Once upon a time I have (unsuccessfully) worked as the fund-keeper of a small private organization. It was my first time, and I had very little practical understanding of accounting. Sure, I knew precisely how it was done in theory, and that wasn't the problem; my eventual failure had more to do with motivation than technique. Still, I never had an intuitive grasp of what accounting is about. Recently I've also started wondering whether accountants themselves really know why they're doing it the way they do, either.
My favourite example is double-entry bookkeeping. Just about every source I've ever consulted tells me that its raison d'etre is that it serves as a kind of primitive error correction scheme. Well, it sure does that, but why do people keep on using that sort of primitive in the age of computers? Some sources additionally suggest that there is a practical benefit to being able to subtract from an account by using the credit column or to repeating numbers across accounts without sign changes, but those are really just another way to say the same thing. It doesn't get us around subtracting from one account and adding to another, which is the more basic description of double-entry.
In this one, precise case the likeliest explanation dawned on me thanks to my ample use of alcohol.
At the time I was dating someone who lived in a commune. That commune had a common liquor cabinet, with more or less free access as long as any drain was eventually cleared with the owner. The result was a much more varied, practically inexhaustible and eminently available/convenient cabinet for everybody.
As I became to be accepted as a permanent fixture of the communal life, I was granted my own box in the diagram, and due to my thirst, quickly became adept at keeping tabs on my usage. That bookkeeping went through a couple of revisions, but eventually settled in a form where you tallied a standardized shot ("ravintola-annos") on 1) whose bottles you touched, and also 2) your own name. That way both who suffered the blow and who should be the one to compensate were recorded. On one tipsy night I then finally grasped the connection: what we had there was a picture-perfect double-entry accounting using a single account, which just happened to be in base one so that the analogy didn't show as easily as it otherwise would have. And still we pretty much never balanced the book, so that that couldn't have been why we really went with to columns to begin with. (In case you wonder, yes, there was a price premium above buying cost; this commune had little to do with communism.)
The real reason was that we had a multiple input, multiple output stock, where only the aggregate balances accrued mattered. Each transaction needed to go from a single owner of a bottle to a single consumer of a drink, but that was only a mechanism which maintained the constraint that every shot eventually had to be paid for by someone. The real beef was that the aggregate contribution to and withdrawal from the cabinet needed to be kept in check; every transaction basically lost its meaning after those sums had been updated. The stock, it was there in order to permit us to share efficiencies of scale, and the numbers were there to account for aggregate inflows and outflows which helped maintain that beneficial scale.
This is exactly what happens in firms. They have multiple inputs and multiple outputs. From the accounting perspective, all that matters are the sums total of incoming and outgoing money flows. (Or vice versa material flows, if you want to do some kind of materials accounting as well.) In theory you could treat the finance of a large multinational using a matrix of all-inputs vs. all-outputs, sure, but you really don't want to be doing that with even a dozen accounts when what you're actually dealing withis an additive, homogeneous, non-perishable thing like money. You're only interested in what goes in and what comes out in toto. So that is the basis you will choose, input-output=balance, and since every singular transaction you do influences both, you'll have to incrementally maintain those numbers in two different places. Voila: double-entries.
P.S. There are still at least three things unaccounted for, if you pardon the pun. First, journls do exist. They do so for, let's say, forensic purposes. They record the transactions so that if the abstraction that only sum inputs and outputs matter somehow falls apart, we can still get at the details. This could be if the inherent error check double-entry affords us signals an error, doubly so in case there has been intentional fraud, and then on the other hand so that we can also perform closer analysis on the disaggregated flow of transactions (todays called OLAP).
Second, why have multiple accounts? That' s because only homogeneous stocks can be reasonably tracked in the sum-in, sum-out manner: you can have an account in money, but not one in money plus steel, or one in yens plus dollars. When we want to make finer distinctions, we usually require that certain sorts of transactions going out from account a have to go to account b and not account c. That's a rudimentary means of business analytics: the sums on each account tell us how we're doing with its underlying stock, even if the account does not denote anything physical at all. Double-entry then helps us even further, there: you only need to consider the accounts/stocks-tracked relevant to your current task.
And third, why do we still have this system when in principle we could calculate all of the data on the fly from the general journal? This can be explained as a form of precalculation and caching, which enables 1) distributed, asynchronous and write-only maintenance of the relevant balances, 2) early availability of the aggregates because of that, and 3) enables local analysis of aggregate inflow and outflow in the absence of access to a central repository of data.
