=Paper=
{{Paper
|id=Vol-2574/short18
|storemode=property
|title=Traditional Accounting with Decentralised Ledger Technology (short paper)
|pdfUrl=https://ceur-ws.org/Vol-2574/short18.pdf
|volume=Vol-2574
|authors=Wim Laurier,Walter S.A Schwaiger,Simon Polovina
|dblpUrl=https://dblp.org/rec/conf/vmbo/LaurierSP20
}}
==Traditional Accounting with Decentralised Ledger Technology (short paper)==
https://ceur-ws.org/Vol-2574/short18.pdf
Traditional Accounting with Decentalised
Ledger Technology
Wim Laurier1[0000−0002−9448−248X] , Walter S.A. Schwaiger2 , and Simon
Polovina3
1
Université Saint-Louis - Bruxelles,
Boulevard du Jardin Botanque 43,
1000 Bruxelles, Belgique,
wim.laurier@usaintlouis.be
http://www.usaintlouis.be
2
TU Wien
Theresianumgasse 27,
1040 Wien, sterreich
3
Sheffield Hallam University
City Campus, Howard Street,
Sheffield, S1 1WB, UK
Abstract. Distributed ledger technology is by some believe to be the
accounting system of the future, replacing the centuries old double-
entry accounting paradigm, as it has desirable characteristics such as
tamper-resistance. However, it might suffer from technology lock-in as
double-entry bookkeeping, due to its long standing history, has offered
the conceptual foundations for many laws, regulations and business prac-
tices. While some of these laws, regulations and practices might become
obsolete as a result of distributed ledger technology, some might still
prove to be valuable in a new technological context. While aiming at
unlocking the potential of distributed ledger technology in an account-
ing context, we also want to preserve the wisdom of accounting crafts-
man. For this reason, it is the aim of this paper to offer a bi-directional
mapping between traditional double-entry bookkeeping and innovative
paradigms that have proven their value in decentralised systems, of which
distributed ledger technology is an exponent. This paper offers such a
mapping for the Resource-Event-Agent paradigm.
Keywords: Resource · Event · Agent.
1 Introduction
1.1 The Need for Collaborative Accounting
The collaborative economy [1] is rapidly gaining importance [9] , while the ac-
counting practice is still enterprise-centric [8] This might hamper a fair distribu-
tion of value along the supply chain [4] (e.g. virtual enterprise, cradle-to-cradle).
In order to enable enterprise-centric accounting to deal with the collaborative
202
Copyright © 2020 for this paper by its authors. Use permitted under Creative Commons License
Attribution 4.0 International (CC BY 4.0).
Wim Laurier et al.
logic, we propose an ontology-based approach that maps relevant accounting
data of trading-partners, allowing third parties and individual trading-partners
to assess a fair distribution of value along the supply chain. This research project
aims at mapping an accounting taxonomy (e.g. XBRL GL4 ) to an international
open-edi standard [5] in order to facilitate the simultaneous implementation of
both paradigms in distributed ledger technology, such as blockchain.
2 Methodology
We intend to formally validate the coherence of the ontology- mapping with For-
mal Concept Analysis.[10] Figure 1 visualises a lattice that allows of identifying
the intent and extent of a construct in a formal ontology.
In a later phase we intend to implement the mapping in a real-world system
in accordance with the Action Design Research research paradigm. [11]
3 Retro-Engineering McCarthy ’82 [7] & Gal ’86 [2]
In this section we map REA2 , which has been demonstrated to cover both de-
pendent views of trading-partners in a collaboration space and the perspective of
any independent observer [6], with the most elementary notions of double-entry
accounting, showing that double-entry bookkeeping is inherently related to the
viewpoint of a single trading-partner. In a later phase, this minimal accounting
taxonomy (as partly shown in figure 3 & 4) will be replaced with a fully-fledged
accounting taxonomy such as XBRL GL4
Figure 2 shows the REA value chain as represented in REA2 on the outside
and fundamental accounting notions at the center of the figure. It shows that an
Acquisition Duality is operationalised by an Liability in accounting terms.
When a purchase : economic event occurs, the inventory of the viewpoint-
defining economic agent (i.e. self : economic agent) increases. This increase
in raw material : inventory can be booked as an asset increase (i.e. debit),
for which the double in the journal entry is a : liability increase (i.e. credit).
This liability can then be settled by a requiting cash-disbursement : economic
event. This cash-disbursement decreases the cash : inventory (i.e. (i.e. credit), for
which the double in the journal entry is a : liability decrease (i.e. debit) that
settles the liability generated by the purchase : economic event. As such, in
the acquisition cycle, the : liability operationalises the second REA axiom
“All events effecting an outflow must be eventually paired in duality relationships
with events effecting an inflow and vice-versa.” [3]
When consuming raw material : inventory, as shown by the consume
: economic event in figure 2, the raw material : inventory decreases (i.e.
credit), for which the double in the journal entry is a : cost increase (i.e. debit,
and an equity, which is a subtype of liability, decrease). When the Conversion
Duality produces final product : inventory, this is booked by means of a
4
https://www.xbrl.org/the-consortium/get-involved/gl/
203
Traditional Accounting with Decentalised Ledger Technology
produce : economic-event journal-entry in which the final product :
inventory increase (i.e. debit) has a revenue increase (i.e. credit, and an equity,
which is a subtype of liability, increase) as a double.
