Double-Entry Bookkeeping For Non-Financial Performance, A Framework To Apply Lessons From Financial Accounting To Non-Financial Domains

Abstract

This paper analyses the underlying assumptions of the double-entry bookkeeping system to show how we can expand this system to integrate ESG information in the financial data collection and reporting processes. Our analysis identifies five axioms that shape double-entry bookkeeping. By relaxing one of these axioms, the monetary unit assumption in accounting, we can apply double-entry bookkeeping to non-monetary performance measures and integrate a wider range of value flows into our accounting system. We show that this change does not affect the core strengths of double-entry as a recording system, and allows the production of a wider set of performance measures from the records that include net income. We provide a proof of concept by applying our framework to firm-level data on greenhouse gas emissions and corporate income taxes to show how the evaluation of performance changes for firms if we integrate more dimensions of performance into a single, consistent bottom-line number that generalizes net income.

Keywords: Bookkeeping system design, double-entry bookkeeping, ESG accounting, non-financial reporting, performance measurement

JEL Classification: Q56, M10, M41, A13, Q51