Cameral accounting and cash flow reporting

The European Accounting Review 2001, 10:4, 705–724

Cameral accounting and cash � ow reporting:some implications for use of the direct orindirect method

Norvald MonsenNorwegian School of Economics and BusinessAdministrationManuscript � rst received: January 2001. Manuscript accepted: September 2001.

ABSTRACTThe most thoroughly debated format issue in designing a cash � ow statement for abusiness enterprise concerns use of the direct or indirectmethod when reporting cash fromoperating activities. The article argues that the reason why we cannot solve this dilemmaof using the direct or indirect method is related to the fact that our discussion is limited tousing the axiom of double-entry bookkeeping within commercial accounting.

In this article, however, the discussion of whether to use the direct or indirect method isnot limited to commercial double-entry bookkeeping; it is also based upon anotheraccounting framework, speci� cally designed to deal with cash transactions of govern-mental organizations: single-entry cameral accounting. The article argues that commer-cial accounting could learn from cameral accounting, separating cash from non-cashbalance sheet changes, and directly prepare a cash � ow statement from the single-entriesof the cash transactions on the cash account, before they are entered into the double-entrybookkeeping system, to provide a performance result (revenues minus expenses) andrelated balance sheet information (assets, liabilities and equity). By applying thisprocedure, the direct method of preparing a cash � ow statement becomes the naturalmethod to use.

1. INTRODUCTION

Historically, the most thoroughly debated format issue in designing a SCFP (statementof changes in � nancial position) concerns the method used to report cash fromoperations. Accounting theoreticians have been split about the relative merits ofusing the reconciliation approach versus the direct approach. The direct approachbegins with cash receipts and deducts cash payments, individually listing each majorrevenue and expense after converting each to a cash basis. The reconciliation approachbegins with income and derives operating cash � ows by adding back (deducting)noncash expenses (revenues). A choice between the reconciliation approach and the

Address for correspondenceNHH, Helleveien 30, N-5045 Bergen, Norway.E-mail: [email protected]

Copyright # 2001 European Accounting AssociationISSN 0963-8180 print=1468-4497 online DOI: 10.1080=09638180120103305Published by Routledge Journals, Taylor & Francis Ltd on behalf of the EAA

direct approach is necessary regardless of whether an activity format or a sources andapplications format is used.

(Swanson, 1986: 40)

According to Lee (1981), the argument for cash � ow accounting hasprogressed at two levels: conceptually (both in relation to what cash � owaccounting attempts to describe, and for whom it is addressed); and empirically(in terms of utility and feasibility). Speci� cally, the format issue, that is, how topresent a funds (cash) � ow statement, as opposed to the underlying bookkeepingmethod, has been in focus in the literature about this particular statement. Forexample, Rosen and DeCoster (1969: 124) state that ‘several different ‘‘funds’’concepts and formats have been advocated and adopted at various times duringthe life of the report’. Moreover, in an article entitled ‘Designing a cash � owstatement’, Swanson (1986: 38) states that ‘[t]his article reviews alternativeformats for a cash � ow basis statement and recommends a particular format’.Moreover, as it appears from the excerpt at the outset of this article, ‘[h]istorically,the most thoroughly debated format issue in designing a SCFP (statement ofchanges in � nancial position) concerns the method used to report cash fromoperations’.

The literature on funds (cash) � ow statements is characterized by the follow-ing: (1) it focuses on business enterprises, (2) it departs mostly from thecommercial (accrual) accounting model and (3) format issues have been infocus. However, the format issue concerning use of the so-called direct or indirectmethod, has not been solved, since current standards concerning cash � owstatements (see, e.g., SFAS 95; IAS 7) allow use either of the direct or indirectmethod, although the direct method is recommended. Hence, it does not seem aswe are able to solve this particular and highly discussed format issue within theframework of the current debate, that is, within the framework of commercial(accrual) accounting.

Let us keep in mind that accrual accounting focuses on a performance result(i.e., revenues minus expenses) as opposed to a � nancial result (revenues minusexpenditures or cash in� ows minus cash out� ows) (see e.g., Walb, 1926). Perhapswe therefore could solve the format issue (i.e., direct or indirect method) if we gobeyond the framework of accrual accounting and use a framework of cash � owaccounting. In fact, Professor Tom A. Lee (see, e.g., Lee, 1986) has suggestedsuch a framework for business enterprises; it has not, however, contributed to endthe debate about use of the direct or indirect method. Another accountingframework, cameral accounting, focusing on money management (revenues/expenditures and cash in� ows/out� ows), which has been developed for govern-mental organizations, has so far not been applied in discussions about accountingfor business enterprises in general and funds (cash) � ow statements for suchorganizations in particular. Although cameral accounting was developed forgovernmental organizations and not for business enterprises, the focus onmoney management and the preparation of � nancial statements reporting onthe money development, is also the focus of funds (cash) � ow accounting. Let us

706 The European Accounting Review

therefore now add the cameral accounting framework to the accrual accountingframework in our attempts to solve the question of whether to use the direct orindirect method when preparing a funds (cash) � ow statement for a businessenterprise.

The purpose of this article is therefore theoretically to discuss use of the director indirect method when preparing a funds (cash) � ow statement for a businessenterprise. This discussion will be based both upon the commercial (accrual) andcameral accounting frameworks, and it will speci� cally be discussed if accrualaccounting can learn from cameral accounting with regard to the preparation offunds (cash) � ow statements. Whether such an analysis will end the debate aboutwhether to use the direct or indirect method when preparing such a � nancialstatement, only time can tell. However, the article attempts to provide a betterplatform on which to base future discussions about the preparation of funds(cash) � ow statements.

