بشير 7

Accounting & Finance
Triple-entry accounting with blockchain: How far have

we come?
Cynthia Weiyi Cai

Charles Sturt University Study Centres Melbourne, Melbourne, VIC, Australia
Abstract
Although double-entry accounting has been used for more than 600 years,
today’s era of disruptive technological change utilising blockchain and FinTech
has led to the emergence of another promising accounting method: triple-entry
accounting. This paper explores triple-entry accounting, from its conception to
the current state of play, using three case studies. We find that: (i) in a
blockchain ecosystem, for some accounts, business entities will only need to
perform a single entry internally and the opposite entry will be recorded in a
public shared ledger; and (ii) triple-entry accounting is a new and a more
efficient way to address fundamental trust and transparency issues that plague
current accounting systems. Triple-entry accounting with blockchain, when
properly implemented, can fundamentally improve accounting.
Key words: Triple-entry accounting; Blockchain; Accounting system
JEL classification: M40
doi: 10.1111/acfi.12556
1. Introduction
Modern financial accounting has been based on a double-entry system for

more than 600 years, since the time of Fra Luca Bartolomeo de Pacioli (e.g.
MacKinnon, 1993; Mann, 1994; Perry, 1996). Companies benefit significantly
from this system as it facilitates the creation of accurate financial reports and
reduces errors and fraudulent activities. However, as managers oversee the
double-entry system independently and internally, there are inherent trust and
transparency issues for outsiders (e.g. shareholders and governments). Inde-
pendent external auditors are required to verify the company’s financial
information to ensure the integrity of financial information. Current
Please address correspondence to Cynthia Weiyi Cai via email: cynthia.pvic@gmail.com
© 2019 Accounting and Finance Association of Australia and New Zealand

2 C. W. Cai/Accounting & Finance
accounting and auditing practices are costly, laborious and time-consuming.

However, they are still insufficient as a moat against fraud. According to a
report from the Association of Certified Fraud Examiners (ACFE), in 2017
global fraud loss was estimated at approximately $US4 trillion and external
auditors picked up only 4 percent of occupational fraud. An act of fraud
typically involves not only the commission of the scheme itself, but also efforts
to conceal the misdeeds (ACFE, 2018). Therefore, one method of preventing
fraud is to make it extremely difficult to be concealed; namely, by increasing the
transparency of accounting information.
There has been a range of efforts to improve accounting information
transparency. In particular, the International Financial Reporting Standards
(IFRS) aim to bring transparency to financial markets, promoting trust,
growth and financial stability in the global economy (IFRS, 2019). More
recently, integrated reporting has been developed as a framework to commu-
nicate financial and other value-relevant information to investors in an
integrated report (de Villiers et al., 2017; Rinaldi et al., 2018). Legislation
regarding how accountants and auditors are held accountable to their duties
has become increasingly severe. Nevertheless, unless we come up with a new
accounting recording method that can solve the fundamental trust issue
between insiders and outsiders of the company, information transparency can
only be improved marginally. Such a new accounting method sounded
impracticable until 2009, when Bitcoin and its underlying blockchain technol-
ogy emerged. The key innovation of Bitcoin is its demonstration that it is
possible to transfer value at a distance without a trusted third party who can
prove the transaction. Bitcoin is a revolutionary method of value transfer that
utilises a ‘decentralised’ payment transaction, comprising blockchain and a
replicated and shared ledger. As everyone in the Bitcoin network has a full copy
of the transaction ledger and everyone’s ledger remains up to date, all
participants reach consensus regarding a particular transaction without further
proof (Brown, 2015). In addition to its original application in currency,
blockchain quickly became used in other industries, including accounting. As a
result, another concept termed triple-entry accounting re-emerged.
The term ‘triple-entry’ was originally coined in 1986 by Yuji Ijiri, an
accounting scholar. He proposed that in addition to the debit and credit entries,
a third layer of entries called trebit should be included with a new set of
accounts to explain changes of income. The idea of such a ‘triple-entry
bookkeeping’ system is to provide more momentum financial information to
the organisation, enabling better strategic decision making. In 2005, Ian Grigg,
a financial cryptographer, wrote a working paper on his website titled ‘Triple-
entry accounting’, giving this term a totally different meaning from Yuji Ijiri’s
(1986) momentum accounting definition. Ian Grigg raised a new concept, ‘the
receipt is the transaction’, wherein a digitally signed receipt backed up by
financial cryptograph between two parties can be viewed by a shared third
entry to avoid transaction fraud and reduce redundancies in internal recording.

C. W. Cai/Accounting & Finance 3
In 2014, Jason Tyra wrote a short article in Bitcoin Magazine suggesting that
using Bitcoin infrastructure, the triple-entry concept proposed by Grigg (2005)
is possible and likely to be highly desirable for both companies and external
users (Tyra, 2014). Since then, triple-entry accounting associated with
blockchain has become the generally accepted definition. The industry has
already witnessed the massive potential of triple-entry accounting with
blockchain. In 2016, Deloitte published a brief article suggesting that the
implementation of triple-entry accounting with blockchain will be a game-
changer in accounting (Deloitte, 2016). Meanwhile, blockchain developers have
already taken action to put this ‘theory’ into ‘practice’. So far, we are aware of
at least seven blockchain projects related to triple-entry accounting: Request
Network, Balanc3, Fizcal, bBiller, Ledgerium, zkLedger and Pacio.1 Despite
the fact that triple-entry accounting with blockchain might upend the entire
accounting industry, academic research on the topic is extremely limited. This
paper aims to explore blockchain applications based on this triple-entry
accounting framework. We start by reviewing the theoretical development of
the accounting system from single-entry to double-entry and then to triple-
entry. Two different ‘triple-entry accounting’ theories – Ijiri (1986) and Grigg
(2005) – are explained in detail. Ijiri was first credited with using the term
‘triple-entry’ but Grigg has redefined the term. Nevertheless, the general public
and even some scholars and practitioners are mistakenly thinking Ijiri (1986) is
the origin of ‘triple-entry accounting’, which has attracted great attention in the
blockchain community.2 In order to avoid confusion, we clearly distinguish the
work of Ijiri from the work of Grigg. Focusing on Grigg’s (2005) concept of
triple-entry accounting, we discuss how blockchain technology might enable
the implementation of this alternative accounting method. Following the
theoretical discussion, we adopt a case study approach to further analyse three
ongoing blockchain projects which directly relate to the implementation of
triple-entry accounting with blockchain. These three cases give insights into
how far away we are from implementing this new theory in practice and what
are the main issues of implementation we are facing. We find that: (i) in a
blockchain ecosystem, for some accounts, business entities will only need to
perform a single entry internally and the opposite entry will be recorded in a
publicly shared ledger; and (ii) triple-entry accounting is a new and a more
efficient way to address fundamental trust and transparency issues that plague
current accounting systems. Triple-entry accounting with blockchain, when
properly implemented, can fundamentally improve accounting.
A study into triple-entry accounting as a potential means of reformation of
accounting systems in the era of disruptive technological change is both timely
1
We identify seven projects related to triple-entry accounting/blockchain accounting
based on public resources but acknowledge that there might be more.
2
We will discuss this point in the section ‘Existing Literature on Blockchain Accounting’.

