Double-entry bookkeeping as a directed graph • Hacker News Board

Re: Double-entry bookkeeping as a directed graph

#151

Post by MeetingsBrowser » Wed, Apr 10, 2024, 4:48 PM UTC

kayo_20211030 wrote: post #14

Nice job on this. But, one has to be careful with redefining terms that have a generally accepted meaning. Changing Debit/Credit to Incoming/Outgoing smacks of jargon and will cause confusion. Any bookkeeper will understand what credit cash and debit expense means. Putting that in incoming and outgoing terms will not help the people who do the work, or have to explain the work. It's probably worth the effort of learn…

It seems like the target audience of this is people not already familiar with accounting.

I don't understand how describing debit/credit (accounting jargon) in layman's terms smacks of jargon, but maybe that is because I am a layman =)

As someone with no accounting background, credit/debt described as "money go in, money go out" seems like a good enough explanation in the context of this post.

Do the "true" definitions of credit/debit differ from that in a meaningful way here?

Re: Double-entry bookkeeping as a directed graph

#152

Post by braiamp » Wed, Apr 10, 2024, 4:49 PM UTC

mijoharas wrote: post #122

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 "credit" and "debit" terminology is ridiculous because their definitions swap around depending on which account you're talking about, which is an utterly absurd (mis)use of language and the main reason people find this confusing What would you suggest as an improvement? The article suggests "incoming" and "outgoing" which seems to have the same issue, as does everything I see in your comment (the person spendin…

Because people don't understand that credit and debit only make sense in the context of the account being applied to. If you deposit money to your bank account, it's a credit in your . If you withdraw money from the ATM, you debit your bank account and credit your cash account. But globally you haven't gotten more money.

Re: Double-entry bookkeeping as a directed graph

#153

Post by eviks » Wed, Apr 10, 2024, 4:51 PM UTC

fauigerzigerk wrote: post #148

EvanAnderson wrote: post #132

Earlier quoted context omitted.

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.

And what if there are no columns? Google "journal entries for X" and you're going to find something like this: Dr accountX £100 Cr accountY £90 Cr accountZ £10 Left and right was fine when T accounts were universally used to record entries, but that's no longer the case.

I did, opened one random top result

https://www.deskera.com/blog/journal-entries/

And got left/right as explanation and also as left and right columns

Re: Double-entry bookkeeping as a directed graph

#154

Post by fauigerzigerk » Wed, Apr 10, 2024, 4:51 PM UTC

btown wrote: post #91

fauigerzigerk wrote: post #87

Earlier quoted context omitted.

>Double-entry, I suppose, means each event must be ingested exactly once by an even number of actors.) No, the number of accounts (actors) does not have to be even. The sum of debits and credits has to be equal (or zero if you like).

You're right - it was a silly thing for me to write! Something more accurate would be that because debits and credits must balance, there is no way to send a message that would only be seen by a single account (other than a no-op); thus, any meaningful transaction will have an impact on at least two accounts.

Agreed.

Re: Double-entry bookkeeping as a directed graph

#155

Post by eviks » Wed, Apr 10, 2024, 4:52 PM UTC

mikeyouse wrote: post #146

EvanAnderson wrote: post #132

Earlier quoted context omitted.

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.

Right - the words themselves aren't as important as the concept. Any replacement word will suffer the same confusion. There's a reason that the language of debits and credits has largely remained the same for the past thousand years, and the language describing accounting is unlikely to be 'optimized' by first-principles CS concepts from people only loosely familiar with the field.

There's a reason, but it's definitely not that any replacement is just as bad since that's close to an impossibly strong statement

Re: Double-entry bookkeeping as a directed graph

#156

Post by EvanAnderson » Wed, Apr 10, 2024, 4:53 PM UTC

lisper wrote: post #149

EvanAnderson wrote: post #132

Earlier quoted context omitted.

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.

> Debit means an entry in the left column. Credit means an entry in the right column But that just shifts the arbitrariness of the whole thing from the words "debit" and "credit" to the words "left" and "right".

I think his intent was to prevent students from fixating on making the words debit and credit "mean" something by themselves. A debit doesn't have some intrinsic meaning about the "flow of money". It's just an entry in the left column. On the other hand, a debit to Accounts Receivable actually means something.

Re: Double-entry bookkeeping as a directed graph

#157

Post by lisper » Wed, Apr 10, 2024, 4:54 PM UTC

mijoharas wrote: post #122

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 "credit" and "debit" terminology is ridiculous because their definitions swap around depending on which account you're talking about, which is an utterly absurd (mis)use of language and the main reason people find this confusing What would you suggest as an improvement? The article suggests "incoming" and "outgoing" which seems to have the same issue, as does everything I see in your comment (the person spendin…

> What would you suggest as an improvement?

Use the intuitive meaning of the words: a credit means you have money coming in, a debit means you have money going out. An increase in assets, income, or equity is a credit, and an increase in expenses or liabilities is a debit, and vice versa.

Or, alternatively, just use "credit" for any increase, and "debit" for any decrease. But this:

"Definition 6: Credit - An entry that represents money leaving an account."

is just totally backwards.

Re: Double-entry bookkeeping as a directed graph

#158

Post by eviks » Wed, Apr 10, 2024, 4:59 PM UTC

chimeracoder wrote: post #130

probably_wrong wrote: post #110

Earlier quoted context omitted.

And how about food? I can understand a book having a resale value I keep in my books, but once I've eaten the hot-dog I bought it is gone forever.

> And how about food? I can understand a book having a resale value I keep in my books, but once I've eaten the hot-dog I bought it is gone forever. Perishable and consumable food wouldn't be counted as an asset in the first place. You spend the money - it's credited to your asset account (reducing the value of your cash-in-hand) and then debited from your expense account (reducing the value of your equity - or, in m…

Of course it would be, asset is anything of value, you're confusing with subtypes of assets. Just mujhe liability is anything you owe regardless of for how long

Re: Double-entry bookkeeping as a directed graph

#159

Post by airstrike » Wed, Apr 10, 2024, 5:00 PM UTC

Solvency wrote: post #43

qznc wrote: post #28

Earlier quoted context omitted.

You can cache it. ;)

technical speaking what does 10 years of transactions look like when it's "cached" with one current year still being raw text lines? how are the two reconciled?

basically 9 years are cached and the last year is recalculated as needed. you have a source of truth for what the data looked like at moment T+9 years, you can just take as granted. and then process the transactions following that date "live" as needed

Re: Double-entry bookkeeping as a directed graph

#160

Post by lisper » Wed, Apr 10, 2024, 5:00 PM UTC

EvanAnderson wrote: post #156

lisper wrote: post #149

Earlier quoted context omitted.

> Debit means an entry in the left column. Credit means an entry in the right column But that just shifts the arbitrariness of the whole thing from the words "debit" and "credit" to the words "left" and "right".

I think his intent was to prevent students from fixating on making the words debit and credit "mean" something by themselves. A debit doesn't have some intrinsic meaning about the "flow of money". It's just an entry in the left column. On the other hand, a debit to Accounts Receivable actually means something.

> A debit doesn't have some intrinsic meaning about the "flow of money".

But it does. "Debit" is an English word with an established meaning in common usage. It means to take money out of an account. It is related to the word "debt" which is something that decreases the net worth of the debtor and increases the net worth of the creditor. If you overpay a bill, the (positive) difference between what you paid and what you owed is a credit on your account, and can be used just like money to pay your next bill.