Vector Power

To fully appreciate the elegance of double-entry accounting, one needs to realize that each set of double entries defines an economic vector, tracking the movement of financial resources from one place to another. The credit entry identifies the origin of the transfer and the corresponding debit entry identifies the destination of the resources.

The insight that the credit/debit entry is a vector can greatly empower (and simplify) financial analysis and can allow us to enhance the record-keeping potential of the accounting journal. Accounting is the tracking of resource allocation through time. The economic vectors recorded by double-entry accounting can track the allocation of resources through any number of dimensions (for example; geography, business units, corporate organization, and consumer demographics).

For further explanation of the vector approach, obtain a free copy of the book, Banking on the Past, by adding a comment here or emailing this author at rob.meldahl@gmail.com.