and critically important. In a global blockchain survey based on more than

1,000 blockchain-savvy executives, Deloitte (2018) concluded that ‘momentum
is shifting from a focus on learning and exploring the potential of the
(blockchain) technology to identifying and building practical business appli-
cations.’ While the financial services sector is already leading the way, using
blockchain to re-examine processes and functions that have remained static for
decades, the accounting sector instead remains more reserved and is far behind
in terms of blockchain exploration (Deloitte, 2018). One key reason for the lack
of blockchain development in accounting is the knowledge gap between
blockchain developers and accounting experts. On the one hand, accounting
professionals and academic researchers lack adequate training on blockchain
concepts and infrastructures, and hence do not possess sufficient knowledge
and skills for effective engagement. On the other hand, for blockchain to
transform business processes (including accounting), blockchain experts will
need more support from the accounting profession and academia in terms of
specific business and accounting knowledge. This paper tries to fill this gap. To
the best of our knowledge, this is the first academic paper to provide a clear
overview of triple-entry accounting with blockchain technology using illustra-
tive cases. Technical discussions are avoided as much as possible because the
main goal of this paper is to raise the level of general understanding and
awareness of triple-entry accounting with blockchain. We aim to motivate
more accounting researchers, practitioners and regulators to become familiar
with blockchain technology. We are hoping our paper can generate insights on
the acceptance and use of this promising triple-entry accounting method to
inspire more researchers to work in this area.
2. Review: development of the accounting system
Accountancy is one of the oldest professions in the world, with some of the
earliest known records of commerce dating back to circa 3500 BC in
Mesopotamia. However, ancient accounting never progressed beyond a
single-entry accounting system in its thousands of years of existence. The
single-entry accounting system involves a one-sided accounting entry for each
transaction. Assets are entered and crossed off as they move in and out of the
organisation (and hence the accounting ledger) and the dollar amount is
recorded once per transaction. Due to the single record and lack of
crosschecking, this system is subject to serious limitations as errors cannot be
detected and traced, providing ample opportunities for fraud. (e.g. Mann, 1994;
Perry, 1996).
During the Renaissance period (late 1400s), merchants in Venice developed a
new method for tracking their businesses transactions: double-entry account-
ing. In this recording system, each financial transaction requires at least two
accounting entries (debit and credit). One significant feature of double-entry
accounting is that it preserves a verifiable audit trail: as dollar amounts are

recorded twice for each transaction on both sides, the total of debits must equal
the total of credits. If the accounting entries are recorded without error, the
aggregate balance of all accounts having debit balances will be equal to the
aggregate balance of all accounts having credit balances. In case of error, each
debit and credit can be traced back to the original entry and transaction source
document. This double-recording system therefore becomes a firewall protect-
ing the organisation from accidental or intentional errors.
The double-entry bookkeeping system was a revolution compared to the
single-entry system, and modern financial accounting has been based on this
system for over 600 years. However, this double-entry booking system might
be a firewall, but is not a moat against fraud. The balance check of double-
entry cannot prevent cheating; even if the debits equal the credits, it is possible
to do so in a false or misleading manner. Furthermore, as a firm records
completed transactions independently and privately, there is the potential for
the creation of fabricated transactions. To confirm the integrity of a firm’s
accounting, shareholders and governments require auditing on a regular basis.
Each audit is a costly and time-consuming exercise, requiring information
verification and reconciliation among different parties. In addition, as it is
infeasible to audit all the recorded transactions, auditors select a small sample
for audit based on assessed level of risk, which is quite judgemental. Another
problem is that the presentation of organisations’ annual accounts (to
regulatory agencies or general external users) normally occurs once a year,
leading to a seasonal demand with a significant lag time between the end of the
accounting period and the commencement of auditing. This provides ample
time to manipulate accounts and to commit fraud.
2.1. From double-entry to triple-entry accounting
2.1.1. Triple-entry bookkeeping by Yuji Ijiri
The term ‘triple-entry bookkeeping’ was coined by Yuji Ijiri in 1986. Ijiri
(1986) argues that the double-entry records the changes in wealth through the
income earned during a period, but every one-dollar income might be earned at
a different rate. Ijiri (1986) denoted the concept ‘the rate at which income is
being earned’ as momentum, which is measured in monetary units per period,
such as dollars per month. He further designed a third-level entry with a new
set of trebit accounts to record the changes of momentum. Essentially, Yuji’s
work extended the accounting equations from two layers to three layers,
coinciding with the derivative/integration concept in mathematics as follows:
Z T¼tþn
Dassetsn ¼ Incomen ¼ Momentum@ðnÞ;
T¼t
where n is the time period.

