Double-entry bookkeeping allows merchants to categorize historical events in such a manner that they can be quantified and numerically analyzed as a dynamic process. It preserves the before-and-after character of the events in such a manner that allows a previous financial state to be completely reproduced by the analyst.
Because of the invention of double-entry bookkeeping, financial information has become time-dimensional, giving us historical snapshots that can be sorted and summed into the analytical forms that we know as financial statements – the headlines that produce a quick snapshot of a company’s financial flow of resources.
We can maintain a financial balance by making single-entries in a ledger, in a manner similar to how we keep a balance in our checkbooks. However, to be able to identify and analyze the changes to our financial state over time, such as we do when we determine earnings and income, it is necessary for us to record both the origin and destination of a financial movement. The origin is what we refer to as the “credited” account and the destination is what we refer to as the “debited” account. See p. 65, The Tao of Financial Information.
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