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"Simple - No more confusing debit / credit / asset / liability mumbo jumbo" It is just "mumbo jumbo" to you because accounting/finance is not your area of expe

"Simple - No more confusing debit / credit / asset / liability mumbo jumbo" It is just "mumbo jumbo" to you because accounting/finance is not your area of expertise.

chad_oliver 8y ago
Sure, but that just means they're creating a product for a specific market -- one whose area of expertise isn't accounting or finance. This is something we should encourage, rather than nitpicking the wording.
- stevievee 8y ago
  I am not nitpicking at all. All of the things the author said are "mumbo jumbo" are fundamental to keeping proper books. Proper bookkeeping is also regulated so it is not just my opinion.
  - chris_wot 8y ago
    Agreed. If you haven't spent the time to understand what debits and credits are in a double-entry book keeping system, then you really shouldn't be trying to do accounting.
    - kungtotte 8y ago
      There's a large use case for simple personal bookkeeping that doesn't require double-entry accounting. Most people have some fixed recurring bills (insurance, rent, subscriptions, etc.), some variable recurring bills (utilities, etc.), standing payments like savings, and monthly spends like groceries. For them (myself included) something that lets you simply input recurring expenses and your income and show a running tally is pretty much all that's needed, add some simple transaction tracking and you're there. Basically all you really want is two things: 1) Given $2000 at payday, how much of that is available to spend if $X is going towards known expenses. 2) The day before payday I have $Y left in my account. Where did I spend the $2000-$X?
      - chris_wot 8y ago
        Which means you have to take out money from one account and transfer it into another. Which means that you need to understand that you must debit an expense as it decreases the owners equity credit balance, and then you must understand that it causes a credit on your bank account. If you don't have this, then you won't be able to work out where you spent your $X amount of money.
        kungtotte 8y ago
        I don't need to understand any of that for simple personal finance. A transaction with a negative amount with a to and from field is all that I need. If I see 15 bucks each month going to "Spotify" I don't have to be a CPA to work out that I spend 15 bucks a month for Spotify...
        chris_wot 8y ago
        Which is an expense, and it takes money out of your bank account and into the Spotify expense account. You have just understood it, intuitively.
- gamblor956 8y ago
  Those are extremely basic financial terms. If you (meaning the generic you, not you specifically) can't understand them you really shouldn't be doing your own accounting. It would be like creating a niche programming IDE for people who don't understand the term "computer" or "programming" or "code."
  - adius 8y ago
    And that's exactly what e.g. Zapier and Airtable Blocks do ... and quite successfully so. In specialized communities there is a lot of gatekeeping just by their slang. If I can explain something in plain english without using numerous technical terms, I've mastered the first hurdle to make it more accessible.
    - gamblor956 8y ago
      A cursory view of their homepages reveals a large amount of tech "lingo" that require a fair amount of computer savvy, so nothing at all like what I'm describing.
adrianratnapala 8y ago
Accounting is not my area of expertise, but I have been learning it -- in simple terms -- by doing my personal accounts. When I started, I found these distinctions confusing, but I assumed they were wise. Now I find them arbitrary and annoying, although I am less confused by them. I suspect there will be a third stage where I will learn their true value. But I also strongly expect that the value lies in them being a common language that other accountancy uses. If so, then they will never be useful in my own personal accounts.
- hosh 8y ago
  Some mathematicians had constructed a group (Pacioli Group) to analyze the characteristics of using such a system. One thing a double-entry system can do that a single-entry cannot is to quickly verify the consistency of the transactions. The specific names of "debit", "credit", etc. are jargon. The properties that allow for quick verification works on more complex transactions. I might use a single-entry ledger for my personal finances (though I prefer the double-entry). I wouldn't run a business on it though.
  - adrianratnapala 8y ago
