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Accounting For Developers, Part I

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Re: Accounting For Developers, Part I

#101

Post by rahimnathwani »

onefuncman wrote: post #97
rahimnathwani wrote: post #88

Earlier quoted context omitted.

"I think we're talking past each other but I'm not sure how to rectify." Let me give it one last try :) You're claiming the truth of two propositions: A) Without the context of the specific accounts being debited or credited the terms [debit and credit] themselves mean nothing. B) Without the context of the specific accounts being debited or credited we have no way of explaining what the managerial result of that ent…

> When an account is CREDITED, this always represents an increase in liabilities[0] (or equivalently, a decrease in assets). > When an account is DEBITED, this always represents an increase in assets (or equivalently, a decrease in liabilities). This is where you're wrong. You can credit and debit Accounts Payable and Accounts Receivable. If you credit AP, you're increasing liability, if you credit AR, you're increas…

"If you credit AP, you're increasing liability, if you credit AR, you're increasing assets."

This is incorrect. If you credit AR, you're decreasing assets.[0]

[0] https://www.freshbooks.com/hub/accounting/debit-and-credit#:....

Re: Accounting For Developers, Part I

#102

Post by lelanthran »

kojim wrote: post #83
EvanAnderson wrote: post #25

Sometimes non-accounting people get hung-up on the words "debit" and "credit" and think they have to do with "owing" or "being owed" money. The effect of a debit or credit on the business depends on the accounts in the transaction and debit and credit don't have anything to do with the "direction" of a flow of money. My 100-level accounting instructor summarized it as: "A debit is the entry in the left column, and a…

Debits and credits is the only way to give your team a common, consistent "language" for dealing with money, and being able to speak this language as a dev gives you superpowers. Accounting was invented before negative numbers. Because of this, instead of counting money as positive or negative amounts, it uses the debits and credits. Instead of subtracting funds from one account and adding them to another, we talk ab…

> Accounting was invented before negative numbers.

Counting was invented before negative numbers, but "double-entry accounting", which is what people refer to when they say debit and credit, was only invented in the 18th century, IIRC.

Re: Accounting For Developers, Part I

#103

Post by tunesmith »

rahimnathwani wrote: post #56
EvanAnderson wrote: post #25

Sometimes non-accounting people get hung-up on the words "debit" and "credit" and think they have to do with "owing" or "being owed" money. The effect of a debit or credit on the business depends on the accounts in the transaction and debit and credit don't have anything to do with the "direction" of a flow of money. My 100-level accounting instructor summarized it as: "A debit is the entry in the left column, and a…

> "debit" and "credit" and > think they have to do with > "owing" or "being owed" money. I think of it as 'owing' (liability) or 'owning' (asset). When you credit an account, you either increase what you 'owe' on that account OR decrease what you 'own' on that account. Examples: - bank credits a customer account => bank owes more to its customers - company credits income account => company owes more to its shareholde…

That makes sense to me in terms of assets and liabilities, but when I read https://beancount.github.io/docs/the_double_entry_counting_m... and it described income as being negative and expense as being positive, it broke my brain a little bit.

Re: Accounting For Developers, Part I

#104

Post by vishnugupta »

potamic wrote: post #27

Any time the idea of double entry bookkeeping comes up there is nothing but unanimous advocacy for it. This thread echoes the same sentiment where there's several comments about the importance of double entry. And yet like all previous endorsements I've heard, I've not been able to take away why it is so important. The reasons are always around error tracking, tracing source of funds, standing the test of time etc. a…

> But if it's all with a single party

If you dig in deeper you’ll see that there’s never a single party. Money always moves from someone to someone else. So even if it’s a single party the money is moving from marketing department to customer acquisition. Let’s say you are giving customer 10$ signup bonus. That money has to come from somewhere and has to be accounted for.

One just can’t create or destroy money. And the best way to ensure that is double entry accounts.

Re: Accounting For Developers, Part I

#105

Post by bgro »

EvanAnderson wrote: post #25

Sometimes non-accounting people get hung-up on the words "debit" and "credit" and think they have to do with "owing" or "being owed" money. The effect of a debit or credit on the business depends on the accounts in the transaction and debit and credit don't have anything to do with the "direction" of a flow of money. My 100-level accounting instructor summarized it as: "A debit is the entry in the left column, and a…

It gets really confusing when you talk about "in the red" or the black / red coloring and it depends on which side of the books you're on for what it means. I get this mixed up with electrical engineering every time now. I never feel comfortable jumping a car.