A sale : economic event that decreases the final product : inventory (i.e.
credit), while its double in the journal entry is a : UOMe (i.e. You owe me, as a
subtype of asset) increase (i.e. debit). The acquisition duality is then established
by settling the : UOMe by means of a cash-receipt: economic event that
increases the cash : inventory (i.e. debit), for which the double in the journal
entry decreases the : UOMe (i.e. credit).
4 Conclusion
Although the formalisation of the mapping will require considerably more re-
search and effort, the pattern in figure 2 already leads to the following observa-
tions:
– The REA-construct economic event is a sub-type of the double-entry book-
keeping construct journal entry
– The double-entry bookkeeping construct inventory, which is a subtype of
the double-entry bookkeeping construct asset, is related to the notion of
custody in REA
– debits make the view-defining self : economic agent richer (e.g. inven-
tory increase, liability decrease, cost increase (i.e. liability decrease))
– credits make the view-defining self : economic agent poorer (e.g. inven-
tory decrease, liability increase, revenue increase (i.e. liability increase))
– alternation debits and credits enforce a clockwise value flow in the REA
value-chain from the perspective of the view-defining economic agent (i.e.
the shareholder) as shown in figure 2
References
1. Commission, E.: Collaborative economy. online (2016),
http://ec.europa.eu/growth/single-market/strategy/collaborative-economy nl
2. Gal, G., McCarthy, W.E.: Operation of a relational accounting system. Advances
in Accounting 3, 83–112 (1986)
3. Geerts, G.L., McCarthy, W.E.: The ontological foundation of rea enterprise in-
formation systems. In: Annual Meeting of the American Accounting Association,
Philadelphia, PA. vol. 362, pp. 127–150 (2000)
4. Gordijn, J.: Networked business models with e3value. online (2016),
http://e3value.few.vu.nl
5. ISO: Iso/iec 15944-4:2015. online (2015)
6. Laurier, W., Kiehn, J., Polovina, S.: Rea 2: A unified formalisation of the resource-
event-agent ontology. Applied Ontology 13(3), 201–224 (2018)
7. McCarthy, W.E.: The rea accounting model: A generalized framework for account-
ing systems in a shared data environment. Accounting Review pp. 554–578 (1982)
8. mikorizal software: Why traditional erp and accounting software won’t work for
networks. online (2016), http://mikorizal.org/software.html
204
Wim Laurier et al.
9. Morgan, J.: Why the collaborative economy is changing everything. online
(october 2014), http://www.forbes.com/sites/jacobmorgan/2014/10/16/why-the-
collaborative-economy-is-changing-everything/#772df9114fc1
10. Priss, U.: Formal concept analysis in information science. Annual review of infor-
mation science and technology 40(1), 521–543 (2006)
11. Sein, M., Henfridsson, O., Purao, S., Rossi, M., Lindgren, R.: Action design re-
search. Management Information Systems Quarterly 35(1), 37–56 (2011)
5 Appendix
Fig. 1. Example Conceptual Graph
205
”neat”
Transformation Duality
consume:economic event produce:economic event
outflow inflow
raw material:economic resource credit debit credit debit final product:economic resource
decrease increase increase
increase
inflow outflow
raw material:inventory :cost :revenue final product:inventory
debit increase decrease credit
purchase:economic event sale:economic event
has has has has
206
from credit to from debit to
increase
self:economic agent increase
supplier:economic agent Acquisition Duality :liabilities has has :UOMe Revenue Duality client:economic agent
decrease defines the view
decrease
to debit from to credit from
has
cash-disbursement:economic event credit cash:inventory debit cash-receipt:economic event
decrease increase
outflow
inflow
cash:economic resource
Traditional Accounting with Decentalised Ledger Technology
herently in the trading-partner / dependent view, and that should eventually become
Fig. 2. Scruffy REA Value Chain object-model pattern for accounting, which is in-
Wim Laurier et al.
Double-Entry
Journal Entry
Double-Entry has timestamp has Double-Entry
debit credit
P P
debit- credit=0
amount amount
REA
Economic Event
has has
Double-Entry
T-account
MAR number
/balance
P P
balance= debit- credit
Asset Liability
Custody
UOMe Equity
Inventory increase decrease
Revenue Cost
Fig. 3. Scruffy mental model that goes with the REA Value Chain pattern and should
eventually become a ”neat” meta-model for it
207
Traditional Accounting with Decentalised Ledger Technology
Double-Entry
Revenue+
Double-Entry
Revenue-
REA Double-Entry
Consume Cost+
Double-Entry
Cost-
REA Double-Entry
Produce Liability+
REA Double-Entry Double-Entry Double-Entry
Economic Event Liability- Debit Credit
REA Double-Entry
Give UOMe+
Double-Entry
UOMe-
REA Double-Entry
Take Asset+
Double-Entry
Asset-
Fig. 4. Scruffy mapping of REA and double-entry bookkeeping and should eventually
become a ”neat” meta-model for it
208