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Double-entry bookkeeping as a directed graph

matheusportela.com

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Re: Double-entry bookkeeping as a directed graph

#131

Post by [deleted] »

bregma wrote: post #88
Octokiddie wrote: post #47

Earlier quoted context omitted.

Every explanation of double entry accounting seems to do the same thing. If I'm trying to understand the double part of double-entry bookkeeping, what exactly does the "double" refer to? What's being "doubled"? How would you salvage the article to actually explain the "double" part in detail? Could you do it purely from Bob's (or Alice's) perspective?

Every time money is exchanged, it has to come from somewhere and it has to go somewhere -- that's two places it need to be recorded (or "entered in the books"). Money can not be created out of thin air, and it can not be destroyed. Every movement of money has to be accounted for, which is why it's called "accounting". Double-entry accounting means you have to account for where the money comes from, and you have to ac…

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Re: Double-entry bookkeeping as a directed graph

#132

Post by EvanAnderson »

rjinman wrote: post #104

Double-entry bookkeeping is very easy to understand once you ditch the ridiculous "credit" and "debit" terminology. Essentially, the goal is to keep the accounting equation true at all times. The equation is: Equity = Assets - Liabilities. Eventually, earnings (Income - Expenses) will become part of equity, so splitting that out, you have: Equity + Income - Expenses = Assets - Liabilities. Rearranging to get rid of t…

The accounting equation is the right thing to think about. People want debit and credit to mean something more than they need to.

My 100-level accounting instructor said it pretty succinctly: Debit means an entry in the left column. Credit means an entry in the right column. What a transaction means for the business depends on the accounts.

Re: Double-entry bookkeeping as a directed graph

#133

Post by jacques_chester »

jfengel wrote: post #48
t_mann wrote: post #32

> Definition 6: Credit An entry that represents money leaving an account. > Definition 7: Debit An entry that represents money entering an account. Not really, the meaning of debit and credit depends on the type of account: https://en.wikipedia.org/wiki/Debits_and_credits Maybe there's a reason why it takes more than one course to become a CPA ( https://www.accounting.com/careers/cpa/how-to-become/ ).

Every time I look at accounting, the different kinds of accounts baffle me. I can never keep straight what each kind of account is used for, or which ones have positive credits and which ones have negative credits. As far as I can tell, the point is to double the amount of work in the hopes of catching certain kinds of errors. Which makes sense when you have humans making the entries and humans doing the arithmetic.…

> the Don't Repeat Yourself principle

I think this is meant mostly to apply to code. For data, redundancy is a very common strategy for assuring accuracy and durability.

> If you say the same thing in two different places, one of them is always going to be wrong.

Yes! This is the exact point. The mismatch flags that there is an error that needs to be investigated and added to the ledger as a correcting transaction.

Re: Double-entry bookkeeping as a directed graph

#134

Post by EvanAnderson »

Mister_Snuggles wrote: post #54
qznc wrote: post #15

Still too complicated. It goes wrong with "Let’s add the Transaction column to our table." Don't store the account data. Instead store the transactions. Compute the accounts from that. The table "Transactions" should have the fields: Date, Amount, SourceAccount, TargetAccount, Description. That is how it becomes beautiful in my opinion. Unlearn this habit of thinking in accounts just because that is what you know fro…

> Don't store the account data. Instead store the transactions. Compute the accounts from that. The table "Transactions" should have the fields: Date, Amount, SourceAccount, TargetAccount, Description. This is a bad design, please don't do this. The better design is to have header and detail tables: Header: TransactionID, Date, Description, (other fields as required, e.g., posting status, reconciliation status, etc)…

I don't think you're saying anything different than the parent poster, fundamentally. You're both saying "event-source the totals".

You're adding an abstraction to enable more flexibility and functionality. That doesn't change the fundamental event-sourced nature of totals.

Re: Double-entry bookkeeping as a directed graph

#135

Post by jacques_chester »

xphos wrote: post #78
mo_42 wrote: post #26

I believe double-entry bookkeeping needs more attention. I think double-entry bookkeeping is, at least to me, as fundamental to economics (and of course business) as logic to math. Even if some actors don't use it explicitly, it still holds. If I buy ten apples for 10 bucks, I have ten more apples in stock and ten bucks less. Many economic discussions (not only on HN) get out of hands because people don't try to see…

Economics is funny because its very anti complex math. For the local economics (household even company level) that makes total sense but for anyone doing research or systems modeling for things bigger than a company the total distain for calculus and non-equilibrium systems really prevents any discussion. I think its because if you remove stability most of supply and demand arguments fall apart. Its crazy because sta…

I find that economics is drenched in maths, depending on the school. Take Chicago's undergraduate program, for example[0]. It requires calculus classes before you even get to the starting line for the economics classes, and they encourage students to go further: "Students who have an interest in the major should take calculus at the highest level for which they qualify."

