381–388 of 388 posts
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Great article. I would love an RSS feed or place to subscribe on your site so I can be sure to read the next in the series
Thanks! I just set up my RSS feed here: https://matheusportela.com/atom.xml Let me know if it doesn't work for you!
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> It increases liability only from the bank's perspective. You missed the context: When I deposit money, it modifies two accounts at the bank. It appeared to me they were very much explaining this from the banks or utility company’s perspective.
> When I deposit money, it modifies two accounts at the bank. Yeah, I get that. I don't see what that has to do with the labels used to describe the transaction. Actual physical cash is weird because it's an asset to its owner and a liability to the rest of society. But when you deposit cash in a bank, the bank doesn't become the owner of the cash. It has borrowed that cash from you. So that cash is both an asset (be…
What you're missing here is that if I were to keep my own records, I would also list two accounts. When I look at my bank statement online, what I'm looking at is the bank's records. If I kept my own books, it would be the same thing, but in reverse, like this:
MHINK'S RECORDS
- CREDIT mhink's cash account $100 (decreasing mhink's assets)
- DEBIT mhink's account for the bank $100 (increasing mhink's assets)
BANK'S RECORDS
- CREDIT the bank's account for mhink $100 (increasing the bank's liability)
- DEBIT bank's cash account $100 (increasing the bank's assets)
The cash itself isn't both things- it's only ever an asset.
When I transfer cash from my wallet to the bank, I'm converting $100 of value from one type of an asset to another: from cash, to "a debt I'm owed by the bank".
The bank also didn't change its total position. It took on "a debt owed to mhink" (a liability), but gained "cash" (an asset).
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> When I deposit money, it modifies two accounts at the bank. Yeah, I get that. I don't see what that has to do with the labels used to describe the transaction. Actual physical cash is weird because it's an asset to its owner and a liability to the rest of society. But when you deposit cash in a bank, the bank doesn't become the owner of the cash. It has borrowed that cash from you. So that cash is both an asset (be…
> No. This transaction does not increase liability in any absolute sense. It increases liability only from the bank's perspective. From your perspective, it increases assets. What you're missing here is that if I were to keep my own records, I would also list two accounts. When I look at my bank statement online, what I'm looking at is the bank's records. If I kept my own books, it would be the same thing, but in rev…
The passage you quoted is from an earlier comment, so you are responding to something way out of context.
Let's rewind:
> 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.
No. There is no such thing as "an asset" without further qualification. The money you owe the utility company is an asset to them, but to you it's a liability. This is true for all financial instruments, including cash. Cash is an asset to its owner, a liability to society at large. So...
> The cash itself isn't both things- it's only ever an asset.
No, cash is a liability to society at large. The bookkeeping for this happens at the central bank. See:
https://www.federalreserve.gov/monetarypolicy/bst_frliabilit...
"The major items on the liability side of the Federal Reserve balance sheet are Federal Reserve notes (U.S. paper currency)..."
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Nope, in these examples the +Asset on the left means you received say cash. The right side shows various ways to balance that out based on the accounting equation I did an explanation with numbers here: https://news.ycombinator.com/item?id=40021506
> in these examples the +Asset on the left means you received say cash. Ah. So... where is the value of the lemonade before you sold it? Wasn't that an asset before you sold it?
I was going through the 4 combinations of balanced two-line entries, based on the accounting equation, to show how it helps when thinking through how to record something.
If you get into more than two lines, then yup selling a good would be
+Asset -Asset +Income
+Asset -Asset +Liability +Income +Expense
Cash Asset - COGS Asset - Tax Liability = Sales Income - Shipping Expense
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> in these examples the +Asset on the left means you received say cash. Ah. So... where is the value of the lemonade before you sold it? Wasn't that an asset before you sold it?
I guess technically this would be selling a service instead of a good. I was going through the 4 combinations of balanced two-line entries, based on the accounting equation, to show how it helps when thinking through how to record something. If you get into more than two lines, then yup selling a good would be +Asset -Asset +Income or if you include sales tax and son shipping costs: +Asset -Asset +Liability +Income +…
LAAS!
Sorry, no, lemonade is not a service. It is true that you are adding value by turning lemons into lemonade, but that's not what you're selling. You're selling the lemonade. LAAS would be turning someone else's lemons into lemonade for them, but a typical lemonade manufacturer owns their raw materials.
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I don't think it really helps to use negative numbers (e.g. thinking of income as negative is very confusing). I started a discussion [1] on the PTA subreddit about a month ago about how to make PTA syntax more intuitive, and someone suggested using arrows to mark the "from" (aka credit, or negative) and "to" (aka debit, or positive) accounts. The numbers are unsigned and the terms "credit" and "debit" aren't used, a…
I don’t think you need to think of income accounts as negative if the ledger you use enforces an updated accounting equation that also uses negative numbers, See https://news.ycombinator.com/item?id=40021506
I think the problem with that scheme is that without some notion of debit/credit (or equivalently, transactions that sum to 0), you can't easily tell if your transactions are balancing. Somehow you have to encode the information that Assets are a "left hand side positive" account type, and that Income is a "right hand side positive" account type, which is what the "income is negative" stuff is doing. But now you have to remember which side of the equation the account is positive on.
[1]: https://code.gnucash.org/docs/C/gnucash-guide/basics-account...
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I guess technically this would be selling a service instead of a good. I was going through the 4 combinations of balanced two-line entries, based on the accounting equation, to show how it helps when thinking through how to record something. If you get into more than two lines, then yup selling a good would be +Asset -Asset +Income or if you include sales tax and son shipping costs: +Asset -Asset +Liability +Income +…
> I guess technically this would be selling a service instead of a good. LAAS! Sorry, no, lemonade is not a service. It is true that you are adding value by turning lemons into lemonade, but that's not what you're selling. You're selling the lemonade. LAAS would be turning someone else's lemons into lemonade for them, but a typical lemonade manufacturer owns their raw materials.
I’ve also wondered what to do if you grow your own lemons. I guess you could offset the new asset on your books with a Harvest income account?
One of our customers built an ERP for food distributors, I should ask them how they would handle it.
There's a way easier way to explain double entry bookkeeping for the article's target audience, it's just statics for accounting.