Ijiri’s (1986) definition of triple-entry accounting focuses on how accounting

information can facilitate the decision making of internal management. The
goal is to develop an advanced recording system with more ‘momentum’
information, which will help managers to make better strategic decisions. Ijiri
(1986) is the first publication appealing for consideration of a move beyond
double-entry. Although intellectually interesting, his work has been strongly
criticised as lacking a use case, being difficult to implement and being likely to
create disputes (Fraser, 1993). Whether or not it is worth pursuing this
alternative accounting method is still open to debate. However, as this
framework is not currently being used, it is not the focus of this paper.
2.1.2. Triple-entry accounting by Ian Grigg
In 2005, the term ‘triple-entry accounting’ re-surfaced in Ian Grigg’s working

paper with a completely different meaning. Grigg, with his substantial
experience in financial cryptography, proposed a solution to deal with
accidental errors and fraud in accounting, namely that companies should not
be the sole recorders of business transactions. A third-party, cryptographically
secured entry can be recorded at the same time for transactions between
entities. In this third entry, the debit recorded by one entity is the credit
recorded by the counterparty. Grigg (2005) called this new recording method
‘triple-entry accounting’, superseding the initial meaning of the term coined by
Ijiri.
For example, let’s consider a payment transaction between Alice and Bob.
Alice should pay Bob $100 for rendered services. In a double-entry system, the
invoice exists in both Alice’s and Bob’s ledgers: Bob’s credit and Alice’s debit.
In Grigg’s triple-entry system, Bob writes a ‘receipt’ on a third shared ledger
with a signature. At the same time, Alice sees this receipt, approves, and signs it
as well (see Figure 1 for a simple illustration). If such a third entry is recorded
immutably in a shared ledger, neither Alice nor Bob can record something
Alice-Cash Account Bob-Cash Account

Debit Credit Debit Credit
$100 $100
Public Ledger
(Digital Receipt)
Alice Bob
$100 $100
Out In
Signature Signature
Figure 1 A simple example of triple-entry accounting.

differently in their own ledgers, nor can they change the internal record later. In
effect, the third entry validates this transaction ‘automatically’.
2.2. The third ledger on blockchain: a distributed ledger embedded with smart
contracts
Grigg (2005) proposed a great conceptual advance to the business recording

system. At the time of conception, it was unclear who would act as the trusted
and neutral third party to control the third shared ledger. The emergence of
Bitcoin and its underlying blockchain protocol emerged three years later,
demonstrating that a trusted and neutral third party is not necessarily required,
as the third public ledger in Grigg (2005) can be decentralised, immutable,
secure and automated using blockchain.
What is blockchain? Simplistically, a blockchain is ‘another type of database
for recording transactions – one that is copied to all of the computers in a
participating network’ (Deloitte, 2016, p. 5). A traditional database requires a
centralised administrator to control the data/records and it is also permis-
sioned, which means the administrator sets privileges regarding how users can
access a database. In contrast, a blockchain database does not require a central
administrator. Non-trusting users directly share all records so that each
participant on a blockchain has a secured copy of all records and all changes so
each user can view the provenance of the data.3 That is, a blockchain database
is decentralised, replicated and shared; it is a distributed ledger. The intuition of
this blockchain architecture is because every participant in this blockchain
database receives the same copy of the ‘whole’ ledger, there is no longer a need
for a central authority (such as a bank) to keep track of participants’
information. In such a shared ledger, when there is a record of change of
ownership of an asset, the ledger gets updated and will be shared to everyone.
Therefore, this distributed ledger fits the triple-entry mechanism proposed by
Grigg (2005), as a business transaction between two entities can be recorded in
this third-party public ledger and both entities can ‘see’ this updated ledger.
Ideally, there will be no need to audit and reconcile with others such as banks
and the counterparty of this transaction, if all transactions are recorded in such
a third public ledger.
An important concept that further enhances triple-entry accounting (com-
pared to the traditional double-entry system) is the ‘smart contract’. Nick
Szabo coined the term ‘smart contract’ in 1997. In Szabo (1997), a smart
contract is defined as an agreement enforced not by law, but by hardware or
3
Bitcoin and other decentralised consensus systems are underpinned by: (i) ensuring
everyone has a copy of the ledger securely; and (ii) reaching consensus. Problems
associated with these points are not within the scope of this paper. This paper focuses on
the application of such a system in accounting and is not a technical review of
blockchain applications.

software that would ‘fully embed in property the contractual terms which deal
with it.’ Szabo used a vending machine as an existing example. In 2004, Grigg
advanced this concept and proposed a digital version of the ‘smart contract’
called the ‘Ricardian contract’ (Grigg, 2004). According to Grigg (2004), a
Ricardian contract is a digital contract that contains all necessary terms and
clauses and is readable both by people and by computer programs, and
computer programs may subsequently execute this contract if required. One of
the limitations of the original ‘smart contract’ in Szabo (1997) is that
agreements (instructions code) on such a contract are machine-readable only,
so technically the contract is not a legally binding contract. If something goes
wrong, it will be hard to prove the presence of malicious intent from a legal
perspective in a court of law. The Ricardian contract addresses this limitation
by: (i) converting a human-readable legal contract between multiple parties into
machine-readable software code that can be executed with all the features of
the smart contract (Khan, 2018); and (ii) digital signatures are required to make
this contract legal.
Although the concept of a ‘smart contract’ was developed two decades ago, it
is only with the emergence of blockchain that its tremendous possibilities have
been recognised. There is no clear and widely accepted definition of a ‘smart
contract’ within either the industry or academic community. In general, ‘smart
contract’ nowadays mostly refers to any computation that takes place on a
blockchain, not necessarily relating to a contract (e.g. the interpretation in
Buterin, 2017 published by Ethereum Foundation and Cachin, 2016 published
by IBM Research). In this paper, however, we follow a narrow and more
specific definition proposed by Richard Gendal Brown4 in 2015: ‘A smart-
contract is an event-driven computer program, with state, which runs on the
blockchains and which can take custody over assets on that ledger’ (Brown,
2015). According to Brown (2015), a smart contract is a digital contract whose
terms are agreed by two parties and programmed into a blockchain. Once they
are programmed into a blockchain, neither party can manipulate these terms
due to the immutable feature of blockchain.5 Such a digital contract is ‘smart’
because when certain conditions are met, it executes automatically (the
meaning of ‘event-driven’ in Brown’s definition). In addition, digital assets (e.g.
blockchain tokens6) can be exchanged automatically between two parties and
4
Richard Gendal Brown is the Chief Technology Officer at R3, one of the world’s
leading authorities on distributed ledger systems and architectures.
5
Compared with spreadsheets and centralised databases, a blockchain is designed to be
immutable: once a piece of information is recorded on blockchain, nobody can modify
this information.
6
Blockchain tokens are decentralised cryptocurrencies. They allow people to transfer
‘money’ without a centralised party like a bank. Cryptocurrency is the original
application of blockchain technology in the finance industry and Bitcoin is generally
considered the first decentralised cryptocurrency.