[0] http://collegecatalog.uchicago.edu/thecollege/economics/#Fun...

Re: Double-entry bookkeeping as a directed graph

#136

Post by datavirtue »

bluepencil123 wrote: post #63
Octokiddie wrote: post #47

Earlier quoted context omitted.

Every explanation of double entry accounting seems to do the same thing. If I'm trying to understand the double part of double-entry bookkeeping, what exactly does the "double" refer to? What's being "doubled"? How would you salvage the article to actually explain the "double" part in detail? Could you do it purely from Bob's (or Alice's) perspective?

The 'double' in double entry book-keeping is related only to the book keepers own records/books. It has nothing to do with counter party's record keeping. If Alice purchases a house worth $100,000 in cash, then 2 (double) accounts will get effected. Her cash account will decrease (Credit) by $100,100 and simultaneously her House equity account (or any other appropriate name such as immovable asset etc) will increase…

Don't forget the depreciation, interest, maintenance, and tax accounts if you want to track those against the real estate cost basis for various purposes. You also need to figure out how to create and map accounts to IRS rules or you could put yourself in a real bind when it comes to figuring out tax liabilities or deductions.

Re: Double-entry bookkeeping as a directed graph

#137

Post by globular-toast »

brabarossa wrote: post #90
globular-toast wrote: post #35

Everyone should do their own accounts. I've been doing it for over 12 years and I'm so glad I've kept up with it. I don't bother keeping my ledger immutable, though. The point about immutability is that whatever happened is immutable (because it's in the past; it already happened!) and the ledger should just reflect that. So if I somehow made a mistake in my ledger I just correct it. I keep my ledger in git so that d…

What does that mean? Are you using cash? Are you copying bank transaction history to your git?

Yeah, I source my ledger from multiple places like bank transactions, investments accounts, cash transactions etc.

I can't really think of a case where I have made a mistake, but if, for example, I sold something to a friend I would debit (+) their "reimbursement" account with the amount they owe me. If I typoed that to 10x the amount, I would just go and correct the typo, I wouldn't make two new entries to revert then correct the mistake.

Re: Double-entry bookkeeping as a directed graph

#138

Post by kinleyd »

juped wrote: post #107
wongarsu wrote: post #17

Earlier quoted context omitted.

On the other hand some things in how accounting is traditionally done suffer from accounting predating a lot of "modern" math. Negative numbers were first used around the 3rd century in China and took until the 16th century to be used in Europe. Modern double-entry bookkeeping was invented in the 14th century in Europe. So if you ever wonder why they traditionally use a column for debit and one for credit, with defin…

Negative numbers have no place* in accounting, and people need to stop thinking "oh, credits are just negative numbers" and hopelessly confusing themselves and others by putting nonsensical signs on an unsigned magnitude of flux. * you can actually think of oddball reasons you might consider a "negative credit/debit", but it's more akin to something like a negative mass in physics

I tried using John Wiegley's Ledger, which uses negative numbers. Everything was great about Ledger except for that part - I just couldn't wrap my head around it.

Re: Double-entry bookkeeping as a directed graph

#139

Post by Fire-Dragon-DoL »

zie wrote: post #105
Fire-Dragon-DoL wrote: post #76

Earlier quoted context omitted.

How do you determine which thing goes in which account, is it subjective or there is a formal way with a definition

In a general sense, it really doesn't matter, as long as you are consistent. That said, there are accounting standards that define the general set of accounts for a particular industry, etc. But every person having a set of books will want to customize it to some degree. For instance in a personal set of books, if you want to track every person you pay, you might have accounts, 1 for every single person you have ever…

OK So it is somewhat open but you could use a set of standard accounts, I see.

Makes sense. Probably it's important to keep somewhat of a registers of accounts available to avoid making mistakes and to write directions on where things should go

Re: Double-entry bookkeeping as a directed graph

#140

Post by sudhirj »

rjinman wrote: post #104

Double-entry bookkeeping is very easy to understand once you ditch the ridiculous "credit" and "debit" terminology. Essentially, the goal is to keep the accounting equation true at all times. The equation is: Equity = Assets - Liabilities. Eventually, earnings (Income - Expenses) will become part of equity, so splitting that out, you have: Equity + Income - Expenses = Assets - Liabilities. Rearranging to get rid of t…

The way I understand debits and credits is to take the same equation and name the left and right side.

Assets + Expenses = Equity + Income + Liabilities

Sum of all debits = sum of all credits

These two equations have their sides associated.

Assets and equities increase with a debit and decrease with a credit, and vice versa.

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