The article is structured as follows: First, a section comparing single-entry anddouble-entry bookkeeping is presented, followed by a presentation of the cameralaccounting framework. Thereafter, the article discusses the preparation of funds(cash) � ow statements, drawing both upon commercial double-entry bookkeepingas well as on cameral single-entry bookkeeping. Finally, a concluding sectionends the article.

2. SINGLE-ENTRY VERSUS DOUBLE-ENTRYBOOKKEEPING

In an article entitled ‘An historical defence of single entry book-keeping’ from1966, Jack begins as follows:

The study of the history of accounting and accountancy has perhaps suffered from thoseprofessionally interested in the subject having focused their attention almost exclusivelyon the origins and early development of the double entry system.

(Jack, 1966: 137)

Double-entry bookkeeping, also referred to as commercial (accrual) accounting,emerged in response to the needs of businessmen in Italy in the thirteenth century(Kam, 1990: 29), and Luca Pacioli’s book Summa de Arithmetica GeometricaProportioni et Proportionalita [Review of Arithmetic, Geometry and Proportions]in 1494 was the � rst book on double-entry bookkeeping to be published (see,e.g., Kam, 1990: 19). Although it cannot be stated speci� cally why single-entrybookkeeping was developed to double-entry bookkeeping, one advantage of thisdevelopment has been to make it possible to allow for the presentation of aperformance result both based upon the activities and based upon the correspond-ing result-effective payments of a business enterprise (see Walb, 1926). AsMulhaupt (1987: 52) points out, in our present society with division of work, anorganization can only produce products and services when it uses products andservices received from other units. It therefore comes naturally to report its

Cameral accounting and cash � ow reporting 707

performance in the following ways: on the activity side by comparing the moneyvalue of the outgoing products and services with the money value of the incomingproducts and services, and on the payment side by comparing the incomingpayments and the increase in accounts receivable with the outgoing payments andthe increase in payment obligations.

Such a comparison of the products/services and payments will not, however,culminate in the result wanted, because not all the incoming products and servicesand the corresponding outgoing payments relate to the consumption in theaccounting period and its money value. Similarly, not all the outgoing productsand services and their money value correspond to the revenues generated in theaccounting period. Therefore, Mulhaupt (1987: 53) underlines that in order to beable to communicate the result, the incoming products/services must be groupedaccording to whether they represent consumption (expense) or not in theaccounting period in question. Similarly, the outgoing products/services mustbe grouped according to whether they represent revenue in the accounting periodin question, or if they originate from earlier accounting periods and consequentlyare no revenue in the accounting period in question. Similarly, one has to groupthe outgoing payments according to whether they represent expense or not, andthe incoming payments have to be grouped according to whether they representrevenue or not. The result, independent of whether it is reported via the activity orthe payment sides, always appears as the difference in the accounting periodbetween the incoming and outgoing products/services and the incoming andoutgoing payments, which have a result-effect.

Hence, when one wants to report the result dually, that is, both via the activityand payment sides, one must delimit the products/services and payments, so theycorrespond to the expenses and revenues of the accounting period. Withincommercial accounting, the income (operating) and balance sheet statementsare used to achieve this, and today the double-entry bookkeeping method seemsto be taken as an axiom for (commercial) accounting:

If we adopt the axiom that double-entry bookkeeping is the foundation for � nancialreporting then, in the context of an organisation with a single, self-contained set ofaccounts, the � nancial reporting problem is to decide which debits and credits should bereported in the balance sheet and which in the operating statement. There are severalreasons for � nancial reporting taking this form, ranging from the trivial, because weconventionally report in this way, to the seemingly unattainable to produce an objectivemeasure of performance.

(Jones, 1982: 287)

Kosiol (1956, 1967) underlines, however, that the preparation of income andbalance sheet statements is independent of the particular type of accounts used(also see Wysocki, 1965). It is therefore possible to prepare income and balancesheet statements by help of either single-entry or double-entry bookkeeping.While double-entry bookkeeping refers to a bookkeeping system which alwaysinvolves two entries of the same amount (debits = credits), and where twodifferent accounts are used, single-entry bookkeeping refers to a system where


every transaction is registered only once on one account. However, within single-entry bookkeeping, a transaction may be entered more than one time (several‘single-entries’), which is the case within systematic single-entry bookkeeping.The term ‘systematic’ single-entry bookkeeping refers to the procedure ofsystematically entering the single-entries in the accounting system, implyingthat result-effective cash transactions (e.g., wage payments) are entered only once,while non-result-effective cash transactions (e.g., cash in� ow of new equity) areentered twice (two single-entries). In the latter case, the second single-entry of atransaction neutralizes the result-effect of the � rst single-entry of the sametransaction. Moreover, within systematic single-entry bookkeeping, cash reven-ues (i.e., cash in� ows) and cash expenditures (i.e., cash out� ows), are extendedby help of non-cash result-effective transactions (e.g., depreciation of � xedassets), allowing for the presentation of a performance result (revenues minusexpenses) (Kosiol, 1967).

Hence, it is possible to prepare a performance result within systematic single-entry bookkeeping, corresponding to the one prepared within double-entrybookkeeping, although it does not appear both via the activity and paymentsides, like it does within double-entry bookkeeping. The double-result presenta-tion of double-entry bookkeeping is an important improvement compared tosingle-entry bookkeeping, and it is re� ected in the two � nancial statements: theincome statement (the activity side) and the balance sheet statement (the paymentside). For example, Eichhorn (1987: 57) underlines that the pro� t/loss withindouble-entry bookkeeping is shown in two ways: on the balance sheet and on theincome statement; and every transaction is registered with the same amounttwice: both on the debit and on the credit sides of the assets accounts and/orliabilities/equity accounts and/or income accounts.

