The Theology of Financial Accounting by Jerry Bowyer

The first treatise on double-entry bookkeeping came from the mind and pen of Luca Pacioli.  If you've ever wondered why there is a system of accounting software named after a Renaissance era mathematician, now you know.  But he wasn't just a mathematician; in fact, he was not even mainly a mathematician. He was mainly a member of a religious order, and a theologian. His development and refinement of the modern system of financial accounting was not mere mathematics; it was a subset of his theology. And that actually makes a lot more sense than it might seem to on the surface, because at bottom, financial accounting is a moral science. It is the science of stewards telling the truth to the owners towards whom they have an ethical obligation to give an account. The fundamental equation of double-entry bookkeeping is 'assets - liability = capital', which is really just an algebraic representation of a moral truth: Once a corporation has discharged its debts, whatever remains goes to the owner.

Stating the equation a little differently illustrates the principle a little differently: 'Assets = liability + capital', which is to say that everything a company owns represents either an obligation to a creditor or back to the owner.

If this sounds theological to you, that's not your imagination. Much of the Bible is written with the steward/owner mindset in the center. Israel was seen as the steward of God's land, of His law, even of His name.

Jesus' parables quite often center around the relationship between steward and owner. Paul's letters repeatedly invoke the idea of stewards who hold assets in trust. "… It is required in stewards, that a man be found faithful." (1 Corinthians 4:2 KJV). Quite a bit of the Pauline epistles are taken up with matters of accounting: Alms to be collected, accounted for, and distributed from the church of one city to the church of another city. This was something quite rare in the ancient pagan world and required new forms of financial accountability. Creating a mutual aid and welfare society on a network basis, rather than one like Rome's top-down welfare state, was a financial innovation of incredible importance.

Dr. John Thornton, in addition to being the author of Jesus' Terrible Financial Advice, is a CPA, a professor of accounting, and the head (steward) of a charitable fund devoted to improving accounting ethics at Azusa Pacific University. One of his areas of research specialization is looking at why accounting firms get fired. He found that the chief reasons were corruption and incompetence. It was only after the data led him to that conclusion that he learned that his favorite accountant in the Bible, Daniel, was one of whom it was said that his critics "could find no ground of accusation or evidence of corruption, inasmuch as he was faithful, and no negligence or corruption was to be found in him." (Dan. 6:4 NAS)

For Thornton, accounting formalism is not enough to keep the system honest. Character was needed. There are never enough rules to force people to be honest, so you need to find honest people to do the work. Even corrupt people, Thornton says, want non-corrupt people handling their money. The ultimate sanction for Thornton is the final judgment when each person 'must give an accounting for things done in the body'. "I know I lied, but I still followed FASB," will not cut it on that day. Only a culture of truth can produce an accounting system which fulfills its moral obligation to shareholders. And only an accounting system that gives decision-makers the truth will efficiently allocate capital and promote human flourishing to its potential.

Thornton makes a very powerful point about the double-entry bookkeeping system: It forces leaders to see things from multiple perspectives. Each entry must balance. There are no single entries in double-entry accounting, which means that there are no entries which permit the financial managers of an enterprise to focus only on one side of any transaction. If an asset is purchased, then the asset is recorded… But so is the decrease in cash which went to pay for it. The decision-maker is literally forced by the mathematics of the method to 'count the cost'. If the asset is bought on credit, then a liability account must be credited. The Venetian method changed the world, and for the better, back at the very origins of capitalism in the Renaissance period. In fact, that method helped make capitalism possible, because it facilitated the separation between ownership and management. Assets could be pooled among wide swaths of people and they could know that if the method of accounting was followed, they would know exactly where their interests stood. This made scale possible, and not just for the already wealthy. As Thornton said to me, double entry bookkeeping "changed the world."

I recently sat down across a Skype line with Dr. Thornton to talk about the theology of the Bible and how it affects (and effects) the accounting system on which our world runs. You can listen to that interview here.