they can be stored in a blockchain ledger prior to exchange, working like an

escrow account (Coyne and McMickle, 2017).
Therefore, with smart contracts embedded, the third ledger built on
blockchain is far more than a simple ledger with recorded information. This
ledger can self-execute and/or self-enforce the agreements signed by two
parties. It can also respond and send out information. Even more, this ledger
can potentially work like a traditional bank. This ledger can take custody of
customers’ assets and it can also send out value: instead of transacting in fiat,
the system’s unit of account becomes money (in a tokenised form). Therefore,
this third ledger integrated with smart contracts is an ‘alive’ ledger. It acts on its
own based on pre-determined ‘program codes’, sending information, recording
information and executing transactions. Therefore, it disintermediates the
traditional banking system.
2.3. A triple-entry accounting example using smart contracts
Let’s reconsider the transaction between Alice and Bob to see how triple-
entry accounting may revolutionise the traditional accounting and audit
procedure. In a traditional double-entry system with a centralised bank as a
third party, after Bob performs the services for Alice, Alice would request the
bank to issue a cheque (document 1) to Bob. Once the bank verifies this
transaction, the bank transfers $100 from Alice’s bank account to Bob’s bank
account. At the same time, the bank issues two copies of the receipt (document
2 and document 3) to Alice and Bob. Upon receiving the receipts, Alice and
Bob update their internal entries accordingly. For such a trivial payment, there
is ample room for errors and/or fraud. They stem from two main sources. First,
the information is not sufficiently transparent (one party may ‘alter’ the
information and auditors need to therefore verify information via different
sources; for example, instead of the correct amount of $100, Alice may record
$200 in accounts payable on her ledger). Second, malicious activities may occur
around this payment (for example, Alice may not have enough funds in her
bank account to make the payment). Therefore, auditors must check the
original documents, reconcile the payment amount with the bank, and verify
the document with the counterparty (see Figure 2 for illustration).
In contrast, in the triple-entry accounting framework, Alice and Bob pre-
determine payment rules on a self-executing digital contract: Alice is going to
pay Bob $100 once Bob provides the service. Both sign the contract on this
third ledger. Once the service is completed, Alice and Bob sign the contract
again, this third ledger updates, and the computer program will send $100 to
Bob (see Figure 3 for illustration7).
Key features of the payment record on the blockchain ledger include:
7
This figure is based on the ‘smart contract model’ proposed by Brown (2015).

Cas
h ($
que BANK 100
Che )
Rec
eipt ei
Rec pt
Alice Ledger Bob Ledger

Debit Credit Debit Credit
1 Expense $100 1 Account Receivable $100
Account Payable $100 Revenue $100
2 Account Payable $100 2 Cash $100
Cash $100 Account Receivable $100
AUDITOR
Figure 2 A payment transaction between Alice and Bob in a double-entry accounting system.
Alice Ledger Bob Ledger
Dr Cr Dr Cr
Expense $100 Cash $100 Cash $100 Revenue $100
Smart contract
Alice sends information: Bob sends information:
service provided Agreement: transfer $100 from Alice service provided
to Bob once service provided
Alice Bob
$100 tokens $100
Blockchain Ledger
Auditor
Figure 3 A payment transaction between Alice and Bob in a triple-entry accounting system with
blockchain.
1 The payment is made in the form of tokens (cryptocurrency) which

disintermediates the traditional bank.
2 This payment transaction is recorded in chronological order and this record
is permanent without change. If there is an amendment, a new record will be
required.

3 This record is not maintained by a centralised server, so security threats are

reduced.
4 This record creates a linkage between the internal records of Alice and Bob
so it is less prone to errors and fraud.
5 This record is verifiable, creating an easy audit trail.
The example above demonstrates the advantages of a triple-entry accounting

system. Building on blockchain architecture, triple-entry accounting with smart
contracts may resolve the fundamental trust and transparency issues that
plague current accounting systems. This new framework may therefore reduce
the time required for auditing and associated costs. As a result, more effort can
be directed towards actions to prevent fraud rather than merely verifying
information. This new framework may not prevent all types of fraud (such as
Ponzi schemes) but it can dramatically reduce internal fraud and enhance the
operational efficiency of a company.
2.4. Existing literature on blockchain accounting
Despite the massive potential of the triple-entry accounting framework in

accounting, the amount of academic research on this topic is limited. Schmitz
and Leoni (2019) performed a systematic review of academic publications on
blockchain in the accounting and auditing field ranging from 2008 to 2018.
Seventeen papers were identified. We further identify another three papers that
were just published in Australia Accounting Review in the middle of 2019.8
Among 20 existing peer-reviewed publications, most conceptualise blockchain
innovations in accounting and discuss possible practical implications for the
accounting and auditing profession at a theoretical level. Only four papers
mention ‘triple-entry accounting’ with vague discussions (i.e. Dai and
Vasarhelyi, 2017; Carlin, 2018; Karajovic et al., 2019; Schmitz and Leoni,
2019). The work of Ijiri has been cited frequently in emerging scholarly
accounting literature of blockchain as a reference to ‘triple-entry accounting’.
However, how Ijiri’s framework might or might not relate to blockchain is not
clearly discussed in the previous literature. Even more, some scholars
mistakenly interpret Ijiri’s work and believe Ijiri’s framework is the origin of
the ‘triple-entry accounting’ associated with blockchain. For example, when
Schmitz and Leoni (2019) explain the meaning of ‘triple-entry bookkeeping’
based on Grigg (2005), they mistakenly cite Ijiri (1986). One well-cited peer-
reviewed paper that mentions the triple-entry accounting framework with
blockchain in the accounting literature is Dai and Vasarhelyi (2017). In this
paper, the authors propose an accounting system that extends the existing
double-entry system with a third blockchain layer embedded into it. Every
8
The additional three papers are Carlin (2018), Karajovic et al. (2019) and Tan and Low
(2019).