This direct link between the income statement and the balance sheet has alwaysplayed an important role in continental European countries, as well as in theNordic countries, which historically have been strongly in� uenced by continentalEurope, particularly by Germany (see, e.g., Monsen and Wallace, 1995). In theGerman literature one says that the income statement and the balance sheet areprepared in verbundener Form (English translation: in a directly-linked way; see,e.g., Wysocki, 1965: 43), and, for example, in Norway the termkongruensprinsippet (English translation: congruence principle; see, e.g., Kinser-dal, 1998: 315) is used for this direct link between the income statement and thebalance sheet. Furthermore, non-result effective transactions (e.g., receipt of newexternal loans) are reported on the debit and credit sides of the balance sheet only(and not in the income statement), implying that the balance sheet reports totalassets, liabilities and equity at the balance sheet date.

While Walb (1926) points out that the important advantage of double-entrybookkeeping is to allow for the presentation of the performance result for theperiod both as it appears via the activity side (income statement) and via thepayment side (balance sheet), Ijiri (1967) focuses on two other dimensions of thedouble-entry bookkeeping method: the essence of double-entry is that every


increment is causally related to a decrement, and the signi� cant contribution ofdouble-entry over single-entry is that the present � nancial status of a � rm is fullyaccounted for by past events (Ijiri, 1982: 9). At a given date, the assets andliabilities describe the present position of an enterprise, and the capital accounts,including income, can be seen as a summary of past events. If past events havebeen properly accounted for, then the cumulative past should equal the present. Insingle-entry bookkeeping the present status is represented by a list of assets andliabilities, but double-entry compels an accounting of the present by an appro-priate set of capital accounts that captures the past events that led to the presentposition. Thus, accountability is the essence of double-entry (Kam, 1990: 37).

The focus in the German and Anglo-Saxon literature with regard to double-entry bookkeeping seems to be somewhat different, in the sense that the formerliterature (as represented by Walb) focuses on the two ways of reporting theperformance result (i.e., via the activity and payment sides), and the Anglo-Saxonliterature (as represented by Ijiri) focuses on the accountability function of thecapital accounts (i.e., the sum of the performance results of previous years iscaptured by the capital accounts on the balance sheet). These two focuses are,however, complementary rather than inconsistent ones, and they both represent anadvantage compared to single-entry bookkeeping from a performance point of view.

Given the fact, however, that the performance result within double-entrybookkeeping compares revenues and expenses for the period, independent ofwhen the corresponding cash in� ows and cash out� ows occur, it can bequestioned if the development of single-entry to double-entry bookkeeping,although without doubt being an advantage from a performance point of view,also is an advantage from a cash � ow point of view. When posing this question,we should keep in mind that the cash � ow transactions are adjusted for non-cashtransactions within double-entry bookkeeping, in order to report a performanceresult (comparing revenues and expenses, as opposed to cash in� ows and cashout� ows); compare the following statement made by Mulhaupt (1987: 53) andreferred to above: one has to group the outgoing payments according to whetherthey represent expense or not, and the incoming payments have to be groupedaccording to whether they represent revenue or not. Moreover, as pointed out byLee (1981: 71) ‘[t]he computation of CFA data ought to be uncomplicated in anaccounting sense. After all, part of its raison d’etre is to avoid the complexitiesand subjectiveness of accounting allocations’. After having applied the double-entry bookkeeping method, however, complexities and subjectivities of account-ing allocations have been introduced, and we need in some way to ‘go back’ to thecash � ow transactions from which we originally departed when we want toprepare a cash � ow statement.

In summary, discussions about cash � ow statements, like business accountingin general, depart from the axiom of double-entry bookkeeping, although byusing this axiom the cash � ow items are adjusted for non-cash items, allowing forthe presentation of a performance result dually (via the income and balance sheetstatements), as well as for capturing the total effect of previous years’ perfor-


mance results in the capital accounts on the balance sheet. Maybe this acceptanceof the double-entry bookkeeping axiom – without doubt an advantage from aperformance point of view – is the reason why we do not seem to be able to solvethe question of whether to use the direct or indirect method when preparing a cash� ow statement. This is a question which will be revisited later; before doing so,however, a speci� c accounting model, which is based on the axiom of single-entry bookkeeping and which has been speci� cally designed to deal with cash� ow transactions, will be presented.

3. CAMERAL ACCOUNTING

Cameral accounting was developed in the sixteenth century and onwards in orderto contribute to increased control of public money (see, e.g., Walb, 1926;Monsen, 2001). Like commercial double-entry bookkeeping, the cameral book-keeping method is also based upon the classi� cation into activity and paymentaccounts as discussed above (see Walb, 1926), and the concepts used are revenuesand expenditures. However, the cameral account deviates strongly from thedouble-entry, or commercial, account:

In contrast with the two sides of the account within commercial accounting, the cameralaccount as a general rule is single-sided, i.e., it has either a revenue or an expenditureside. While the commercial account on each side (i.e., on the debit and credit sides) issingle-sided, i.e., it has only one column, the cameral account consists in principle offour different columns (both on the revenue and expenditure sides).

(Mulhaupt, 1987: 95; translated from German)

The cameral account is shown in Table 1, and Johns (1951) refers to it as ‘anaccount structure’, because it combines different types of accounts. This accountstructure is explained in the following to the extent necessary for the discussion inthis article. However, a more detailed explanation (including numerical examples)in English may be found in Monsen (2001).

