The Capitalism in Our Ledgers

I recently trained as a bookkeeper to diversify my skills and bring new functions to my workplace. It’s not much like my official role as a science writer, but it was a natural fit for someone as comfortable with spreadsheets as I am. Entering this distinct sphere was an interesting experience that broadened my horizons more than I expected. Bookkeepers are the unsung heroes of so many human endeavors, places where records all combine and become comprehensible summaries to guide the future. Bookkeeping is an extraordinarily old profession, and its current form traces back to the practices of 14th-century Venetian merchants.

Despite literally predating capitalism, bookkeeping is also one of the places where the base logic of capitalism sneaks into our lives, and it starts with the accounting equation.

The Accounting Equation

One of the first things that bookkeepers learn is the accounting equation, which defines the various categories where money can be. This equation has two versions. The short version is used to track the state of the business at any given moment, and what it might look like to an outside buyer.

Assets = Liabilities + Equity

Assets are material or non-material objects the business owns or controls and can further be divided into numerous categories: cash on hand, inventory, office furniture, prepaid rent, intellectual property, and more. Liabilities include loans, sales that clients paid for in advance, gift cards sold, and anything else that represents money that the business currently holds but must return to another person in some way, whether as items, cash, or services. Equity is money directly contributed by the business’s owners, including the results of selling shares on the stock market.

Because this is an equation, the two sides must balance; an imbalance means something is missing or has been counted twice. Balancing this equation is the bookkeeper’s core task.

Perceptive readers may already see the capitalism sneaking in, but it gets more obvious with the expanded accounting equation used to track changes in the business’s accounts over a defined span of time, such as a month or a year:

Assets + Expenses = Liabilities + Equity + Revenue

In both versions, the left side of the equation is what the business spent money on, and the right side is where that money came from. Businesses spend money to acquire new assets or on their expenses, and that money comes from debt they take on, funds provided by the business owners, or revenue brought in from clients.

(There are modified versions of the latter equation for specific business models, including contexts where stockholders are involved.)

A World Apart

The accounting equation is perhaps rather abstract and befitting of bookkeepers’ reputation as cold and stodgy, but it also maps onto the roles that humans play in business. Equity neatly maps onto the activity of the business’s owners, as noted above, and one can think of the Revenue term as customers.

Question for the reader: where do employees fit in this equation?

If you guessed Expenses, well done. Employees don’t show in the basic accounting equation at all and in the expanded one, they nestle neatly among the office supplies, toilet paper, utility bills, and other costs that don’t directly result in a long-term owned asset or sellable inventory. Employees are a cost to track and minimize, with the same brutal logic that would have businesses switch to lower-cost pens and install low-flow toilets. Employees are instrumental to the business’s operations and, in perverse irony, bookkeepers must treat them as instruments, little different from the tools they use to perform their duties. The value they generate, in turn, becomes assets balanced with equity, and the employee is accorded no claim on it.

Owners are so central to the bookkeeping process that the equation term where they appear is called equity, literally the word for making the equation balance. Anything unaccounted for elsewhere is theirs.

But math is math, and centuries of precedent do not have to last. Equations can balance a lot of different ways. It’s not that difficult of a switch to start considering employees as more than rented tools. Indeed, ownership structures already exist that expand the concept of owner. Arguably, selling ownership shares provides such an expansion, as does providing those shares as compensation to employees. More pointedly, cooperative business models where most or all employees are co-owners and large chunks of equity belong to them directly address and correct the owner/employee imbalance, at least as far as bookkeepers are concerned. Capitalism might be planted deep in the soil of the bookkeeper’s trade, but it can be uprooted.


The Capitalism in Our Ledgers