"Red means positive, as in I'm positively sure you owe me a lot of money."

Re: Accounting For Developers, Part I

#106

Post by projektfu »

sudhirj wrote: post #66
epa wrote: post #59

Earlier quoted context omitted.

Assets are +, Liabilities are -. So a receivable is an asset and +100 is correct. when the money comes in, you need to +100 cash and -100 receivable.

So when an apartment pays, is 4 entries in the single transaction? Credit their apartment account, debit the bank account, credit cash and debit receivables? Never thought of making 4 entries for a single transaction.

You would have accounts receivable as a super-account for all your apartments. Its value would be the sum of the sub-accounts. The bank account would be a sub-account of all your cash accounts. So you only need to make two entries, one to the apartment's AR and one to the bank account.

You should do yourself a favor and read a good textbook. The online resources are not great and are mostly geared toward getting you to buy a product. For example:

https://www.worldcat.org/title/accounting/oclc/1127092943&re...

Re: Accounting For Developers, Part I

#107

Post by [deleted] »

lelanthran wrote: post #102
kojim wrote: post #83

Earlier quoted context omitted.

Debits and credits is the only way to give your team a common, consistent "language" for dealing with money, and being able to speak this language as a dev gives you superpowers. Accounting was invented before negative numbers. Because of this, instead of counting money as positive or negative amounts, it uses the debits and credits. Instead of subtracting funds from one account and adding them to another, we talk ab…

> Accounting was invented before negative numbers. Counting was invented before negative numbers, but "double-entry accounting", which is what people refer to when they say debit and credit, was only invented in the 18th century, IIRC.

[deleted]

Re: Accounting For Developers, Part I

#108

Post by rahimnathwani »

tunesmith wrote: post #103
rahimnathwani wrote: post #56

Earlier quoted context omitted.

> "debit" and "credit" and > think they have to do with > "owing" or "being owed" money. I think of it as 'owing' (liability) or 'owning' (asset). When you credit an account, you either increase what you 'owe' on that account OR decrease what you 'own' on that account. Examples: - bank credits a customer account => bank owes more to its customers - company credits income account => company owes more to its shareholde…

That makes sense to me in terms of assets and liabilities, but when I read https://beancount.github.io/docs/the_double_entry_counting_m... and it described income as being negative and expense as being positive, it broke my brain a little bit.

Maybe the following will help. It might not click immediately but, when it does, there will no longer be any need to memorize what debits/credits are in the context of each of assets/liabilities/equity.

Think of "shareholder's equity" aka "owner's equity" as being a liability. After all, doesn't a company owe all its earnings to its owners?

Now, consider that:

- all income is a liability owed to shareholders. So any new income is an increase in the amount owed to these shareholder 'creditors', represented by a credit entry

- similar but opposite reasoning says that a new expense is represented by debit entry

If you feel uncomfortable seeing shareholders in the same category as creditors, consider that companies can choose two ways to fund themselves: equity (which creates shareholders) or debt (which creates creditors).

Re: Accounting For Developers, Part I

#109

Post by vlmutolo »

lelanthran wrote: post #102
kojim wrote: post #83

Earlier quoted context omitted.

Debits and credits is the only way to give your team a common, consistent "language" for dealing with money, and being able to speak this language as a dev gives you superpowers. Accounting was invented before negative numbers. Because of this, instead of counting money as positive or negative amounts, it uses the debits and credits. Instead of subtracting funds from one account and adding them to another, we talk ab…

> Accounting was invented before negative numbers. Counting was invented before negative numbers, but "double-entry accounting", which is what people refer to when they say debit and credit, was only invented in the 18th century, IIRC.

It likely originated in late 13th century Italy.

https://en.m.wikipedia.org/wiki/Double-entry_bookkeeping

Re: Accounting For Developers, Part I

#110

Post by kojim »

whatshisface wrote: post #96
kojim wrote: post #83

Earlier quoted context omitted.

Debits and credits is the only way to give your team a common, consistent "language" for dealing with money, and being able to speak this language as a dev gives you superpowers. Accounting was invented before negative numbers. Because of this, instead of counting money as positive or negative amounts, it uses the debits and credits. Instead of subtracting funds from one account and adding them to another, we talk ab…

That's like choosing whether +x is a rightward or leftward facing coordinate axis. You can still use negative numbers, but you have to indicate whether positive means left or right. See also: positive and negative longitudes vs. east or west longitudes.

Oh completely. The "agreeing on what's left or right" in every context is the tough part, and already a solved problem with debits and credits.
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