The cameral account consists of two sides: Revenues and Expenditures. It issingle-sided in the sense that the transactions are entered either on the revenuesside or on the expenditures side. On each side, the cameral account structure

Table 1 The cameral account

Bookkeepingplace

Revenues Expenditures

Rests orresidualdues b/f(RD)

Currentdues(CD)

Actuals(A)

Rests orresidualdues c/f(R)

Rests orresidualdues b/f(RD)

Currentdues(CD)

Actuals(A)

Rests orresidualdues c/f(R)


consists of the following four different columns: Rests or residual dues broughtforward (RD), Current dues (CD), Actuals (A) and Rests or residual dues carriedforward (R). Mulhaupt (1987) comments:

In summary it can be stated that governmental accounting consists of revenues andexpenditures. In this accounting system one not only registers payment transactions byhelp of the concepts of revenues and expenditures, but also credit transactions, resulttransactions, as well as balances and balance changes.

The use of the concepts of revenues and expenditures for the various bookkeepingtransactions and for the closing of the accounts, is only possible in connection with thecameral system which consists of columns for current dues, actuals and rests, where thebookkeeping of the revenues and expenditures acquire different meanings depending ontheir placing in this system.

(Mulhaupt, 1987: 77–9; translated from German)

A characteristic feature of the core governmental administration is the lack ofcausality between incoming and outgoing payments and services/products (see,e.g., Johns, 1951: 5; Monsen and Nasi, 1998: Figure 3, p. 282; Wysocki, 1965:33). The money used to ful� l the public tasks must therefore be collected fromthe inhabitants, � rst and foremost in the form of taxes; in other words, there is nocausal link between the municipal services which an inhabitant receives from amunicipality and the taxes he pays to the municipality. Cameral accounting(administrative cameralistics) was therefore particularly designed to contribute toincreased control of public money, implying that the cameral account structure isspeci� cally designed to deal with cash transactions. Later, however, as more andmore municipalities established municipally owned enterprises, which moreresembled business enterprises (with a causal link between incoming andoutgoing payments and services/products), than they resembled the core muni-cipal administration without such a causal link, administrative cameralistics wasdeveloped to enterprise cameralistics. This development was carried out along theline of developing single-entry to systematic single-entry bookkeeping, bysystematically entering items in the cameral account, allowing for the presenta-tion of a performance result (revenues minus expenses), as well as balance sheetinformation (congruence principle), while at the same time also keeping themoney focus of administrative cameralistics.

The cameral account, as shown in Table 1, is used both by administrative andenterprise cameralistics, although the former type does not use the full potentialof the four different columns, such as what is done by enterprise cameralistics.The column Rests or residual dues brought forward (RD) shows the amountsbrought forward from previous periods. On the revenues side outstanding claimsare shown, and on the expenditures side obligations are shown. Within admin-istrative cameralistics, only claims and obligations, for which paymentinstructions have been given, are reported here. However, within enterprisecameralistics, on the revenues side the RD column shows (monetary and non-monetary) assets at the beginning of the period, and on the expenditures side itshows liabilities and equity at the beginning of the period. The RD columns


constitute balance sheet columns at the beginning of the period, becauseoutstanding amounts from the previous period here are brought forward asincoming amounts in this period.

Within administrative cameralistics, the column Current dues (CD) shows thenew claims (on the revenues side) and the new obligations (on the expendituresside) for which payment instructions have been given (principle of ‘paymentinstruction’). This column constitutes the activity side, and therefore forms thebasis for the preparation of an income statement, focusing on a � nancial result(revenues minus expenditures) within administrative cameralistics. Referring toenterprise cameralistics, however, on the revenues side the CD column showsrevenues and increase in assets, and on the expenditures side it shows expensesand increase in liabilities and equity, allowing for the presentation of aperformance result as the net difference between CD revenues (i.e., revenues)and CD expenditures (i.e., expenses) (realization and matching principles).

The column Actuals (A) within administrative cameralistics has a double task.First, it is a settlement account for the rests brought forward (RD) and/or currentdues (CD), by showing how much of the rests/current dues that have beenrealized in terms of incoming or outgoing payments. Second, when we study thecolumn vertically, it shows the incoming payments (cash in� ows) on the revenuesside and outgoing payments (cash out� ows) on the expenditures side. Thus, thiscolumn corresponds to the accounts within commercial accounting that record thecash transactions, that is, the cash, bank and postal giro accounts. Withinenterprise cameralistics, the A columns also show the cash in� ows and out� ows,but in addition they show the decrease in assets on the revenues side, and thedecrease in liabilities and equity on the expenditures side. All non-cash itemsregistered in the A columns on the revenues and expenditures sides will, however,neutralize each other, implying that the net A difference (A revenues minus Aexpenditures) also within enterprise cameralistics, like within administrativecameralistics, shows the net change in liquid assets (the net change of thecash, bank and postal giro accounts).

The column Rests or residual dues carried forward (R) shows, withinadministrative cameralistics, how much of the dues (i.e., RD + CD), which arenot yet realized in terms of payments. This column thus shows outstandingpayment-instructed claims on the revenues side and outstanding payment-instructed obligations on the expenditures side at the end of the accountingperiod. This means that this column constitutes a balance sheet account, wherethe amounts in this column are carried forward to the RD column for thefollowing period. Within administrative cameralistics, only monetary claims andobligations for which payment instructions have been given, but are not yet paid,are reported in the R columns; however, within enterprise cameralistics, the Rcolumn shows on the revenues side the (monetary and non-monetary) assets atthe end of the period, and on the expenditures side it shows the liabilities andequity at this date. The two columns Actuals (A) and Rests or residual duescarried forward (R) constitute the payment side of the transactions.


