
And then King Charles the second gave some of these accounting fictions
|
||
legal status as corporations,
|
||
creating the modern joint stock publicly traded for-profit corporation,
|
||
the modern corporation.
|
||
|
||
And thus created modern capitalism, which worked spectacularly well.
|
||
(We now, unfortunately, have postmodern capitalism, which is working very badly.)
|
||
|
||
Corporations are people, real people, because enterprises are real people,
|
||
whose will is made one through bookkeeping tracking what value they
|
||
create and cost for each other. A corporation is not so much a legal fiction,
|
||
as a book keeping fiction, fictions imagined into reality by real people acting as one.
|
||
|
||
It is not the buildings and the tools that are the corporation, but
|
||
the unity of action. This is what makes it possible to move
|
||
corporations onto the blockchain, to substitute cryptographic
|
||
algorithms for the laws of men.
|
||
|
||
Double entry book keeping is social technology. It fundamentally shapes
|
||
our society, even though almost no one understands it. The corporation
|
||
exists through double entry book keeping.
|
||
|
||
A small number of partners who own a business, who know and trust each
|
||
other, and understand double entry book keeping can enforce it on each
|
||
other, but the publicly traded joint stock corporation exists through state
|
||
enforcement of double entry book keeping.
|
||
|
||
And increasingly what the state is enforcing is not double entry
|
||
bookkeeping. Instead of tracking the creation and movement of value, the
|
||
books track the creation and movement of [Talmudic ritual purity].
|
||
|
||
The block chain can enable a very large number of business owners who
|
||
do not know and trust each other and who do not understand double entry
|
||
bookkeeping to enforce double entry bookkeeping on each other.
|
||
|
||
Suppose your company’s books are triple entry accounting based o
|
||
immutable journal entries, and its shares are on its blockchain, not on the
|
||
records of the government regulated stock exchange.
|
||
|
||
Such an enterprise derives its cohesion not from a grant of corporateness
|
||
from the state, but because all the shareholders have to follow the rules
|
||
because all the other shareholders are following the rules, as every
|
||
blockchain works. They don’t have to understand how the wallet works, they
|
||
just have to understand that if they don’t have money in their wallet,
|
||
they cannot pay, and if they don’t have shares in their wallet, they cannot
|
||
sell them and cannot vote when there is a board election.
|
||
|
||
This renders the corporation independent of the state. The state can coerce
|
||
the CEO, the board, and the shareholders, the same way as it can coerce
|
||
anyone else, assuming it can find them, and assuming it can discover what
|
||
they are doing, but the company is not longer a creation of the state,
|
||
animated by state enforcement of its corporate character and state
|
||
enforcement of its book keeping.
|
||
|
||
This makes it vastly harder to tax and regulate, even if only 0.001% of the
|
||
population understand the cryptographic protocols employed by their
|
||
wallet. If the corporation exists as blockchain protocols, the government
|
||
cannot simply deduct money out of your paycheck – it has to send men
|
||
with guns to knock on your door and say “pay or else” – and it has to find
|
||
you, which may not be easy if you are working remotely, or you are
|
||
working in person at a small remote branch of the business. The board
|
||
probably has its meetings virtually. They probably cannot find the board,
|
||
though the CEO probably has to show up in person a lot.
|
||
|
||
This also puts me back in business, since startups will once again be possible. Startups have been regulated out of business.
|
||
|
||
# Differences between triple and double entry
|
||
|
||
In triple entry accounting all parties to a transaction keep the same
|
||
digitally signed record of a transaction.
|
||
|
||
Triple entry accounting is floodfilling digitally signed transactions around
|
||
all parties affected, and then displaying relevant totals over these digitally
|
||
signed transactions. The relevant totals correspond to the various asset and
|
||
liability subtypes of double entry accounting. It is triple entry, because the
|
||
same digitally signed record shows up in many places – and not exactly
|
||
two, nor for that matter, exactly three.
