What is bookkeeping?

To answer this question, let's start from the definition that the little Larousse gives of the word “accounting”: “technique of measuring the activity of an economic agent".

Accounting is, therefore, a technique, that is to say, a set of procedures, rules, and standards, used to measure and keep track of the activity of an economic agent over time.

What is an economic agent?

Any person, natural or legal, or any group of people carrying out exchanges with others.

What is the activity of an economic agent?

All the exchanges that it carries out and which can be translated in the form of monetary values (in money).

This does not mean that all these exchanges must necessarily relate to a sum of money (barter is an economic operation in its own right), but that it must be possible to determine a financial value for the elements included in the exchange.

Moreover, a large part of accounting rules and standards seek to provide an answer to the question: how to give value to things which, at first glance, do not have any?

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How does accounting translate these exchanges?

It translates them in the form of flow.

What is a flow?

·         If A gives something to B, it is a flow.

·         If C steals something from D, it is also a flow, but much less sympathetic.

·         When E promises to do something for F, it's still a flow.

In the case of an exchange or a transaction, two flows of equal values (condition of the agreement) but of opposite directions can be identified, one concerns the object of the exchange, the other its counterpart.

·         B sells a thing to A: ^1st flow (actual flow, object of the transaction)

·         A pays the agreed price for this thing to B: 2 ^e flows (cash flow, consideration for the transaction)

How does accounting presents these different flows?

If we were to write the previous operation from the point of view of each of the two actors involved, it could give:

·         For A: "I acquired a thing in return for a sum of money"

·         For B: "I acquired a sum of money in return for something"

This is exactly what accounting does but in a more "mathematical" form.

For this, it uses two columns:

·         In the left one called "debit", it inscribes the object of the transaction or "use"

·         In the one on the right called “credit”, it enters its counterpart or “resource”.

Which could give:

·         Accounting of A:

·         Accounting of B:

However, as we have already seen, accounting translates every element of the transaction into a monetary value.

This translation has the advantage of allowing great flexibility and adaptability of the system to all possible operations. However, it also has the drawback of losing sight of the reality of the elements concerned by each flow.

Indeed, imagine that the thing was exchanged for a value of 100. If the accounting was limited to replacing each element by its monetary value, that would then give:

·         Accounting of A:

·         Accounting of B:

Totally indecipherable!

To avoid this, accounting uses a system of accounts.

What is an account?

In our example, we could thus create two accounts:

·         the first would be called "thing" and would group together all the flows relating to things,

·          the second would be called “money” and would group together all the flows relating to money.

In this case, the operation described above could be written:

·         Accounting of A:

·         Accounting of B:

Admittedly, the result is not, except for the informed eyes, directly more comprehensible than our starting literary formulation:

·         For A: "I acquired a thing in return for a sum of money worth 100"

·         For B: "I acquired a sum of money worth 100 in return for one thing"

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