Relational Matrix as the Ultimate Financial Statement

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).