The Yin and the Yang of Accounting

It is probably too much to say that accounting is really a haven of balance in a world of chaos.  But I honestly believe this is true.  I am going to try and explain why.

The underlying foundation of our bookkeeping and reporting system is the idea of double entry accounting or more commonly, debits and credits.

Every transaction that is recorded has a debit and a credit.  This is a brilliant concept that is simple in execution and which has proven effective over time. It is also a concept that causes no end of confusion in the world of business.

Balance is a repeating event found in nature - for every action, there is an equal and opposite reaction.  If you use cash (credit), then you must have had something else change (debit).  You must have.  No ifs, ands or buts.

Theoretically, and I actually like to ponder this from time to time, if the entire world combined their books, the answer would be zero.  If I pay cash out, you receive cash.  Net effect, zero.  If I borrow money, you lend money.  And so on.

Why is this so difficult?  Over and over, I speak with a person that manages the books at a client and I ask where a check was posted and they will look at me confused.  "It was posted at the bank."  Yes, I will say, changing my face to be a bit more understanding, but what did you buy with it?

Accounting systems have automated the double entry nature of the business, but it is still happening - it's just that you are not having to enter the transaction.  Maybe a vendor is assigned to a code which is creating the debit or maybe you just put everything in an account called "Ask My Accountant".  But whatever code you put on the check entry creates a transactional record of a debit and a credit.

At this point, I guess you might be thinking "Who cares?"  Well, if I may be bold, I would say, you should care.  If you are contemplating a business deal - it might be interesting if you paused for just a moment and thought - what is the credit here?  Does this create value?  If I move resources here, where am I moving them from?  If I use liquidity here, what is now not solvent?

Look -  I freely admit that there are great strategic thinkers in our world, ones that have truly changed things, the doers.  These people are not accountants (obviously).   They do, however, understand the concept of balance.  The fact that our world hangs on that balance.  And they have found a way to shift the world while maintaining balance.

Accountants, at their best, see the balance and report it.  And they use the reports to communicate the truth of what really happened and to make their own contribution to the events.  And, yes, this is all starting to sound a bit touchy feely for a profession that is often considered punitive, stuck in the past, and costly.

But really, if you have ever worked with an inspired accountant, one who whispers numbers, one who can show you stuff, then I guarantee you have worked with someone that feels the balance.  The debit AND the credit.  The Yin and the Yang of accounting.