Home » A Guide to Triple-Entry Bookkeeping with Bitcoin

A Guide to Triple-Entry Bookkeeping with Bitcoin

Rahul Maingi

By admin, March 26, 2018

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Bitcoin and its tax implications are the latest topics of discussion among accountants and bookkeepers. There is a lot of ambiguities and regarding the treatment of cryptocurrencies in the books of accounts. Businesses that trade in bitcoin and other virtual currencies are turning towards their accountants and bookkeepers for good bookkeeping advice. This has lead to the rise of a new concept, triple-entry bookkeeping.
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Triple-entry bookkeeping is an alternative to double-entry bookkeeping. It’s considered a significant improvement in the bookkeeping world when dealing with bitcoin and other cryptocurrencies. Let’s discuss it further.

What is Triple-Entry Bookkeeping?

Triple-entry bookkeeping is a concept introduced by the late Yuji Ijiri, a professor at Carnegie Mellon University. Unlike double-entry ledger where all transactions are entered twice, i.e., one is debited while the other is credited; in triple-entry bookkeeping, a third component is added after the debit and credit. It is an enhancement of the traditional bookkeeping where the entries involving outside parties are cryptographically sealed by a third entry.

Traditional bookkeeping only considers two aspects of a transaction; assets and liabilities. Neither assets nor profit can be obtained out of thin air and the same can be said of a liability or loss. You need to debit from one account and credit to another to complete the transaction. But, this double ledger doesn’t work when you enter bitcoin in your books of accounts because there is a cryptographic signature verified by the bitcoin clients. Therefore, you are left with three entries to record: debit, credit and receipt.

How Triple-Entry System Works with Bitcoin?

Unlike the traditional double-entry system, the triple-entry model allows you to add the receipt or the cryptographical signature of the third party to be recorded in the books. For example, when a seller sells products to a buyer, he debits his account as he received cash whereas the buyer credits his account as he spent cash (Debit what comes in and credit what goes out). But, this transaction is recorded in two separate books and can be falsified because there is no verification. When businesses trade in cryptocurrencies, the same transaction is completed between wallet addresses on the same public ledger, thus making an interlocking system of entries. Triple-entry bookkeeping facilitates in recording this transaction because it enables you to record the receipt and conceal the entry cryptographically.

How Can Triple-Entry Bookkeeping Benefit the Companies Using Bitcoin?

The businesses who trade with bitcoin obtain two benefits from triple-entry bookkeeping. First off, the entries recorded in the triple-entry system are cryptographically sealed and thus destroying them or falsifying them is practically impossible. Therefore, at the time of the audit, the auditors can quickly verify a large part of the crucial data in the financial statements without spending a lot of time. Instead, they can utilise the time saved to concentrate on higher risk areas.

The second benefit is that the integrity of the business’s financial statements is less likely to be questioned or attacked. The reason being the revenue and expenditure of the business cannot be counterfeited because it needs the encrypted signature of the third party to accept the validity of the transaction. Therefore, there is no room for errors or faulty entries, thus making your financial statements a trustworthy one.

Triple-entry system can prove beneficial for companies using bitcoin and other cryptocurrencies. However, how it’s adoption will affect the current financial market is debatable. Hopefully, this guide to triple-entry bookkeeping with bitcoin helped you get some bookkeeping advice. To learn more, contact a reliable bookkeeper near you.

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