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. 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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 debitincrease 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