|
||
|
||
It is triple entry because double entry shows that entries in the books
|
||
agree with each other, while triple entry shows that they agree with
|
||
the books of other enterprises.
|
||
|
||
Sums over these records preserve the invariants of double entry
|
||
accounting. Failure to preserve the double entry invariants indicates a
|
||
communication failure, update failure, or disk corruption that forces an
|
||
automatic retry until double entry invariants are restored.
|
||
|
||
The underlying digitally signed records of transactions are flood filled
|
||
around, guaranteeing that all parties have consistent books, that not only
|
||
does one entity's books balance, but that the entries in one entity's books
|
||
are consistent with the entries in another entity's books.
|
||
|
||
In regular double entry accounting, all totals are assets or liabilities, and
|
||
every transaction causes a change to two totals, every transaction has two
|
||
effects, such that total assets and liabilities remain equal to zero, or equal
|
||
to its initial value. The business has zero net assets, because it owns stuff,
|
||
and owes its owners stuff.
|
||
|
||
Every transaction has two effects. For example, if someone transacts a
|
||
purchase of a drink from a local store, he pays cash to the shopkeeper and
|
||
in return, he gets a bottle of dink. This simple transaction has two effects
|
||
from the perspective of both, the buyer as well as the seller. The buyer’s
|
||
cash balance would decrease by the amount of the cost of purchase while
|
||
on the other hand he will acquire a bottle of drink. Conversely, the seller
|
||
will be one drink short though his cash balance would increase by the
|
||
price of the drink.
|
||
|
||
Accounting attempts to record both effects of a transaction or event on the
|
||
entity’s financial statements. This is the application of double entry
|
||
concept. Without applying double entry concept, accounting records
|
||
would only reflect a partial view of the company’s affairs. Imagine if an
|
||
entity purchased a machine during a year, but the accounting records do
|
||
not show whether the machine was purchased for cash or on credit.
|
||
Perhaps the machine was bought in exchange of another machine. Such
|
||
information can only be gained from accounting records if both effects of
|
||
a transaction are accounted for.
|
||
|
||
Traditionally, the two effects of an accounting entry are known as Debit
|
||
(Dr) and Credit (Cr). Accounting system is based on the principal that for
|
||
every Debit entry, there will always be an equal Credit entry. This is
|
||
known as the Duality Principal.
|
||
|
||
Debit entries are ones that account for the following effects:
|
||
|
||
* Increase in assets
|
||
* Increase in expense
|
||
* Decrease in liability
|
||
* Decrease in equity
|
||
* Decrease in income
|
||
|
||
Credit entries are ones that account for the following effects:
|
||
|
||
* Decrease in assets
|
||
* Decrease in expense
|
||
* Increase in liability
|
||
* Increase in equity
|
||
* Increase in income
|
||
|
||
Double Entry is recorded in a manner that the Accounting Equation is
|
||
always in balance.
|
||
|
||
Assets – Liabilities = Capital
|
||
|
||
Any increase in expense (Dr) will be offset by a decrease in assets (Cr) or
|
||
increase in liability or equity (Cr) and vice-versa. Hence, the accounting
|
||
equation will still be in equilibrium.
|
||
|
||
Triple entry accounting is double entry accounting with each transaction
|
||
linking to signed agreement by the relevant parties, and the relevant
|
||
parties sum over these signed agreements in different ways, that result in
|
||
the assets and liabilities of each entity coming out correctly. Everyone
|
||
accumulates a pile of signed transactions, and these signed transactions
|
||
belong to categories such that the double entry invariants are preserved.
|
||
Triple entry accounting is that we have a pile of signed database records
|
||
with a rule that any complete collection of the relevant records results in
|
||
both parties seeing the accounting invariants preserved, and automatic
|
||
check and retry in the event of discrepancies.
|
||
|
||
It ensures that not only do one company's books reflect a consistent view,
|
||
but both parties share the same consistent view of each other's obligations.
|