Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Double-entry bookkeeping as a directed graph

matheusportela.com

Post reply on HN
Print view View original

161–170 of 388 posts

Re: Double-entry bookkeeping as a directed graph

#161

Post by globular-toast »

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…

I find it more intuitive to use negatives. Then it's just equity + income + liabilities + assets + expenses = 0. In fact, every transaction and therefore the entire ledger sums to zero at all times.

So if you take out a loan to buy lemonade: +$5 to expenses, -$5 to liabilities. If you sell lemonade: -$5 to income, +$5 to assets. You just have to remember that equity, income and liabilities will be negative so flip them if you want to answer questions like "how much do I owe?"

Re: Double-entry bookkeeping as a directed graph

#162

Post by abdullahkhalids »

abtinf wrote: post #150
jandrese wrote: post #108

Earlier quoted context omitted.

The one thing I remember most from my economics courses in college is that economists have highly idiosyncratic mathematical conventions and they don't care. So many graphs with the independent variable on the Y axis...

> So many graphs with the independent variable on the Y axis I was perplexed by this as well and none of my profs could cogently explain it. The classic example are supply and demand curves, with price as the Y axis. I finally realized they are actually trying to communicate that price is not under the control of the buyer or seller, but that the market dictates the price given a level of production. This kind of “sp…

Indeed, one of the main problems with econ education is that at the most basic level they teach a model for the "spherical cow" free-market. Which is all that most people end up learning. And then those people try to apply this reasoning to real world markets - the vast majority of which do not satisfy the assumptions of the free-market model. So almost all public discussions of micro-economics is totally useless.

Re: Double-entry bookkeeping as a directed graph

#163

Post by temporarely »

bongodongobob wrote: post #143
juped wrote: post #119

Earlier quoted context omitted.

Double entry bookkeeping is very easy to understand once you ditch the ridiculous "accounting equation". "Credit" means "source", "debit" means "sink". Suppose you invoice a customer 10,000 euros. You now have a promise for 10,000 euros, but you account in dollars so it's a promise for 11,000 dollars at current exchange rates. So you credit the source, your "Income: Customer A" account ("income" and "expense" account…

The only time I've ever seen source and sink used is in electronics. You may as well call it squeem and flurb, source and sink isn't helping anyone.

Well, this is hacker news, so a generous reading of the comment is that it is being mapped to semantics most of us here fully grok, and not as a general audience rewording for accounting.

Re: Double-entry bookkeeping as a directed graph

#164

Post by jjeaff »

wongarsu wrote: post #17
nickpinkston wrote: post #7

I think people underestimate the beauty and impact of accounting. Just a tiny number of formulas (accounting identities [1]) and statements (P&L, balance sheet, etc.) can represent what's going on in any org in ways that can be roughly comparable. Reminds me of the "fundamental theorem of calculus" or "central dogma of biology". Accounting is also where we get math and written language [2] as ancient Mesopotamian civ…

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…

Then this would be one of those cases where working around a problem (the lack of negative numbers) actually resulted in a superior product. You don't want negative numbers because that would require the description of a category to change based on whether it is positive or negative. You wouldn't want to be changing "Assets" to "Liabilities" every time the number goes below zero.

You don't need negatives in accounting, because anything that is affecting a number differently than the rest (reducing rather than increasing), needs to be accounted for separately. Imagine showing negative revenue. That would be mostly useless. You want to see how much revenue you had, and in a separate entry, how many expenses. Imagine how misleading it could be to show $0 in expenses last month, when in reality, you had $100 in expenses, but you subtracted $100 out because you returned some big purchase from last month and got a refund.

Re: Double-entry bookkeeping as a directed graph

#165

Post by freedomben »

eviks wrote: post #153
fauigerzigerk wrote: post #148

Earlier quoted context omitted.

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

Yeah, GP really undermined their point with the whole "google x" and see.

For most people who aren't accountants though, the spreadsheet thing is correct.

Re: Double-entry bookkeeping as a directed graph

#166

Post by mrkeen »

MeetingsBrowser wrote: post #151
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" definitio…

I just Googled it, and picked the first two results:

> A debit decreases assets or increases liabilities, while a credit increases assets or decreases liabilities. [1]

> A debit is always used to increase the balance of an asset account, and the cash account is an asset account. [2]

[1] https://xendoo.com/blog/debits-and-credits/ [2] https://www.fool.com/the-ascent/small-business/accounting/ar...

It's not just that they're a bit confusing, it's that those words serve exactly one purpose, which is to disambiguate the exact thing that people find confusing about them.

The biggest indicator of their failure is that they are always explained in terms of something clearer, and the reverse it not true. No-one says: "I don't understand what 'we received $50' means, can you explain that in terms of credits and debits?"

Re: Double-entry bookkeeping as a directed graph

#167

Post by fauigerzigerk »

eviks wrote: post #153
fauigerzigerk wrote: post #148

Earlier quoted context omitted.

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

Clearly I overstated my case. I'm not denying that columns are often used, especially in educational material. It's just no longer as universal as it once was.

https://www.accountingweb.co.uk/any-answers/vat-double-entry

Re: Double-entry bookkeeping as a directed graph

#168

Post by pessimizer »

lisper wrote: post #160
EvanAnderson wrote: post #156

Earlier quoted context omitted.

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…

> If you overpay a bill, the (positive) difference between what you paid and what you owed is a credit on your account

Or it's a debit on the company's account. I think that's the point that was being made; not to confuse technical terms with English common usage, and not to go to the dictionary or etymology(!) as the arbiter. Debits are credits and credits are debits, but the real question is which column does it go into.

Same nature as discussions about clients/servers.

Re: Double-entry bookkeeping as a directed graph

#169

Post by freedomben »

lisper wrote: post #147
abtinf wrote: post #145

Earlier quoted context omitted.

> The "credit" and "debit" terminology is ridiculous because their definitions swap around depending on which account I find it easy to just think of debit as adding to the left and credit as adding to the right. Their definitions are always the same that way.

But that just begs the question because you have to remember the arbitrary assignments of what things go on the left and what things go on the right.

It's easy! Debits add to the left, credits add to the right :-)

(to be clear, I'm backing up your point by giving the same circular explanation that I got constantly through Accounting 101 and 102, and then occasionally after that when dealing with the books)

Re: Double-entry bookkeeping as a directed graph

#170

Post by mrkeen »

mrkeen wrote: post #70
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…

> Changing Debit/Credit to Incoming/Outgoing smacks of jargon and will cause confusion. I disagree. Discussions like this on HN always invite someone to say "Look, it's super simple. Credits are just... and debits are just ...". Then a reply saying "You have it backwards. Look, it's simple! Credits are just..." I would be perfectly happy to ditch those terms forever.

Plenty of downvotes, and yet, after writing this prediction, this thread is indeed filled with people all defining the terms 'Credit' and 'Debit' at one another. :D
Post reply on HN