Accounting for Computer Scientists (2011)

It's like Newton's third law of motion, that "every force has an equal and opposite reaction", which when I was a wee child made no sense to me because "surely then nothing would happen". The key was that the equal and opposite reactions are on different objects.

It's the same thing with double entry accounting! The two entries are on different accounts.

This website is absolutely nonsensical and I would not recommend it to anyone to understand how GAAP or IFRS accounting works. It might be useful for someone wanting to learn unicorn fantasy land accounting.

Double-entry accounting is basically checksum. For any transaction, the total in and out of all accounts involved in the transaction should be zero. If it's not, you have an error.

Conceptually, one of the hard parts to grasp and what many accounting students struggle with in the beginning is that in accounting financials, asset accounts have the opposite polarity as revenue accounts. This is because revenue is treated as an item that flows into Equity (in the famous equation Assets = Liabilities + Equity). The cash earned from a revenue-generating transaction is a (positive) asset, and so to balance it you need that revenue amount to be a negative somewhere in the books. This just affects the accounting financial statements (like the income statement or balance sheet; in the books both numbers would be entered as positive amounts in a transaction known as a "journal entry" in which you report the increase to one account and the offsetting decrease to another account.

Credit = money flowing out of an account or creating a new liability = decreases asset and expense accounts but increases liability and revenue accounts

Debit = money flowing into an account or reducing a liability = increases assets and expense accounts but decreases liability and revenue accounts

"the article still loses me because it defines transactions one way (the edges) and then seems to make this big switch that each edge/transaction is really two transactions suddenly (one on each side of the edge)"

Perhaps the word "transaction" should have been explained better. It doesn't mean an entry/record/action. It means a collection of several actions, all happening at the same time. Several actions that are interlinked and only can happen because of one another.

For instance, if I buy a house. "Ensuring the transaction" would be to make sure that a) I get registered as owner to the house and b) that the sellers gets my money. Either a)+b) should both happen (and those two things both happening is ONE transaction), or neither happens. (If I only give the money but don't get the house the transaction didn't complete/is invalid, but incomplete transactions are sort of out of scope for accounting systems)

Back to the article. An edge of 100 from X to Y means "move 100 from X to Y", which is the same as "subtract 100 from X and add 100 to Y, and those two entries belong together and should be done transactionally".

How else would you move money between two accounts if you did not subtract from one and add to the other?

Anyway: The edge is definitely not turned into 2 transactions. But, each edge causes two accounting entries, belonging to the same transaction.

> It only makes sense in the context of a company.

Don't you think it can make sense in terms of pension contributions?

I used to track my finances very carefully (but now I'm more lackadaisical). Double entry would've been helpful for "I'm taking money from this pocket and putting it in this pocket".

I read this article on HN ten years ago and it has been very important to me in a career working on a special purpose accounting (for automated reconciliation of bank accounts of a payments processor).

The biggest shift from conventional accounting is the use of negative numbers instead of debit/credit.

I believe that accounting would have been a lot more accessible to professionals from science/math backgrounds if negative numbers had been used instead of debit/credit.

I think biggest challenge to introducing negative numbers in accounting now is that people don't like the look of an income account accumulating a negative balance and the expense account accumulating a positive balance. But once you bend your mind around that it makes perfect sense...expense is where the money "went" (positive), income is where the money "came from" (negative).

(The alternative sign convention would make cash on hand negative.)

That said: Credit/debit does carry an extra bit of information, because you can put negative numbers as credit/debit to convey flow going the opposite direction of the usual one. (This can also be inferred from the accounts being credit-normal or debit-normal, just wanted to note it is not 100% the same model.)

My Norwegian small business accounting system vendor (Fiken) has started to present data using +/- in addition to debit/credit columns, perhaps there is some adaption of signed numbers accounting happening..