transaction would create a record stored in this third blockchain ledger, in

addition to entries that would be recorded in the traditional double-entry
system. Entries in this third ledger are recorded in the form of token transfers
between debit/credit accounts. In such a way, each blockchain account is
connected to its corresponding double-entry account in an ERP (Enterprise
Resource Planning) system, comprising an interlocking recording system. They
also argue that tokens in such a blockchain ledger can ‘also be used as
certificates to attest to obligation or ownership of assets among business
parties’ (Dai and Vasarhelyi, 2017, p. 7). Although Dai and Vasarhelyi (2017)
cite the triple-entry accounting framework of Grigg (2005), their idea of a
blockchain accounting framework is not really consistent with the spirit of
triple-entry accounting in Grigg (2005), namely: a third public ledger shared
among business entities. The third blockchain layer proposed in Dai and
Vasarhelyi (2017) is more like a third internal ledger built on a ‘decentralised’
blockchain database, rather than the traditional ‘centralised’ ERP database.
Their framework does not suggest replacing the ERP system; rather, they
suggest adding an additional blockchain-based system on top of the ERP
system.
The Big Four (Deloitte, PricewaterhouseCoopers (PwC), Ernst & Young
(EY), and KPMG) are the largest players in the accounting industry and move
much faster than academia (Karajovic et al., 2019). All of these companies have
engaged in research and development within the blockchain space. For
example, in 2016 Deloitte set up a team (Deloitte Rubix) that focuses on
payments, rewards programmes and digital banking. In the same year, PwC
launched DeNovo, a new strategy-consulting platform focusing on FinTech
innovation. In 2017, EY launched EY Ops Chain, which focuses on pricing,
digital contract integration, shared inventory information, invoicing and
payments (EY, 2019). In February 2019, KPMG announced it had partnered
with the enterprise blockchain company Guardtime to offer blockchain-based
services to clients (KPMG LLP, 2019). The current state of blockchain
exploration displayed by the Big Four focuses on its implications across
different areas such as business, banking, insurance, energy trading and many
more. These companies also recognise the tremendous disruptive potential of
blockchain to their traditional business: external auditing. In 2016, Deloitte
published an article suggesting blockchain technology with triple-entry
accounting may represent the next step for accounting. Although this five-
page article does not explain triple-entry accounting in detail, it explores the
benefits that companies will enjoy if triple-entry accounting can be imple-
mented: ‘instead of keeping separate records based on transaction receipts,
companies can write their transactions directly into a joint register, creating an
interlocking system of enduring accounting records’ (Deloitte, 2016, p. 3). This
article also highlights that as information will be accessible via the third public
ledger in a faster and more efficient way, the need for requests and confirmation
can be removed and substantive testing in the audit process will no longer be

needed. Instead, the auditing process will be more focused on the comprehen-
sive control of all transactions, representing a major breakthrough.
Given the promise of triple-entry accounting with blockchain for accounting
practices, a number of start-up projects have been established with the goal to
implement such a system. They include: Request Network; Balanc3; Fizcal;
bBiller, Ledgerium, zkLedger and Pacio. After a solid analysis of these projects
based on public resources, we select three cases among them to explore in more
detail: Ledgerium, zkLedger and Pacio. We exclude the other four either because
they are not directly relating to the triple-entry accounting framework of Grigg
(2005) (Fizcal and Balanc3) or because we are unable to know the status of their
projects (Request Network and bBiller). Fizcal describes itself to be the first in
developing a ‘fully decentralised triple-entry framework for bookkeeping and
accounting, a concept first developed by Yuji Ijiri in 1986.’ Given Ijiri’s concept is
totally different from Grigg (2005), we doubt whether Fizcal is on the correct path.
Balanc3 started in 2015 and described its goal in 2016 in a video titled ‘Balanc3-
Triple Entry Accounting’. However, it seems the focus of Balanc3 has changed its
original intent of developing an accounting system based on blockchain to ‘an
open platform to manage the digital assets, crypto currencies, and tokens’
(STOwise, 2019). For Request Network and bBiller, according to their white
papers they aim to develop triple-entry accounting with blockchain based on the
spirit of triple-entry framework of Grigg (2005). However, due to limited publicly
available information, we are not quite clear about the state of these two projects.
The three projects that we select for this study provide diverging insights into the
potential challenges and solutions associated with the implementation of triple-
entry accounting. Analysis of these three cases is mainly facilitated by white
papers published by blockchain developers and organisational websites.
3. Case studies
3.1. Case 1: LucaTM by Ledgerium (a third ledger to records payment

transactions between business parties)
Ledgerium is a start-up company based in Melbourne, Australia. According

to its white paper published in 2018, Ledgerium aims to create a decentralised
ledger through a triple-entry accounting system with smart contracts.
Ledgerium calls this third ledger LucaTM, a cloud-based platform that records
payment transactions between parties utilising blockchain. The LucaTM project
was launched in late 2018 and is currently at the stage of partner testing.
Figure 4 illustrates the operation of this project (Ledgerium, 2019). According
to the demo posted on Ledgerium’s homepage, let’s say ABC Corp. should pay
$AU100 to ACME Corp. for rendered services. ABC Corp. creates the invoice
using its accounting software (e.g. Xero,9 a cloud-based accounting software
9
Information on Xero is available at: https://www.xero.com/au/

Bank
ABC Corp ACME Corp

Reconcile
Dr Cr Dr Cr
Expense $100 Cash $100 Cash $100 Revenue $100
Xero Xero
ABC sends information: ACME sends
invoice sent to ACME information: confirm the
invoice from ABC
LucaTM by Ledgerium
Invoice Date Amount Sent Confirm Marked Reconcile