According to the cameral bookkeeping rules, a transaction in the Actualscolumn cannot be undertaken without a simultaneous or previous transaction inthe Current dues column. This requirement is related to the general rule in thepublic sector, saying that no money can be received or paid by an organizationalunit (e.g., the municipal cashier), without a previous or simultaneous instructionto do so issued by another organizational unit (e.g., the chief municipaladministrative of� cer). Moreover, the connection between the four differentcolumns in the cameral account structure, is re� ected in the cameral basicbalancing rule, which applies both to the revenues and expenditures sides:

Rests or residual dues carried forward = Rests or residual dues brought forward

+ Current dues - Actuals

R = RD+ CD - A

This means that the transactions within the cameral bookkeeping method, asalready pointed out above, are reported horizontally on one side, i.e., either on therevenues side or on the expenditures side (of one account), and the axiom ofsingle-entry bookkeeping is used. This separates this bookkeeping methodstrongly from the commercial method, which always uses two sides, i.e., boththe debit and credit sides (of two different accounts), and is based on the axiom ofdouble-entry bookkeeping. Even though only one account is necessary torepresent both the activity and payment sides of a transaction within cameralaccounting, there is no standard number of entries for each individual type oftransaction (see, e.g., Oettle, 1990; see also the brief explanation of systematicsingle-entry bookkeeping above). Mulhaupt (1987) points out:

While the commercial bookkeeping method always requires two different accounts[cp. the double-entry bookkeeping principle], the cameral bookkeeping method onlyrequires one, because every account represents a combination of two or more accountswithin the commercial bookkeeping method. Any activity is reported on a result andstock account and is directly linked to a payment transaction or a credit transaction,implying that separate accounts for the payment and credit transactions, which resultfrom these activities, are not necessary.

(Mulhaupt, 1987: 97; translated from German)

As pointed out above, the cameral bookkeeping method was primarilydeveloped for the core governmental sector (administrative cameralistics),where one to an essential degree deals with revenues and expenditures in theform of payments. Mulhaupt (1987: 97) underlines in this connection that thespecial mark of the cameralistics, which means that the cash account goesthrough all the other accounts in form of the column Actuals, makes it possible ina simple and accurate way to � nd out the sources for incoming and outgoingpayments, and to tie up certain expenditures in the planning.

In summary, administrative cameralistics is characterized by the following fourmain features: (1) money management, (2) budgetary control, (3) current


dues/actuals control and (4) non-comprehensive balance sheet (see also Monsenand Nasi, 1996). Regarding point (1), the � nancial development directly appearsfrom the cameral account structure (revenues and expenditures in the Currentdues columns and cash in� ows and out� ows in the Actuals columns); hence thefocus is on a � nancial result as opposed to a performance result. Moreover, byusing the same cameral account structure also for the budget, it is possible tocarry out budgetary control (2), focusing on comparing budgeted and real(accounting) revenues and expenditures (CD columns) and/or comparingbudgeted and real cash in� ows and out� ows (A columns). Regarding (3), thecameral account structure makes it possible to control that no money is receivedor paid without a previous instruction to do so, by comparing the Current dues(payment instructions) and Actuals (cash � ows) columns. Within administrativecameralistics, only monetary claims and obligations for which payment instruc-tions have been given, but are not yet paid, are reported on the balance sheet,implying that only a non-comprehensive balance sheet (4) is prepared.

Later, administrative cameralistics was developed to enterprise cameralistics.This development was undertaken in order to make it possible to prepare aperformance result (CD revenues (i.e., revenues) minus CD expenditures (i.e.,expenses)), and related balance sheet information (RD and R columns (i.e., assets,liabilities and equity)) based on the congruence principle, while at the same timealso keeping the money focus of administrative cameralistics (A revenues (i.e.,cash in� ows) and A expenditures (i.e., cash out� ows)). It is of special interest toobserve that the introduction of a performance result (CD columns) andcomprehensive balance sheet information (RD and R columns) in accordancewith the congruence principle, was undertaken by developing the use of theaxiom of single-entry bookkeeping in a systematic way, and not by replacing theaxiom of single-entry with the axiom of double-entry bookkeeping, such as thecase within commercial accounting. As it will appear from later sections of thisarticle, the continued use of the axiom of single-entry bookkeeping withincameral accounting, as opposed to replacing it with the axiom of double-entrybookkeeping, is an advantage from a cash � ow point of view.

4. DISCUSSION

Cash � ow accounting is older than double-entry bookkeeping (commercial(accrual) accounting) (Lee, 1986), and it was based on the axiom of single-entry bookkeeping. However, after the emergence of the axiom of double-entrybookkeeping in the thirteenth century, this axiom has been applied to commercialaccounting, and the focus has been on performance measurement (revenues andexpenses), and related balance sheet information (assets, equity and debt), asopposed to focusing on the � nancial development in terms of cash in� ows andcash out� ows.

Within the governmental sector, however, another accounting model – cameralaccounting – has been applied. Walb (1926: 208) underlines that commercial


accounting and cameral accounting constitute two separate and independentaccounting models. While commercial accounting speci� cally allows for report-ing the performance development of a business enterprise dually (i.e., via theactivity and payment sides), cameral accounting (administrative cameralistics)has been speci� cally designed to deal with cash � ow transactions, which is acharacteristic feature of the core governmental administration.

Over time, as more and more municipalities have established enterprises,which more resemble a business enterprise than the core municipal administra-tion, administrative cameralistics was developed to enterprise cameralistics bypicking up ideas from commercial accounting with regard to the preparation of aperformance result dually (see Walb, 1926); however, by so doing, cameralaccounting developed its use of the cameral single-sided account, as opposed toreplacing it with the commercial double-sided account. In particular, since thepurpose of enterprise cameralistics is to make it possible to prepare a perfor-mance result both via the activity and payment sides by help of the cameralaccount structure and single-entry bookkeeping, it was necessary to developadministrative cameralistics as follows: (1) the cash � ow transactions had to beentered systematically in the cameral account structure, separating result-effectivefrom non-result-effective cash transactions; and (2) the result-effective cashtransactions had to be extended by non-cash result-effective transactions. Asexplained above, this has been possible to do, by extending the interpretation ofthe various columns in the cameral account structure, and by developing single-entry bookkeeping to systematic single-entry bookkeeping. Speci� cally, it hasbeen pointed out above that within enterprise cameralistics, the A columns notonly show the cash in� ows and cash out� ows, but also the decrease in assets onthe revenues side, and the decrease in liabilities and equity on the expendituresside. All non-cash items registered in the A columns on the revenues andexpenditures sides will, however, neutralize each other, implying that the net Adifference (A revenues minus A expenditures) also within enterprise cameralistics,like within administrative cameralistics, shows the net change in liquid assets (thenet change of the cash, bank and postal giro accounts).

