The
accounting profession has lost sight of the true nature of
double-entry bookkeeping and this gravely limits the analytical power
of today's financial record keeping. Double-entry bookkeeping is far
more than providing a duplicated check on our recording accuracy.
Each of the two entries provides unique and non-duplicated
information about the transaction. The credit entry tells us the
origin of the resources being transferred and the debit entry tells
us the destination of those resources.
Once we
realize the importance of each entry we can begin to harness the
tremendous analytical power that it provides. The real financial
statement for providing business behavior is not the income statement
or the balance sheet; the real tool for analysis is the relational
matrix.
The
relational matrix has a column for all the accounts and a row for all
of those accounts. The columns can hold the record of the debits and
the rows can hold the record of the credits. Each cell of the table
represents a transfer from the row that is credited to the column
that is debited. A given cell tells us the sum that has gone from the
corresponding row's account to the receiving column's account.
The sums
of the rows and columns contains the information in the balance
sheet. The individual cells represent the flow of resources from the
one account to another (for graphical examples see my book, The
Tao of Financial Information).
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