251–260 of 388 posts
Credits actually increase the revenue account, which is a pretty important one!
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Cash account is credited $1000, and Gifted (or Cash_Gifted) account is debited $1000.
That method only works if money can be created out of thin air, and also destroyed. The grandparent comment was pretty clear that money cannot be created out of thin air, nor can it be destroyed. A curious contradiction. How do we resolve it?
If it was important to account for the cash donation, the company would require a receipt in exchange. If it's part of a coverup the receipt may be for something unrelated but at least the books are in good order.
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> the point is to double the amount of work in the hopes of catching certain kinds of errors That's also how I like to think about it, as a kind of checksum mechanism. Double-entry bookkeeping originated in medieval European markets, which were often open-air, noisy, dirty, full of thieves and other dangers. Keeping your records straight in that environment must be a challenge, and having a logic that allows you to c…
Thanks for that. Lemme probe a bit deeper. If you spend $X on sheep, you credit $X where? Debit it from where? You put "$X worth of sheep" on what account? When the sheep die, do you credit some account with "$X worth of dead sheep?" (Where presumably they remain as dead-sheep forever.) (I'm sorry, I know that sounds dumb.) How is that "$X worth of dead sheep" different from "$X worth of security guarding" that you s…
You debit your 'sheep' account (maybe called sth like inventory) and you credit your cash account, or a liabilities towards suppliers account. Your equity stays constant in either case (no profit or loss impact), if you paid cash you've swapped X worth of cash for X worth of sheep, otherwise your liabilities went up by X.
When they die, you debit some kind of expense account (extraordinary losses or sth like that), and you credit the sheep account. In that case, you've made a loss of X and your equity (when you next draw up your balance sheet) will be lower by X (assuming that's the only business case). It might even go negative, eg if the sheep were your only asset and you still have the liability towards the guy who sold them to you.
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Every time money is exchanged, it has to come from somewhere and it has to go somewhere -- that's two places it need to be recorded (or "entered in the books"). Money can not be created out of thin air, and it can not be destroyed. Every movement of money has to be accounted for, which is why it's called "accounting". Double-entry accounting means you have to account for where the money comes from, and you have to ac…
>Where it can become confusing is when money leaves you or comes in from an external source. There are still two entries, but one entry is in one party's books and the other entry is the other's. For example, I get a paycheque and I enter my income in a little book with green paper and DB/CR columns. At the same time, my employer has entered an expense in their book. Double entries. I agree with your first two paragr…
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> 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…
> Money appeared. Lemonade disappeared. I want to see the corresponding +$5 and -$5. If I understand your comment correctly, where you're getting confused is, you're reading Current Account (Assets) to mean your inventory of lemonade. What they actually mean in this case is money moved from Income to your Assets (e.g. your cash register). That's why assets went up in this example. Of course for your lemonade business…
I knew beforehand that I will always get Credit and Debit wrong, but now I guess I can add Income and Assets to that.
> What they actually mean in this case is money moved from Income to your Assets (e.g. your cash register).
Usually when people say 'moved', it implies a decrease in one place and an increase elsewhere, and yet:
> 1. You got income and your assets (your amount of cash) both increased.
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That method only works if money can be created out of thin air, and also destroyed. The grandparent comment was pretty clear that money cannot be created out of thin air, nor can it be destroyed. A curious contradiction. How do we resolve it?
No money was created or destroyed. The "cash gifted" account would have a corresponding entry in the recipients books reflecting the cash received. Unless he's delinquent about updating his books in which case it's implied but not realized. Few (unmedicated) individuals are going to track every transaction to that level though. If it was important to account for the cash donation, the company would require a receipt…
So, of course, in reality money was created (and then destroyed, it being a gift) in order to make the transaction whole. But as far as this magical fairytale land where money can't be created the entry doesn't work. You can't account for nothing.
Let's say it's not a gift. Let's say someone is borrowing $1,000 cash instead. The same applies. There is no corresponding element in trade to account for. It doesn’t balance. Thus, when the cash goes out you need to create money out of thin air to satisfy the other side of the transaction, which is later destroyed when the cash is returned.
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Indeed, the dirty secret is that many accountants think of debit and credit as decrease and increase as well. After using the terms for a little while they switch the symbol (word) they think of, but it still retains the same meaning. They are basically synonymous. source: friends and family members who are accountants and have generously given free bookkeeping tutorials
>Indeed, the dirty secret is that many accountants think of debit and credit as decrease and increase as well. So how would you correctly express the parent's example in terms of debit/credit if debit/credit are synonymous with decrease/increase?: >>"Increase cash" by borrowing money is "increasing liability". "Crediting cash by borrowing money is crediting liability" would sound obviously incorrect to any accountant…
> I wouldn't say "they are basically synonymous" because there are situations where they flip depending on the rules/approach that you are following. After working with it you get pretty familiar with these situations and don't really even translate anymore. It's important to remember though that there are books the way most people see them, and the way an accountant following GAAP sees them. "Increase" and "decrease" are quite helpful for most people the way most people see the books. If you are applying GAAP it's like working in a different language where words don't cleanly translate.
Given that we are mostly talking about double-entry in this thread, I think he is basically telling me I'm wrong but trying to explain how I came by it honestly so I don't feel stupid :-D
To quote the famous Bender from Futurama: "I’m so embarrassed. I wish everybody else was dead."
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Isn't having to replay every transaction in history to query current balance rather inefficient?
Computers are astonishingly fast at summing integers.
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> My problem is that your alternatives don't just change the words, they change the logic. 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.
What matters is that the labels are different on each side of the equation. That contradicts your suggestion that we should use the intuitive meaning of the words and it contradicts your suggestion to 'just use "credit" for any increase, and "debit" for any decrease'. Let's say a company raises equity (i.e it issues new shares), money comes into the bank account. In traditional terminology that would result in: debit…
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> You really don't need to use terminology like debit/credit for accounting. That's exactly right -- you don't need to. The problem is that people do use this terminology, and they use it in a way that conflicts with common usage, which makes a very simple concept vastly more confusing than it needs to be.
> That's exactly right -- you don't need to. The problem is that people do use this terminology, and they use it in a way that conflicts with common usage I used to think that way, then I understood this thinking is the exact opposite of what’s happening. Hundred million people on earth know how to work with debit and credit exactly as it has been written in accounting books for hundreds of years. When you need to ex…
That's actually a pretty good analogy. There is a lot in Java that could be improved too.