211–220 of 388 posts
Earlier quoted context omitted.
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.
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?
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…
Stupid question maybe.
Is net worth an account too? Where does the debit side of Alice’s credit go?
Earlier quoted context omitted.
You have completely missed the point, which is that the way in which accountants use these words is unnecessarily confusing because it does not align with the common English definitions of the words "credit" and "debit".
Yes, sorry, I was defending the established terminology without making clear why. My problem is that your alternatives don't just change the words, they change the logic. The invariant of debit/credit is that they need to balance out. If you choose words that can occur on both sides of the equation then this is no longer true and you're throwing out a lot more than just the admittedly unintuitive meanings of these wo…
No, they don't. They just change the words you need to express the logic.
> The invariant of debit/credit is that they need to balance out.
Sure. So? If I give you a dollar, that's going to balance whether we call that a debit to me and a credit to you or a credit to me and a debit to you. The labels don't matter.
Earlier quoted context omitted.
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…
> She -credit's her books account $20 and her net worth goes down by $20. Stupid question maybe. Is net worth an account too? Where does the debit side of Alice’s credit go?
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.
The terms debit and credit have meaning independent of their columnar position on a traditional ledger. I could create a ledger with the columns reverse or (shocking!) use a computer program with a data structure that doesn't encode the concept of left or right.
I think about it like this:
CR / Credit / Creditors -> what the business owes
DR / Debit / Debtors -> what the business owns
A common objection to this is 'what about income and expense accounts'? But those are just equity: https://news.ycombinator.com/item?id=39991837
I wrote more about this here: https://news.ycombinator.com/item?id=32498992
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.…
In all fairness, if you're trying to understand a piece of software like Quickbooks and are not coming from an accounting background, anthropomorphizing each "account" at your company as an individual actor with their own ledger can actually be a helpful mental model. Everything needs to be a dance between actors, and, for instance, when you make a vendor payment in cash, you can only do so as a message sent simultan…
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…
[1] https://beancount.github.io/docs/the_double_entry_counting_m...
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…
Earlier quoted context omitted.
> Double-entry bookkeeping is very easy to understand once you ditch the ridiculous "credit" and "debit" terminology. I'm with you so far. > the goal is to keep the accounting equation true at all times Perfectly reasonable. > For example, you sell a lemonade for $5. You add $5 to Sales (Income) and add $5 to Current Account (Assets). And now you've completely lost me. Money appeared. Lemonade disappeared. I want to…
The -5 doesn't belong in your ledger, it belongs in the ledger of the person who bought the lemonade. As other commenters have pointed out, the "double entry" refers to multiple entries within your own ledger, it has nothing to do with someone else's ledger.
This is just prescriptive (do it because I say so). It doesn't explain anything.
> As other commenters have pointed out, the "double entry" refers to multiple entries within your own ledger, it has nothing to do with someone else's ledger.
I didn't introduce the other guy's ledger, but since you did:
I lost lemonade (which is somehow an addition to my assets). So the "-5" which belongs in the buyer's lemonade - is the negative sign there to indicate that he gained an asset?