Paid
INV-0031 2018-12- $100
30
Permissioned Access
Auditor
Figure 4 LucaTM by Ledgerium.
used by more than one million Australian and New Zealand businesses). This
invoice is sent to LucaTM with the hash, details and terms and conditions of the
transaction proposed, and is encrypted with ACME Corp.’s public key. ACME
will be notified of such a request; it can then verify this transaction, request a
hash and accept the transaction. Once ACME approves this transaction,
blockchains update and a common ledger between the two parties is completed.
LucaTM will then handle the confirmation with the bank to process the
payment. Once the payment is completed, accounts are reconciled in this public
ledger. Auditors can use LucaTM by requesting permission to access this
common ledger. After the request is approved, an auditor can verify the
authenticity of a transaction via the hash stored in the blockchains at the point
that each original transaction is created or via each targeted party (see Figure 4
for illustration10).
As we can see, LucaTM is designed to be a third, decentralised public ledger
according to the triple-entry accounting system proposed by Grigg (2005). The
main advantage of LucaTM is that it has a very clear, specific and manageable
task: design a public ledger with only two main accounts: accounts receivable
10
Figure 4 is based on the ‘Product Demo Video’ posted on the Ledgerium website:
https://www.ledgerium.net/home/

and accounts payable. One of the main target clients of Ledgerium is

companies with many debtors and creditors in their database. Managing
accounts receivable and accounts payable is time-consuming and costly.
LucaTM can greatly increase the transparency and efficiency of the accounts
receivable-payable business cycle. Therefore, the internal accounts of ‘accounts
payable’ and ‘accounts receivable’ may no longer need to exist. LucaTM also
integrates with companies’ existing accounting software and banking systems.
These potential benefits may serve as a key incentive for companies to trial and
potentially adopt this platform, as it does not require extensive changes to
companies’ internal systems.
However, like other ongoing blockchain application projects, LucaTM faces
two big issues: (i) privacy concerns regarding business records on a distributed
ledger; and (ii) the scalability of such a ledger. Privacy concerns are significant
from a business point of view. Currently, there are several approaches to ensure
privacy in a distributed ledger, namely by only committing to hashes of
transactions on the ledger, using trusted third parties to independently verify
transactions, or by using cryptographic schemes to hide the content of
transactions (Narula et al., 2018). The first approach does not support public
verifiability, so it eliminates the benefit of such a distributed ledger. The second
approach, which is believed to be used in LucaTM, supports public verifiability.
However, it also means the content of transactions will be revealed to the
auditor once the auditor gains access permission. This may discourage
implementation of triple-entry accounting in a company’s existing system
because the company might be wary of giving external auditors such power as
some transactions might reveal strategic information. The scalability concern
represents a more technical perspective. Scalability is the main reason
preventing the mass adoption of blockchain, including the implementation of
triple-entry accounting. Triple-entry accounting requires both parties to use a
common ledger. This means everybody needs to participate and cooperate.
However, this decentralisation and the many distributed copies of a blockchain
limit the number of transactions per second. For example, Ethereum,11 one of
the most popular blockchain platforms (on which Ledgerium is built),
processes 30 transactions per second (Khan, 2018), whereas Visa processes
payments 1,000 times faster. A single company hardly reaches this blockchain
performance limit, but this third public ledger only realises its potential if many
companies are using it. As Ledgerium is still developing LucaTM, we are not
suggesting that these two hurdles cannot be resolved by Ledgerium (indeed,
they may have already been addressed). As outsiders, however, we would not
possibly know at this stage, as solving these two hurdles are likely to constitute
a proprietary technology for a blockchain developer. Based on publicly
11
Launched in 2015, Ethereum is the world’s leading programmable blockchain
platform. Developers can build applications on this platform. So far, the Ethereum
community is the largest and most active blockchain community in the world.

accessible sources, we further identify another two ongoing blockchain projects

that attempt to provide solutions to these two hurdles: Pacio and zkLedger.
3.2. Case 2: zkLedger (privacy-preserving auditing for a distributed ledger)
zkLedger is a public ledger with permissioned blockchains and zero-

knowledge proofs developed by the MIT Media Lab, US. zkLedger is said to
be the first system to protect ledger participants’ privacy and at the same time
provide fast, provably correct auditing. In cryptography, the zero-knowledge
proof is a method by which one party (the prover) can prove to another party
(the verifier) that they know a value x, without conveying any information
apart from the fact that they know the value x. The essence of the challenge of
zero-knowledge proofs is how to prove a possession without revealing the
information itself or any additional information (B€ unz et al., 2018).
As mentioned in the previous case study, one main hurdle to the
implementation of triple-entry accounting is data privacy concerns, as current
blockchain designs such as LucaTM will need to reveal the content of
transactions to enable auditing by a third party. Companies may not wish to
do so, as these transactions might relate to sensitive strategy information.
Using the ‘zero-knowledge proof’ method, there might be a way to preserve the
privacy of each transaction while still allowing an auditor to compute with
reliability the correct measurements over the data in the ledger. Using digital
asset transactions among banks as an illustrative example, Narula et al. (2018)
explain how zkLedger achieves such measurements. For example, Goldman
Sachs reports to have €30 million at the beginning of a reporting period.
During the reporting period, Goldman Sachs has two transactions with two
banks: (i) it sends €3 million to JP Morgan; and (ii) it sends €1 million to
Barclays. Both of the transactions are recorded in a zkLedger. The time of the
transaction and the type of asset being transferred are public to whoever has
access to this ledger. However, to preserve the privacy of each transaction,
other values including transaction parties, the amount and transaction graph
are hidden using Pedersen commitments.12 The auditor has a copy of the ledger
and interacts with the banks to calculate functions on their private data in
order to get a view of the financial system represented by the ledger. At the
reporting date, Goldman Sachs recorded €19 million in its account. An auditor
sends a query to Goldman Sachs on this ledger: ‘how many Euros do you
hold?’ and gets a response and cryptographic assurance that the response is
12
A Pedersen commitment is C(m,r) = gm⋅hr, where m is the secret message that the
message sender wants to hide and r is a random secret. Then we can produce a
commitment c = C(m,r) and make c publicly available. Once the verifier is given c,m,r,
he/she can check if indeed that c = C(m,r). This commitment is cryptographic
equivalent of secretly writing m in a sealed, tamper-proof envelope kept by whoever
wrote m (Pedersen, 1992).

correct. An auditor can ask queries including sums, moving averages, variance,
co-variance, standard deviation and ratios (see Figure 5 for illustration).
zkLedger is said to be the ‘first system to generate cryptographically
verifiable answers to arbitrary analytical queries without revealing confidential
information’. MIT Media Lab has implemented a prototype of zkLedger to
evaluate the design. For a transaction per bank to be recorded on zkLedger, the
JP Morgan
0M
€1
Goldman Sachs
€1M Barclays
Public Ledger
(with transactions details)
ID Asset From To Amount

