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Double Entry Accounting for Developers

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Re: Double Entry Accounting for Developers

#111

Post by SifJar »

lisper wrote: post #108
wrycoder wrote: post #103

Earlier quoted context omitted.

I’ve found the best way is to remember the phrase, “Debits come in and credits go out.” Let’s say you have a bank account. Your view of that account is opposite from the bank’s view. You have $100 cash. That’s an asset from your POV, and it carries a debit balance on your books - when you received it, the cash “came in”. You walk into the bank and deposit it. The cash goes out of your books, but an asset (the increas…

> Debits come in and credits go out. That is the complete opposite of common usage. When I get a credit on my credit card statement, it means money is coming in to me. When I get a debit on my debit card, it means money is going out from me. It's not rocket science, or at least it shouldn't be. And yet somehow accountants have managed to turn it into something even more confusing.

> Just remember that a “debit card” reflects the banks POV

Re: Double Entry Accounting for Developers

#112

Post by juped »

gowld wrote: post #41
bdowling wrote: post #20

Earlier quoted context omitted.

> 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.

> It's beyond wrong. How so? > The developer here is redefining established accounting terms because he doesn't like their inconsistencies. Yes. What's wrong with fixing inconsistencies? Established accounting terms are from 500 years ago when people had trouble with subtraction.

There's a lot wrong with fixing consistencies.

Re: Double Entry Accounting for Developers

#113

Post by shivaas »

et-al wrote: post #43
hn_throwaway_99 wrote: post #29

Note to people looking for job security: there is a HUGE need for developers who understand finance. The fundamental problem is that most finance people can't speak the language of software development (the biggest problem I've seen is that finance people tend to be very poor at writing out a spec of what the software should do - they're much better at looking at a set of examples and then telling you if the calculat…

Aside from the obvious PayPal, SQ, and Stripe, would you (and other folks) please share some companies one should look into?

We're hiring at Remitly :)

Re: Double Entry Accounting for Developers

#114

Post by juped »

juped wrote: post #78
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…

This comment expressing confusion on this valiantly misguided OP seems like a good place to throw my standard explanation out into the aether to do neither readers nor myself any good. A transaction has two polarities, because it represents a flow of value. The credit side is the source, the debit side is the sink/destination/whatever. Let's temporarily pretend that every transaction hits exactly two accounts for the…

BTW, why is "running the balance" a discrete operation to accountants? Because accountants' source of truth is the transaction log, which they call a "ledger".

Ledger entries look (conceptually, not literally) like this:

  |tx id|      account      | debit|credit|
  |  123|Cash (bank 1)      |    25|     0|
  |  123|Cash (bank 2)      |    25|     0|
  |  123|Accounts Receivable|     0|    50|
with the constraint that a transaction is not valid unless the sum of debits equals the sum of credits (and, no, you can't have both nonzero debit and credit in one line, though sometimes both are zero).

Accounting is, of course, way older than computers, so accountants like to regularly "close the books" (checkpoint the state and generate reports).

Aside, I think the mental block for techies when it comes to accounting is just that many don't want to accept that accountants understand accounting. It looks like databases to them, and those are TECH!

Re: Double Entry Accounting for Developers

#115

Post by juped »

zzo38computer wrote: post #23

I learned double entry accounting. "Debits decrease and credits increase" is just one way to represent the numbers; I have also seen the other way around (where debits are positive). But more commonly, the presentation is such that debits increase the accounts on the left, and credits increase the accounts on the right. (Nevertheless, the explanation there does work.) Some time ago (while I was bored in the accountin…

Compare to https://arxiv.org/abs/1407.1898

Re: Double Entry Accounting for Developers

#116

Post by kgwgk »

lisper wrote: post #108
wrycoder wrote: post #103

Earlier quoted context omitted.

I’ve found the best way is to remember the phrase, “Debits come in and credits go out.” Let’s say you have a bank account. Your view of that account is opposite from the bank’s view. You have $100 cash. That’s an asset from your POV, and it carries a debit balance on your books - when you received it, the cash “came in”. You walk into the bank and deposit it. The cash goes out of your books, but an asset (the increas…

> Debits come in and credits go out. That is the complete opposite of common usage. When I get a credit on my credit card statement, it means money is coming in to me. When I get a debit on my debit card, it means money is going out from me. It's not rocket science, or at least it shouldn't be. And yet somehow accountants have managed to turn it into something even more confusing.

Common usage has turned the terms into something confusing. It's not the accountants fault.

Your credit card is linked to an account in someone else's books. They opened that credit account for you.

Re: Double Entry Accounting for Developers

#117

Post by juped »

war1025 wrote: post #9

I used ledger [1] to track all of my expenses for roughly four years. It's a command line based double entry accounting tool. It was super interesting in terms of figuring out where money went and general double entry accounting techniques. That said, it was a ton of work to keep up to date given that I was trying to track money when I spent it vs when it cleared my bank account, and those two often varied by several…

Ledger is almost great software, except that it uses signed numbers. Why?!

Re: Double Entry Accounting for Developers

#118

Post by kgwgk »

sago wrote: post #22
watsocd wrote: post #14

Earlier quoted context omitted.

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.

It is not incorrect. To make everything positive (and use the subtraction as you have) you need to have two different types of 'positivity' Credit and debit. And then you have to remember which things are subtracted and added so it gets back to balancing. That's why it gets so complicated. Money in your bank account is _negative_. It is a _debit_ in your accounts (this is not my invention this is true). Your bank acc…

> Money in your bank account is _negative_.

Say I have two million dollars and deposit one million in the bank and buy a one million house.

What is the value of my assets? -$2mn? $0mn? Something else?

The "confusing" answer would be that the value of my assets (which is equal to the value of my equity, as I don't owe anything to anyone) is two million dollars.

Re: Double Entry Accounting for Developers

#119

Post by 4silvertooth »

sago wrote: post #22
watsocd wrote: post #14

Earlier quoted context omitted.

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.

It is not incorrect. To make everything positive (and use the subtraction as you have) you need to have two different types of 'positivity' Credit and debit. And then you have to remember which things are subtracted and added so it gets back to balancing. That's why it gets so complicated. Money in your bank account is _negative_. It is a _debit_ in your accounts (this is not my invention this is true). Your bank acc…

Assets + Liabilities + Equity = 0 is incorrect.

It's just simple basic maths formula, A = L + E so it's either 0 = L + E - A or A - L - E = 0, or A - L = E or A - E = L all stands true.

Re: Double Entry Accounting for Developers

#120

Post by Havoc »

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.

I wouldn't call it wrong per se, but it's about what would happen if I as accountant designed a database architecture. It would work, but any programmer looking at the dodgy code would think "omg what have you done?"

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