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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

#201

Post by [deleted] »

m3kw9 wrote: post #112
atomicfiredoll wrote: post #66

Earlier quoted context omitted.

Remember, this was all done on paper before software with tagging and such existed. I'll give a description shot, since I've been doing finance work recently. Other people can feel free to correct. A company using double entry (as opposed to single) has a "chart of accounts." This means they have a bunch of imaginary accounts for tracking everything, including: - Assets (e.g. cash on hand.) - Liabilities (e.g. loans)…

So double entry is defeated if you uses a computer to enter the entries. For example if you brought a laptop for 1000, but you accidently wrote 2000 AND the computer automatically entered 2000 in the asset account it would still balance even though it was a mistake to enter 2000. In addition, you can still make the same mistake by hand for both entries. So I’m still not getting how double entries catch mistakes

[deleted]

Re: Double-entry bookkeeping as a directed graph

#203

Post by wrycoder »

mrkeen wrote: post #166
MeetingsBrowser wrote: post #151

Earlier quoted context omitted.

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 t…

The first definition is exactly backwards - ignore it!

Re: Double-entry bookkeeping as a directed graph

#204

Post by test6554 »

Octokiddie wrote: post #47
dkyc wrote: post #16

I find it a strange choice to explain double-entry bookkeeping with the example of "one entry for Alice, one entry for Bob". That's really not what it's about. It's obvious that a transaction with two parties could be recorded in two places, but to me the crucial point of double-entry bookkeeping is that it requires two entries for each party of the transaction . So if Alice buys book from Bob, four entries are made.…

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?

Bob and Alice each have a "money" account and a "books" account. Each money account tracks how much money they have on hand while each books account tracks the total value of their private libraries.

So to be clear, there are 4 accounts. Bob's Money, Bob's Books, Alice's Money, Alice's Books.

Because these two homeless librarians only have money and books, you can add the two balances together for each person to get their net worth.

If Alice owns 3 books worth $120, then the "Alice's Books" account would show a balance of $120. Meanwhile, Bob has 12 books worth $700.

When Alice buys the books, she -credits her bank account $20 and +debits her books account $20 (the value of the new book). Thus her net worth stays the same, but she has more books assets and fewer cash assets.

Similarly Bob -credits his books account $20 and +debits his bank account $20. His net worth also stays the same but he now has more cash than before.

On Alice's way back to the bridge she resides under, it starts to rain. Alice's new book is ruined. She -credit's her books account $20 and her net worth goes down by $20.

Life as a homeless librarian is harsh.

Re: Double-entry bookkeeping as a directed graph

#205

Post by eviks »

chimeracoder wrote: post #191
eviks wrote: post #158

Earlier quoted context omitted.

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

> 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 If an office buys snacks on Monday for the office party on Friday, they're not counting it as an asset and depreciating it on their books. If food production or delivery were part of the core business, it would be one thing, but in the context that OP's tal…

Depreciation isn't relevant here, again, you're confused in the types of assets, not all of them are depreciated, only some with some specific properties like time of expected user. Just read the definition of assets in any (accounting) dictionary, or try to record your snack purchase in real accounts and see which side of the balance sheet this account end up in (hint: inventories, assets).

Re: Double-entry bookkeeping as a directed graph

#206

Post by mhink »

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…

That's not entirely correct- or at least, it's more complicated than that. The question of whether a debit/credit increases/decreases an account has to do with the kind of account you're talking about.

When I deposit money, it modifies two accounts at the bank:

- the account which represents how much money they owe me - and the account which represents how much money they have on hand.

The former is a liability, and the latter is an asset.

The meaning of debit/credit is reversed between these two types of account. So, when I deposit $100, the entries entered are:

    - CREDIT mhink's account $100 (increasing liability)
    - DEBIT cash account $100 (increasing asset)
Since we only see one side of this, we start to associate "debit" with "less money for me" and "credit" as "more money for me".

Oddly enough, another common financial situation reinforces this interpretation from the other direction: accounts with utility providers. Unlike the bank, your account at the utility company represents how much you owe them. So the meaning of debit/credit is reversed, but so is the direction of responsibility: your account at the utility provider is money you owe them, which is an asset. So when I pay them $100, the entries entered are:

    - CREDIT  mhink's account $100 (decreasing asset)
    - DEBIT   cash on hand $100 (increasing asset)

Re: Double-entry bookkeeping as a directed graph

#207

Post by bongodongobob »

temporarely wrote: post #163
bongodongobob wrote: post #143

Earlier quoted context omitted.

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.

Just because someone knows how to build a website doesn't mean they know anything about discrete electronics. I'd wager the majority of this audience doesn't. It's mostly software people.

Re: Double-entry bookkeeping as a directed graph

#208

Post by zie »

tomnipotent wrote: post #197
Fire-Dragon-DoL wrote: post #139

Earlier quoted context omitted.

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

There's also GAAP in the US and IFRS in Europe, which are standards for how certain things need to be done to be compliant. It's not specific about things like account names or how your ledger should be structured, but outlines many expectations and rules/constraints that build confidence in the resulting numbers.

Agreed, but every industry/sector might have their own set of standards that usually are overlays on top of GAAP/etc. For example in the US for state and local governments there is GASB: https://gasb.org

Re: Double-entry bookkeeping as a directed graph

#209

Post by chimeracoder »

eviks wrote: post #205
chimeracoder wrote: post #191

Earlier quoted context omitted.

> 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 If an office buys snacks on Monday for the office party on Friday, they're not counting it as an asset and depreciating it on their books. If food production or delivery were part of the core business, it would be one thing, but in the context that OP's tal…

Depreciation isn't relevant here, again, you're confused in the types of assets, not all of them are depreciated, only some with some specific properties like time of expected user. Just read the definition of assets in any (accounting) dictionary, or try to record your snack purchase in real accounts and see which side of the balance sheet this account end up in (hint: inventories, assets).

> or try to record your snack purchase in real accounts and see which side of the balance sheet this account end up in (hint: inventories, assets).

Yeah, and as I said, this makes sense for a company for which food is a relevant part of their business, but in the context OP is asking about, nobody is tracking it this way.

Re: Double-entry bookkeeping as a directed graph

#210

Post by zie »

Fire-Dragon-DoL wrote: post #139
zie wrote: post #105

Earlier quoted context omitted.

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

Of course! There is a standard term for that: Chart of Accounts

If you search for example chart of accounts you can probably get a sample set to work from.

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