1. The distinction between stock and flow is also an axiom of material accounting.
On an aerial photograph, I count a number of parked vehicles. This count is a stock measure. Using a video surveillance device, I count the entrances and exits of a car park. This counting is a flow measure. Measuring inventory is a snapshot. But this observation does not define what a stock is. The measurement of a flow relates to a duration. But this observation does not define what a flow is. Cash balances53 and revenues are nevertheless different realities. Revenues are flows, cash balances are stocks, etc., etc.
2. The assimilation of economic circuits to hydraulic devices is often used.
Water reservoirs are stocks, water currents are flows. The reservoirs and economic currents are of commodities, debts and currencies. Schemas of this kind, however, can be used to mask a primordial reality. One of the stocks of receivables is like a water tower whose function justifies calling capital.
3. The first tool of economic accounting is a nomenclature of accounts.
It is now customary to say that such a nomenclature constitutes a chart of accounts54. Titles of classes of accounts and accounts are included. Some of these classes and accounts are flow, and others are stock.
4. The second tool of economic accounting is the double part55.
The accounts that a bank provides to its customers are among those that most clearly show the need for a "credit" and a "debit", mentioned more and more frequently in the "amount" column by a positive number for a credit and a negative number for a debit. Ensuring that a debit or credit amount can be recorded in any account is one of the features of double-entry economic accounting. Another system consists of balancing any credit by a debit of the same amount and any debit by a credit of the same amount, within the same accounting. The equality between the sum of the debits and the sum of the credits attests to the arithmetical accuracy of the balance carried out and, within the framework of duly standardised procedures, to its economic correctness (principle of this correctness in point 6 below).
Consider Bank B's account C1 in the double-entry books of entity E; the C2 account of entity E in the books, also kept in double entry, of Bank B. The direction of the writings in C1 and C2 is reversed. This inversion exists between any supplier and any customer, as more generally between creditor and debtor.
5. The double-entry recording reverses the algebraic sign of a balance depending on whether it is a flow or a stock.
A balance is the result of an algebraic addition. For example, (+3) + (+2) + (-1) = 3 + 2 - 1 makes a positive balance of 4; and (-3) + (-2) + (+1) = -3 - 2 + 1 makes a negative balance of 4. A positive balance is a credit when it is in flow, a debit when it is in stock. Conversely, a negative balance is a debit when it is in flow, a credit when it is in stock. We become all the more familiar with this rule if we already have in mind the general scheme of the income statement on the one hand, and the balance sheet on the other (on these diagrams, see the rest of this chapter).
6. The balancing of a credit by a debit of the same amount is economically relevant.
Entity by entity, any commodity exchange or transfer of a commodity term has an effect on a stock of currency, receivable56 or commodity. The simultaneous recording in an entity's accounts of a credit or debit flow and an increase or decrease in inventory makes the double entry economically relevant.
Depending on whether the movement in question is an outgoing flow – debit – or an incoming flow – credit – a stock is reduced – credit – or increased – debit. In practice, it is sufficient to remember that by convention of use of the words "debit" and "credit":
7. For example, work is provided in exchange for his remuneration by cheque or transfer.
The employer's double-entry accounting records this remuneration by a debit and a credit: the debit is from a flow account – wages paid –; The credit is from a stock account – bank. The employee's double-entry bookkeeping records this same remuneration by a credit and a debit. The credit is from a flow account – income – the debit is from a stock account – bank.
8. The generalization of the use of double-entry economic accounting constitutes a gigantic work of civil engineering.
Understandably, trade and industry were the crucible for the development of this book. The latter is nevertheless constituted by the adjoining use of the different kinds of double-entry economic accounting. It should be noted that the peddlers of denials of economic reality willingly dispense with admiring the work of civil engineering, and progress, that constitutes the generalization of the use of double-entry accounting. This helps them to tell themselves that the systematic use of the adjective "accountant" in its pejorative sense is honest.