Accounting Theory Part 2

Oct 5 2025
In Part 2 we’ll look at how bookkeeping is done - theoretically. It’s not so much about helping you to actually do the books as it is about learning the fundamental accounting algorithm at the heart of double-entry bookkeeping.
Muhammad al-Kwarizmi (circa 750 to 850 AD) was a Persian mathematician and is credited with being the ‘Father of Modern Algebra’.​

In about 820 he wrote ‘The Compendious Book on Calculation by Completion and Balancing’ which was translated into Latin by Robert of Chester in 1145. It was used until the sixteenth century as the principal mathematical text-book of European universities.​

As we discussed in Part 1, there are two fundamental accounting equations at the root of accounting theory.

When I checked with CoPilot about the importance of equations to the study of algebra, this is what came back:

Equations are not just one topic within algebra — they are the structural core around which algebra developed. Without equations, algebra would collapse into mere symbolic manipulation without purpose.
But before we get down to how accountants keep the books, we need to know a little algebra.

Hopefully you were paying attention in grade 9 or 10 when your high school math teacher tried to get through to you. At the time you were likely distracted by social media and your classmates - particularly the cute one two desks away in front of you!

Accounting is the recording and compilation of transactions, each of which involves at least 2 parts. By convention we call these 2 parts DEBITS and CREDITS.

Debits and Credits aren’t inherently good or bad. It depends on the context. In the same way money is good if you have it, but not so good if you ‘owe’ it to someone else.

At its simplest, transactions can merely involve the exchange of goods for money. A transaction can be much more complicated than that - but let’s not get ahead of ourselves.

No matter how many parts a transaction has, the sum of the debit parts must always equal the sum of the credit parts.

This presentation wasn’t really meant to be a ‘how-to’ guide for bookkeepers.

Instead we hope it can serve as a simple reference to the logic underlying the bookkeeping process.

At SBA Canada we’ve put together a few short workshops that can show how this logic can be employed when you are performing bookkeeping and compilation work.

THANKS FOR LISTENING!

Видео Accounting Theory Part 2 канала Rob Farrow