The logic of designing the double-entry bookkeeping: Fortuity or regularity?
Subject The article presents a comparative analysis of two hypotheses about the logic of designing the system of financial accounting, namely, a generally accepted hypothesis and a uniquely designed one.Objectives The aim is to identify merits and demerits of the said hypotheses.Methods The study employs a commonly accepted approach to any hypothesis assessment, which rests on its explanatory power, i.e. a capability of hypotheses to explain the key and counter intuitive features of artifacts, as well as on the credibility of hypotheses and their conformity with historic evidence.Results The generally accepted hypothesis neither explains paradoxes of balance sheet’s historical form and the system of accounts, nor enables to define debit and credit, equity and profit, and accounting records as a single set of data, or to interpret double entry. The offered uniquely designed hypothesis, on the contrary, provides a logically consistent explanation of main features and paradoxes of double-entry bookkeeping, proceeding from two simple premises, namely, capital balance (wealth) and accounting arithmetic.Conclusions The system of financial accounting requires transformation. The conceptual framework, forms of reporting and system of accounts should be modified to conform to modern arithmetic. The history of accounting, both before and after Luka Pacioli, needs a radical review. The generally accepted hypothesis about medieval origin of double-entry bookkeeping as a result of accidental decisions of medieval merchants is improbable and fruitless. The logic of this system designing demonstrates that it was created by outstanding methodologists during other period of history.