Payments without accounting are like a human without a heart.
Accounting plays a very critical role in the world of payment processing. When you make a payment, you’re moving value from one place to another. But to really grasp why accounting matters in this domain, let’s take a step back and explore its history.’
Accounting has been around from a long time; it is evolving as commerce and finance have changed over time. The concept of accountings started way back in ancient civilizations. People recorded basic financial transactions on clay tablets. During the Italian Renaissance, Luca Pacioli introduced double-entry accounting, (In year 1494) this was a great milestone in the field.
Double Entry Account Keeping
Today’s accounting are standardized. Financial records are now accurate than before. Transparency has increased.
The accounting today is not only about performing debits and credits, Tasks like tracking, recording, and verifying transactions are also a part of modern accounting principles and standards.
The fundamental principle of accounting is to ensure that for every debit recorded, there is an associated credit, and vice versa. When viewed from the perspective of payments, the accounting processes revolve around helping the transfer of funds from one party to another through different channels and using different payment instruments
If BOB is initiating a payment to MIKE, BOB’s account will be debited, and MIKE’s account will be credited with the transferred funds. This is very high-level accounting of a simple credit transfer flow. Further in the chapter we will check the detailed approach of the similar examples