This means that cameral accounting (enterprise cameralistics) has learned fromthe performance speciality of commercial accounting in its attempts to supple-ment the money focus with a performance focus. An interesting question to posenow, is the following: will commercial accounting learn from the moneyspeciality of cameral accounting in its attempts to supplement the performancefocus with a cash � ow focus? This seems to be a valid question, because there areno references to cameral accounting in the business literature on cash � owaccounting and cash � ow statements.

Focusing on the business literature on cash � ow accounting, we canconclude that in recent years there has been an increased interest in thepreparation and presentation of cash � ow statements for business enterprises.Most discussions about cash � ow statements seem to focus on format issues(direct or indirect method), and they depart from the fact that an income


statement and a balance sheet statement have been prepared. In other words,the business accounting literature on cash � ow statements seems to be stuck inthe axiom of double-entry bookkeeping and not being able to solve thedilemma of whether to use the direct or indirect method when presenting cash� ow from operating activities (see Swanson, 1986). Although Lee (1986)discusses cash � ow accounting (and not only cash � ow statements), which is asystem of accounting based upon (realized and realizable) cash � ows, and thustheoretically is a system of accounting separate from the double-entry book-keeping system, also he seems to trace the link to double-entry bookkeeping,or conventional accounting, when he states:

preparing CFA statements from cash transactions should only involve the complicationsof presentation and disclosure. However, due to the conventional structuring of thecredit and allocation-based accounting system, it may not be possible to produce CFAstatements directly. In these cases, it should be feasible to take allocated data, and, byreversing the effect of the credit transactions and accounting allocations, derive theunderlying cash � ows.

(Lee, 1981: 71)

As pointed out above, the axiom of double-entry bookkeeping seems to beaccepted today without discussion (Jones, 1982: 287; although Jones discussesboth business and governmental accounting, like most other authors publishing inEnglish, he does not refer to the single-entry bookkeeping method of cameralaccounting, which mostly is discussed in the German literature). Consequently,when learning how to prepare a � nancial statement, such as a funds (cash) � owstatement, it seems natural to continue operating within the generally acceptedaxiom of double-entry bookkeeping. As Argyris (1982: 88) points out:

Moreover, whatever learning people develop will tend to be within the con� nes of whatis acceptable. This is called single-loop learning because the actor learns only within thecon� nes of his or her theory-in-use. Few people will confront the validity of the goal orthe values implicit in the situation (such confrontation would lead to double-looplearning).

This suggests that when preparing a funds (cash) � ow statement for a businessenterprise, preparation will take place within the axiom of double-entry book-keeping, and not within another axiom, such as single-entry bookkeeping. Sincethe focus within double-entry bookkeeping is on the performance result, ittherefore comes naturally to mind to depart from this result when preparing afunds (cash) � ow statement. Adjustments for non-cash revenues (e.g., write-upsof � xed assets) and non-cash expenses (e.g., depreciation of � xed assets) mustthen be undertaken, before net cash � ow from operations can be reported (indirectmethod). Thereafter, cash in� ows (e.g., loans received) and cash out� ows (e.g.,instalments on loans), which do not belong to the income statement, are added,allowing us to prepare a cash � ow statement, ending with net change in liquidassets. Consequently, the indirect method of preparing a cash � ow statementcomes naturally to mind, when one departs from the commercial (accrual)accounting model.


At the same time, however, when one keeps in mind the purpose of a cash � owstatement, which is to give an overview of the sources for and uses of money, thedirect method, where cash in� ows and cash out� ows are reported directly, seemsto be the preferred method. As Lee (1981) points out, the preparation of a cash� ow statement from cash transactions should only involve the complications ofpresentation and disclosure. Hence, use of the axiom of double-entry book-keeping is not needed here; in fact, it may be problematic calculating cash � owsindirectly from operations when departing from the performance result (see, e.g.,Bahnson et al., 1996; Drtina and Largay, 1985). Consequently, use of single-entrybookkeeping not only suf� ces, it also makes it easier directly to prepare anoverview of the cash in� ows and cash out� ows. However, to start using the axiomof single-entry bookkeeping, as opposed to the axiom of double-entry book-keeping, is not a straightforward task; it requires a questioning of the generallyaccepted axiom of double-entry bookkeeping, or in other words, it requiresdouble-loop learning.

Let us now return to the cameral accounting framework, which has beendescribed earlier in the article. We will remember that cameral accounting wasspeci� cally designed to deal with cash � ow transactions, and that it is based uponthe axiom of single-entry bookkeeping. Cameral accounting therefore has muchto offer commercial double-entry bookkeeping, when it comes to the preparationof a � nancial statement showing cash in� ows and cash out� ows.

Focusing on administrative cameralistics and referring to the cameral accountstructure in Table 1, the column Actuals on the revenues and expenditures sidesdirectly shows the cash in� ows and cash out� ows, respectively. Hence, a cash� ow statement showing cash in� ows and cash out� ows can simply be preparedby focusing on the cash in� ows and cash out� ows, as they appear in theActuals columns, and, for example, by classifying them either as operating,investing or � nancing activities, or in other words, following the advice of Lee(1981: 71) saying that ‘the preparation of a cash � ow statement from cashtransactions should only involve the complications of presentation anddisclosure’.