1 Euro Depositor Goldman 30 M
Sachs
2 Euro Goldman JP Morgan 10M
Sachs
3 Euro Goldman Barclays 1M
Sachs
zkLedger
(Transactions are hidden by Pedersen commitments)
ID Asset Goldman JP Morgan Barclays

Sachs
1 Euro Depositor
30M
2 Euro comm(-10M) comm (10M)
3 Euro comm(-1M) comm (0M) comm (1M)
Confirm: 19 M
Enquiry: Howe many Euros does
Goldman Sachs have?
Goldman Sachs
Financial Report: Asset: 19 M Euro Auditor
Figure 5 zkLedger design with Goldman Sachs’ transactions.

entry size is 4.5KB, creating an entry requires 8ms, and verifying an entry takes
7ms. However, zkLedger also has a scaling problem: the cost of a transaction
grows with the number of banks (participants). As the number of banks
increases in zkLedger, the time to create a transaction increases linearly and
time to verify transactions increases quadratically (Narula et al., 2018).
3.3. Case 3: Pacio Solution (a blockchain ecosystem with triple-entry

accounting)
As discussed in the Ledgerium and zkLedger case studies, the scalability of

blockchain is a hurdle to the effective implementation of the triple-entry
accounting system in practice (Gountia, 2019). Over the last two years, projects
have begun to address the scalability of blockchain. For example, the Lightning
Network is believed to be a promising blockchain implementation with the
capacity to handle millions of payment transactions per second (Poon and
Dryja, 2016). Permissioned blockchains like IBM’s Hyperledger have shown a
capacity of 100,000 transactions per second, which is consistent with these
consortium blockchains. However, the problem is that they function within a
closed ecosystem, which is neither decentralised nor publicly accessible, so
utility remains limited. Another promising upcoming project is called Red
Belly, a collaborative effort between Australia’s National Science Agency
(CSIRO) and Concurrent Systems Research Group at the University of
Sydney, Australia. The project is still in its pilot phase but has shown immense
potential, with processing speeds recorded at upwards of 30,000 transactions
per second, matching and at times beating mainstream players like VISA.
Another much more ambitious project, Cosmos, launched its first blockchain in
March 2019 after nearly three years of planning and development (CoinDesk,
2019). According to the Cosmos Network website, the aim of the Cosmos
project is to develop a scalable ecosystem that allows different blockchain
applications to interoperate on a single form, like an internet for blockchains.
The developers believe that Cosmos may contribute to solving some of the key
problems with blockchain, such as scalability and interoperability.
Driven by the promise of Cosmos regarding the possible solution of the
scalability problem that other triple-entry accounting projects are facing, Pacio
chose Cosmos to further develop a standardised, semantic blockchain-based
application platform. The aim of Pacio is far more than developing an
accounting application based on blockchain technology. It aims to standardise
and simplify the storage, exchange and comparison of data globally within and
outside entities via a new sematic standard that supports inter-blockchain
operations. According to Pacio, current business applications have their own
data sources and each of them ‘speak’ a different language. The vision of this
project is to develop a SSIM (Standardised Semantic Information Model) that
harmonises all enterprise data while retaining compatibility with earlier
attempts to organise business data such as XBRL. Once SSIM is developed,

the Pacio platform will allow developers to create tailored triple-entry

accounting and management applications (see Figure 6 for illustration).
A few requirements need to be satisfied to implement triple-entry accounting:
a scalable blockchain ecosystem, a universal data standard for the storage and
processing of accounting data, and a blockchain application dedicated to triple-
entry accounting. Pacio believes that if triple-entry accounting is an isolated
blockchain application and has no connection to other existing and future
business data resources, this application will fail. Therefore, Pacio’s application
platform approach aims to link all isolated triple-entry accounting applications
to each other, and to other business blockchain applications and off-chain data
as well. Pacio represents an attempt to build a blockchain network that will
facilitate global triple-entry accounting applications.
4. Discussion and conclusion
Since the original application of blockchain technology in Bitcoin,

blockchain has now been explored in different industries as more business
leaders and entrepreneurs recognise the enormous potential of this transfor-
mational technology (Cai, 2018). Between February and March 2019, Deloitte
conducted a Global Blockchain Survey among 1,386 senior executives at
companies with $US500 million or more in annual revenue. The 2019 survey
shows that although FinTech remains a blockchain leader, organisations in a
range of sectors are expanding and diversifying blockchain initiatives. A shared
recognition has emerged that blockchain technology is a connecting platform
Pacio Applications such as Triple-Entry Accounting
Pacio API (Application Programming Interface)
SSIM (Standardised Semantic Information Model)
Pacio blockchain based on Cosmo
Figure 6 Pacio’s ecosystem.

that can enable many business processes. The question for executives has now
changed from ‘will blockchain work?’ to ‘how can we make blockchain work
for us?’ (Deloitte, 2019). We have the same question for the accounting
profession: ‘how can we make blockchain work for accounting?’.
Coyne and McMickle (2017) study the possibility of accounting using
blockchain and conclude that it is infeasible. They summarise three hurdles that
restrict blockchain applications in accounting: ‘(i) the desire for confidentiality
that renders public blockchains undesirable; (ii) the ability for firms to
retroactively manipulate private blockchains; and (iii) the limited transaction
verification that the blockchain provides’ (Coyne and McMickle, 2017, p. 101).
The arguments of Coyne and McMickle (2017) are limited due to the
limitations of blockchain development at that time and the fact that their
arguments are based on whether blockchain can be used in a double-entry
system. The first hurdle relates to the balance between the openness and privacy
of data among different participants. The spirit of blockchain is to share
information and such sharing can be designed to be either completely open to
everyone (public blockchain) or open with restrictions (permissioned block-
chain). Data integrity in a permissioned blockchain is contained within the
power of nodes13 as opposed to the entire public. Permissioned-blockchain is
likely to be preferable for use in accounting practices, but Coyne and McMickle
(2017) argue that due to trust issues among nodes, the concept of accounting
based on blockchain might be infeasible. We disagree with this argument
because we believe such a concern is currently being addressed. First, it is
necessary to build a blockchain ecosystem so that there will be enough nodes
(for example, Pacio). Second, it is necessary to find a better solution to protect
data privacy (for example, zkLedger enables approved auditors to verify
transactions without revealing the content of transactions). The latter two
hurdles identified by Coyne and McMickle (2017) become irrelevant if we move
from a ‘double-entry system’ to a ‘triple-entry system’.
Blockchain is viewed as a new technology but it is built on existing
technologies that we are familiar with. As Nolan Bauerle explains, blockchain
is the ‘orchestration of three technologies (the internet, private key cryptog-
raphy, and a protocol governing incentivisation) which together results in a
secure system which allows interactions without a third trusted party to
facilitate digital relationships’ (Bauerle, n.d.). In other words, it is an
alternative ledger system. This new ledger system may enable a completely
new level of information exchange both within and across industries (Deloitte,
2018). Applications based on blockchain technology can disrupt how organ-
isations get things done. Such a disruption can be called a ‘democratisation of
trust’. The very existence of accounting, including the measurement,
13
A node is a device on a blockchain network. The role of a node is to support the
network by maintaining a copy of a blockchain, and in some cases, to process
transactions.

