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Double Entry Accounting for Developers

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Re: Double Entry Accounting for Developers

#11

Post by dsimms »

mehrdadn wrote: post #6

I kind of expected to see a good, pragmatic explanation of why double-entry accounting is useful, the kinds of mistakes it catches, etc... kind of weird to see almost no emphasis on the double-entry nature at all.

I agree: it catches entry errors, which is really handy in a system where you're hand-writing them twice.

But if you're writing a computer system that's simply duplicating one entry from a human in two places in data store, is that "double entry"? is it useful?

But the idea that you would want to reconcile one view with another independently reported one is super useful. (Almost every financial-oriented company builds a system like that, I would bet.)

Re: Double Entry Accounting for Developers

#12

Post by sago »

akgoel wrote: post #8
goat_whisperer wrote: post #4

From the site: "I found the core explanation of double entry accounting to be confusing. After some time I distilled it down to the following: "Debits decrease the value of an account. Always. [1] Credits increase the value of an account. Always. [1] "[1] (1, 2) This is absolutely not what accountancy teaches. You’ll quickly see that there is a lot of wrangling over what account types get increased/decreased with a d…

Even bullet 4 has assets and expenses multiplied by -1. Completely .... wrong. Maybe this might work for a bank where assets and liabilities are sort of flipped from a non-bank business?

I agree. Except I think you're being generous :)

It would not work for a bank. The only reason they 'sort of flip' is that they give your account from their perspective. Your statement is a slice of their accounting.

Re: Double Entry Accounting for Developers

#13

Post by [deleted] »

goat_whisperer wrote: post #4

From the site: "I found the core explanation of double entry accounting to be confusing. After some time I distilled it down to the following: "Debits decrease the value of an account. Always. [1] Credits increase the value of an account. Always. [1] "[1] (1, 2) This is absolutely not what accountancy teaches. You’ll quickly see that there is a lot of wrangling over what account types get increased/decreased with a d…

[deleted]

Re: Double Entry Accounting for Developers

#14

Post by watsocd »

sago wrote: post #10
samfisher83 wrote: post #3

I think the most important equation to understand about accounting is assets = liabilities + equity ROA, ROE, etc come from the above formula.

I always felt that equation was confusing. Because then the sign has to be taught separately, or numbers have to have two columns (credit and debit) and you need to understand where each one is. assets + liabilities + equity = 0 Seemed much more general. Double entry just became: everything (transactions, whole companies) sum to zero. Then just one other little thing (where money comes from in a transaction is positi…

Your formula is not correct. If you want to do it that way, it should be assets - liabilities - equity = 0.

Think of it this way. When you start a company, you invest $100. For the company accounting, that is $100 in the bank account/asset and $100 in equity. $100 - 0 - $100 = 0

Now you take a loan for $100. Now you have $200 in the bank account, a $100 liability, and $100 in equity. $200 - $100 - $100 = $0.

Re: Double Entry Accounting for Developers

#15

Post by watsocd »

goat_whisperer wrote: post #4

From the site: "I found the core explanation of double entry accounting to be confusing. After some time I distilled it down to the following: "Debits decrease the value of an account. Always. [1] Credits increase the value of an account. Always. [1] "[1] (1, 2) This is absolutely not what accountancy teaches. You’ll quickly see that there is a lot of wrangling over what account types get increased/decreased with a d…

That was the first thing I saw that was wrong.

All account balances should normally be positive. Depending on what side of the balance sheet they are, a debit or credit could increase or decrease an accounts balance.

Re: Double Entry Accounting for Developers

#16

Post by Havoc »

Can’t tell whether it’s intentional as part of this slightly modified approach, but under classic accounting the contribution in the first example would be equity not income.

I’m glad more accounting software is out there but tbh as accountant I can’t see myself using this. The whole debit always decreases thing kills a core part of the mental framework I use to reason through more complicated scenarios. I guess that doesn’t particularly matter though for the target audience coming at it with no prior knowledge.

>accountants don’t like negative numbers.

That’s the first I hear of that

Re: Double Entry Accounting for Developers

#17

Post by mtlynch »

One of the best developer-oriented explanations of accounting I've read is "Accounting for Computer Scientists" by Martin Kleppmann.[0] He explains double-entry accounting visually in terms of graph theory. Even though I'm not very good at graph theory, I found the diagrams and explanations extremely intuitive.

[0] https://martin.kleppmann.com/2011/03/07/accounting-for-compu...

Re: Double Entry Accounting for Developers

#18

Post by HeavenFox »

dsimms wrote: post #11
mehrdadn wrote: post #6

I kind of expected to see a good, pragmatic explanation of why double-entry accounting is useful, the kinds of mistakes it catches, etc... kind of weird to see almost no emphasis on the double-entry nature at all.

I agree: it catches entry errors, which is really handy in a system where you're hand-writing them twice. But if you're writing a computer system that's simply duplicating one entry from a human in two places in data store, is that "double entry"? is it useful? But the idea that you would want to reconcile one view with another independently reported one is super useful. (Almost every financial-oriented company build…

I once used Mint, which is single entry. One day I logged into my account and noticed my net worth is a bit off. Looking at my monthly expense and income, I didn't see anything out of ordinary, so I just shrugged it off.

A couple of months later I finally realized I opened new savings account to take advantage of a promotion and forgot about it. The opening deposit was deducted from my checking account. Since it's classified as a "Transfer" it doesn't show up in expenses. I linked the account, and now I am a few thousand dollars richer than I previously thought.

This kind of mistake will never happen in a double entry accounting system.

It was then I began migrating my personal accounting to a double entry system I developed myself. Hopefully I can make it available to the public soon :)

Re: Double Entry Accounting for Developers

#19

Post by kgwgk »

talaketu wrote: post #5
samfisher83 wrote: post #3

I think the most important equation to understand about accounting is assets = liabilities + equity ROA, ROE, etc come from the above formula.

more basic: Assets = Net Equities In other words, "all the assets are claimed". Owners equity is the the balance of the assets once other claims are discharged.

Maybe you mean Equity = Net Assets ?

That would make some sense.

Re: Double Entry Accounting for Developers

#20

Post by bdowling »

goat_whisperer wrote: post #4

From the site: "I found the core explanation of double entry accounting to be confusing. After some time I distilled it down to the following: "Debits decrease the value of an account. Always. [1] Credits increase the value of an account. Always. [1] "[1] (1, 2) This is absolutely not what accountancy teaches. You’ll quickly see that there is a lot of wrangling over what account types get increased/decreased with a d…

> I mean, this is just....wrong.

It's beyond wrong. The developer here is redefining established accounting terms because he doesn't like their inconsistencies.

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