If we turn our attention to enterprise cameralistics, however, the preparationof a cash � ow statement is slightly more complicated than what it is withinadministrative cameralistics. While administrative cameralistics is based uponsingle-entry bookkeeping and cash � ow transactions, enterprise cameralistics isbased upon systematic single-entry bookkeeping supplemented with non-cashresult-effective transactions. Consequently, we need to eliminate the non-cashtransactions from enterprise cameralistics when preparing a cash � ow state-ment. This elimination is, however, relatively easy to do, since all non-cashtransactions in the A columns are entered with the same amounts both on therevenues and expenditures sides of the cameral account. It can therefore beargued, that also within enterprise cameralistics it is relatively easy to preparea cash � ow statement, when departing from the A columns in the cameralaccount structure.


Let us now turn our attention to commercial (accrual) accounting, so in thenext step we can compare the preparation of a cash � ow statement within theframeworks of cameral and commercial accounting, respectively. The balancesheet equation of commercial accounting can be presented as follows (see, e.g.,Wallace, 1990: 90):

AS = LI + OE or AS = LI + (IE + PR) or PR = AS - LI - IE

where AS = Assets; LI = Liabilities; OE = Owner’s equity; IE = Initial equity;PR = Performance result of the period. When comparing the commercial double-entry bookkeeping method with the cameral single-entry bookkeeping method,Mulhaupt (1987: 97) points out that the special mark of the cameralistics, whichmeans that the cash account goes through all the other accounts in the form of thecolumn Actuals, makes it possible in a simple and accurate way to � nd out thesources for incoming and outgoing payments, and to tie up certain expendituresin the planning. Such a good classi� cation of the sources for and uses of moneydoes not exist within commercial accounting, because here one uses balance sheetchanges, which are not only based on cash revenues and cash expenditures, butalso depreciations, allocations to funds, and pro� t and loss. If one in acommercial organization wants to tie up money in the same way as within thecore municipal administration, then one has to use supplementary accounts, asone often does within a group of companies.

This means that when applying the double-entry bookkeeping method, it is notpossible to group the sources for incoming and outgoing payments in as good away as it is possible by help of the cameral account structure. The reason for thisis the fact that within double-entry bookkeeping, one deals with balance sheetchanges (that is, changes in AS, LI and OE), which not only show cash revenuesand cash expenditures (i.e., cash in� ows and out� ows), but also depreciationexpenses, allocations to funds, allocation of dividends, etc., accordingly, non-cashtransactions. This situation necessitates use of various supplementary accounts orjournals (for example, cash receipts journal and cash disbursement journal) if onewants to show an overview of the sources of cash in� ows and out� ows, when oneapplies the commercial double-entry bookkeeping method. As pointed out above,an overview of the cash in� ows and cash out� ows directly appears in the Actualscolumns (A) on the revenues and expenditures sides, respectively, within cameralaccounting. Hence, it can be concluded that cameral accounting makes it easier toprepare an overview of the cash in� ows and cash out� ows, than what is possibleby help of double-entry bookkeeping.

Let us now take a closer comparative look at the balance sheet equations withincameral accounting and commercial accounting, respectively:

Cameral accounting:

Revenues: R = RD + CD - A and Expenditures: R = RD + CD - A


Commercial accounting:

AS = LI + OE or AS = LI + (IE + PR) or PR = AS - LI - IE

It has been underlined above that enterprise cameralistics has developed – and notreplaced – the money focus of administrative cameralistics, allowing also for thepresentation of a performance result and balance sheet information (congruenceprinciple). This has been done by developing single-entry bookkeeping tosystematic single-entry bookkeeping, adding non-cash result-effective transac-tions, and extending the interpretation of the various columns in the cameralaccount structure, changing the interpretation of the Actuals (A) columns onlyslightly; these columns still focus on cash in� ows and cash out� ows, althoughwith the addition of non-cash transactions, but these transactions are easy toeliminate, since they appear with the same amounts both on the revenues andexpenditures sides of the cameral account.

Let us now apply a similar procedure also within commercial accounting. Letus extend the balance sheet equation of commercial accounting, so we can focusdirectly on cash � ow transactions within this equation, without having to usesupplementary accounts or journals in order to focus on the cash � ow transac-tions. As pointed out earlier, balance sheet changes within double-entry book-keeping consist of a combination of cash and non-cash items:

PR = AS - LI - IE

Drawing upon experiences from cameral accounting, this balancing rule ofdouble-entry bookkeeping could be extended, by separating the cash itemsfrom the other items, in the following way:

PR = CA + OA - LI - IE

where CA = Cash (monetary) items (i.e., cash, bank and postal giro accounts);OA = Other assets than cash (non-monetary items). By applying this balancingrule, the preparation of a cash � ow statement could simply be undertaken bystudying the cash/bank/postal giro accounts (CA), and directly classifying thecash in� ows and cash out� ows into, for example, operating, investing or� nancing activities, and adding the cash in� ows and cash out� ows together,ending by showing net change in liquid assets (see Lee, 1981; and also Monsen,1999, where this procedure has been applied within the framework of commercialaccounting). Really, by so doing, we use the axiom of single-entry bookkeepingwhen preparing the cash � ow statement, because we depart from the single-entries of the cash in� ows and cash out� ows on the cash account, before thesecash transactions are entered into the accounting system by help of the axiom ofdouble-entry bookkeeping. This means that we should not replace double-entrywith single-entry bookkeeping; we should, however, add use of the axiom of


single-entry bookkeeping (when showing an overview of the cash in� ows andcash out� ows) to our use of the axiom of double-entry bookkeeping (whenshowing the performance result both via the activity and payment sides). Byapplying both the axioms of single-entry and double-entry bookkeeping in such away, we do not have ‘to take allocated data and, by reversing the effect of thecredit transactions and accounting allocations, derive the underlying cash � ows’(Lee, 1981: 71).