processing, auditing and communicating of financial information about

economic entities, is ultimately for the purpose of ensuring trust and
transparency. Although current accounting and auditing procedures are time-
consuming and expensive, in many cases, they are ineffective. Triple-entry
accounting with blockchain is a new and potentially much more efficient way to
achieve trust and transparency and is therefore likely to disrupt the accounting
industry. In this paper, by exploring triple-entry accounting from its conception
to current application projects, we contest the findings of Coyne and McMickle
(2017), asserting that triple-entry accounting with blockchain, when properly
implemented, can fundamentally improve accounting.
Thus far, few triple-entry accounting blockchain products and services are
fully live in the accounting area, but the projects discussed in this paper have
already demonstrated great potential. The barriers to greater adoption of
triple-entry accounting are a key area for future research. These barriers may
include regulatory issues, potential security threats and uncertain return on
investment (Deloitte, 2019). To further explore the practical issues regarding
the development and implementation of triple-entry accounting, the projects
discussed above and other triple-entry accounting projects that are not detailed
in this paper should be followed closely. Research methods can extend to
include experiments, surveys, interviews and case studies. In addition, in order
to provide greater foundational support, the conceptual and theoretical bases
of triple-entry accounting need to be further examined. Also, given the complex
nature of blockchain, more cross-disciplinary studies utilising technology,
economics and psychology are required in future research.
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Accounting & Finance

Triple-entry accounting with blockchain: How far have

Cynthia Weiyi Cai

Key words: Triple-entry accounting; Blockchain; Accounting system

JEL classiﬁcation: M40

Modern ﬁnancial accounting has been based on a double-entry system for

Please address correspondence to Cynthia Weiyi Cai via email: cynthia.pvic@gmail.com

© 2019 Accounting and Finance Association of Australia and New Zealand

accounting and auditing practices are costly, laborious and time-consuming.

© 2019 Accounting and Finance Association of Australia and New Zealand

© 2019 Accounting and Finance Association of Australia and New Zealand

and critically important. In a global blockchain survey based on more than

2. Review: development of the accounting system

© 2019 Accounting and Finance Association of Australia and New Zealand

2.1. From double-entry to triple-entry accounting

2.1.1. Triple-entry bookkeeping by Yuji Ijiri

where n is the time period.

© 2019 Accounting and Finance Association of Australia and New Zealand

Ijiri’s (1986) deﬁnition of triple-entry accounting focuses on how accounting

2.1.2. Triple-entry accounting by Ian Grigg

In 2005, the term ‘triple-entry accounting’ re-surfaced in Ian Grigg’s working

Alice-Cash Account Bob-Cash Account

Figure 1 A simple example of triple-entry accounting.

© 2019 Accounting and Finance Association of Australia and New Zealand

Grigg (2005) proposed a great conceptual advance to the business recording

© 2019 Accounting and Finance Association of Australia and New Zealand

© 2019 Accounting and Finance Association of Australia and New Zealand

they can be stored in a blockchain ledger prior to exchange, working like an

2.3. A triple-entry accounting example using smart contracts

© 2019 Accounting and Finance Association of Australia and New Zealand

Alice Ledger Bob Ledger

Alice Ledger Bob Ledger

$100 tokens $100

1 The payment is made in the form of tokens (cryptocurrency) which

© 2019 Accounting and Finance Association of Australia and New Zealand

3 This record is not maintained by a centralised server, so security threats are

The example above demonstrates the advantages of a triple-entry accounting

2.4. Existing literature on blockchain accounting

Despite the massive potential of the triple-entry accounting framework in

© 2019 Accounting and Finance Association of Australia and New Zealand

transaction would create a record stored in this third blockchain ledger, in

© 2019 Accounting and Finance Association of Australia and New Zealand

3.1. Case 1: LucaTM by Ledgerium (a third ledger to records payment

Ledgerium is a start-up company based in Melbourne, Australia. According

© 2019 Accounting and Finance Association of Australia and New Zealand

ABC Corp ACME Corp

Invoice Date Amount Sent Confirm Marked Reconcile

Figure 4 LucaTM by Ledgerium.

© 2019 Accounting and Finance Association of Australia and New Zealand

and accounts payable. One of the main target clients of Ledgerium is

© 2019 Accounting and Finance Association of Australia and New Zealand

accessible sources, we further identify another two ongoing blockchain projects

3.2. Case 2: zkLedger (privacy-preserving auditing for a distributed ledger)

zkLedger is a public ledger with permissioned blockchains and zero-

© 2019 Accounting and Finance Association of Australia and New Zealand

ID Asset From To Amount

ID Asset Goldman JP Morgan Barclays

3 Euro comm(-1M) comm (0M) comm (1M)

Figure 5 zkLedger design with Goldman Sachs’ transactions.

© 2019 Accounting and Finance Association of Australia and New Zealand

3.3. Case 3: Pacio Solution (a blockchain ecosystem with triple-entry

As discussed in the Ledgerium and zkLedger case studies, the scalability of

© 2019 Accounting and Finance Association of Australia and New Zealand

the Pacio platform will allow developers to create tailored triple-entry