In fact, a similar procedure has been suggested by Bahnson et al. (1996):

. . . we suggest that accounting systems can be designed to capture and report informa-tion about gross operating, � nancing and investing cash � ows. Speci� cally, systems canbe adapted to routinely record additional facts about all debits and credits to cash.

(Bahnson et al., 1996: 12)

The reasoning for this suggestion by Bahnson et al. differs, however, from thereasoning in this article. Similar to other authors writing about cash � owstatements, Bahnson et al. operate within the framework of commercialdouble-entry bookkeeping, and they depart from empirical observations showingthat many balance sheets and cash � ow statements are not articulated in the sensethat changes in the current asset and liability accounts presented in the former areoften reported on the latter at signi� cantly different amounts. In other words,Bahnson et al. present empirical evidence for using the direct method whenpreparing cash � ow statements for business enterprises.

The reasoning in this article, however, is not based upon empirical observa-tions; it is based on adding the axiom of single-entry bookkeeping to the axiomof double-entry bookkeeping. Moreover, the inspiration for this theoreticalreasoning came from an analysis of the single-entry cameral bookkeepingmethod; a bookkeeping method which has been speci� cally designed to dealwith cash � ow transactions. Hence, incorporation of the cameral accountingframework into the debate about use of the direct or indirect method whenpreparing cash � ow statements for business enterprises, has added a theoreticaldimension (i.e., the axiom of single-entry bookkeeping) to the empiricaldimension presented by Bahnson et al. (1996). In conclusion, the reasoningby Bahnson et al. and the reasoning in this article complement and strengtheneach other: the former arguing for use of the direct method based uponempirical observations, and the latter arguing for use of this method basedupon a theoretical analysis incorporating both the axioms of single-entry anddouble-entry bookkeeping.

5. CONCLUSIONS

Comparing the development of commercial and cameral accounting indicates thatwithin the former accounting framework, a cash � ow focus based upon the axiomof single-entry bookkeeping has been replaced by a performance and relatedbalance sheet focus based upon the axiom of double-entry bookkeeping. Within


cameral accounting, however, a performance and related balance sheet focus hasbeen added to the cash � ow focus, and the axiom of single-entry bookkeeping isstill used. When adding the performance focus to the cash � ow focus, cameralaccounting has picked up ideas from commercial accounting, although it hascontinued to use its own account structure; in other words, although the cameralaccount was speci� cally designed for the bookkeeping of cash � ow transactions,it is also possible to use this account for the bookkeeping of non-cash transac-tions. Hence, within cameral accounting, a cash � ow focus still remains, whichmakes the direct preparation of a cash � ow statement the natural method to use,as opposed to the indirect method which comes naturally to mind within double-entry bookkeeping.

Learning from cameral accounting, commercial accounting could add a cash� ow focus to its performance focus. This could be done by separating cash andnon-cash balance sheet changes, and by using both the axioms of single-entry anddouble-entry bookkeeping. As pointed out by Kosiol (1956: 2096; also seeKosiol, 1967; Wysocki, 1965: 57), single-entry bookkeeping does not require aspecial type of account; hence, single-entry bookkeeping, including systematicsingle-entry bookkeeping, can be carried out either on the cameral single-sidedaccount or on the commercial double-sided account (by entering a transactioneither on the debit or credit side of one account, as opposed to entering thetransaction both on the debit side of one account and on the credit side of anotheraccount).

In fact, systematic single-entry bookkeeping and the separation of activity andpayment accounts form the common root of systematic single-entry enterprisecameral bookkeeping and double-entry commercial bookkeeping (Kosiol, 1967;Walb, 1926). This common root is the reason why we can prepare similarperformance results dually (i.e., via the activity and payment sides), as well asrelated balance sheet information (congruence principle), with help of enterprisecameralistics and commercial accounting (see Kosiol, 1967: 37–52, where thisfact is explained in more detail and also illustrated by help of a numericalexample). Moreover, as pointed out earlier in this article, systematic single-entrybookkeeping is a developed version of single-entry bookkeeping, where the cash� ow transactions of single-entry bookkeeping have been systematically enteredinto the bookkeeping system, separating result-effective from non-result-effectivecash transactions, and adding non-cash result-effective transactions. Hence, it canbe concluded that single-entry bookkeeping of cash � ow transactions not only isthe root of systematic single-entry bookkeeping; it is also the common root ofcameral accounting and commercial accounting.

Given the fact that cameral accounting can deal both with cash and non-cashtransactions, we should manage to do so also within commercial accounting;otherwise enterprise cameralistics, which is based upon systematic single-entrybookkeeping and allows both for the direct preparation of a cash � ow statementand for the preparation of a performance result and related balance sheetinformation (congruence principle), would be preferable to double-entry commer-


cial bookkeeping. As pointed out above, however, within the framework ofcommercial accounting we could directly prepare a cash � ow statement basedupon the single-entries on the cash/bank accounts, before we apply the double-entry bookkeeping method to prepare a performance result based upon theactivity and payment sides, in the form of an income statement and a balancesheet. Hence, if we not only adopt the axiom of double-entry bookkeeping, butalso the axiom of single-entry bookkeeping within commercial accounting, thedirect method of preparing a cash � ow statement becomes the natural method touse also for a business enterprise.

ACKNOWLEDGEMENTS

The author would like to thank Professor Kari Lukka, Editor of EAR, and twoanonymous reviewers for their penetrating comments, which greatly helped toclarify the thrust of the argument in the article.

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Cameral accounting and cash flow reporting