    This is going far beyond my own knowledge. I only use double-entry. Or at least I use a style where everything is a transaction that adds up to zero -- there can be more than two accounts in a transaction. I don't even understand single-entry. [UPDATE: I am now pretty sure there is a serious misunderstanding my paragraph above, but think it is more constructive to note it, than to delete it.] My main objection was to making account types so so fundamental. From the POV of my account book "Assets:InTheBank" behaves just like "Liabilities:CreditCard". True, the later balance is almost always negative, but it is the minus sign and not the word "Liabilities" that matters. Similarly for transactions, a plus or a minus in front of a delta is less confusing to me than the equivalent accountant-jargon. But here, for some reason, I have more sympathy for accountants and their jargon.
    - hosh 8y ago
      I see. Thst makes more sense. I took an intro accounting class in a community college as well as microeconomics in high school, so I have an inkling where this stuff comes from. I look askance at stuff like "contra assets" too. But yes: boiled down, those are legacy words indicating positive or negative.
TeMPOraL 8y ago
Somebody should write a proper "accounting for regular people" guide, because I too find those terms confusing - and also completely separated for any experience ever that I had with money. And it only gets worse from there, with "accounts receivable" and "accounts payable". Is that an American thing? I try not to fall into the trap of being proud of my own ignorance; but after many hours of reading introductory accounting articles linked by various accounting software sites, I still don't get any of it. I'd love a cheat-sheet or plain-English example of how to model the following with GAAP: I'm an individual, I have couple bank accounts, get a salary and occasional invoice, I pay for various stuff, I sometimes use cash. I do not own shares in companies. I want to do budgeting, including some sort of "envelopes" or "virtual accounts" so that I can earmark some money for particular use. I tried to build something like that with Ledger CLI several times now, but I always bounce off the confusion about terminology, and not knowing what goes into "Equity", what into "Liabilities", etc., and why does everything expect me to have "accounts payable" and "receivable"... Knowing what's the proper, idiomatic representation of such financial system would go a long way towards me understanding what the hell all those terms mean.
- deltux 8y ago
  I found that this tutorial [1] was really helpful to help me understand how it works, in layman's terms. I followed it with hledger [2], but it should work with any double-entry bookkeeping system. You can also find a lot of resources here [3]. [1] http://www.dwmbeancounter.com/tutorial/Tutorial.html http://www.dwmbeancounter.com/tutorial/Tutorial.html [2] http://hledger.org/ http://hledger.org/ [3] http://plaintextaccounting.org/ http://plaintextaccounting.org/
- mbrock 8y ago
  Consider watching this little series on Khan Academy and then sketching out your start of year balance sheet and a month's income statement. https://www.khanacademy.org/economics-finance-domain/core-finance/accounting-and-financial-stateme https://www.khanacademy.org/economics-finance-domain/core-fi... This might clarify the account types (assets, liabilities, equity, income, and expense) as structuring the income/balance reports, and accrual basis accounting as the reason to have "accounts payable/receivable." Consider also thinking of your accounts as nodes in a directed graph. When you credit account 1 and debit account 2, you draw an edge from 1 to 2, representing a transaction. The credit is the "source" and the debit the "target." (Double entry means you record a transaction as two updates with opposite charge, so credits and debits are listed separately. This is basically an error-correcting heuristic from 15th century Italy, which is still a good practice.) So when you send an invoice to a client, that's a transaction. You obtain an asset taken from another entity. So you credit a revenue account and debit an asset account called "accounts receivable" (it's not "cash"). When you receive the payment, you credit accounts receivable and debit cash.
Bromskloss 8y ago
About that, isn't the difference between "debit" and "credit", and between "asset" and "liability", just a minus sign?

"Simple - No more confusing debit / credit / asset / liability mumbo jumbo" It is just "mumbo jumbo" to you because accounting/finance is not your area of expertise.

chad_oliver 8y ago

Sure, but that just means they're creating a product for a specific market -- one whose area of expertise isn't accounting or finance. This is something we should encourage, rather than nitpicking the wording.

stevievee 8y ago
I am not nitpicking at all. All of the things the author said are "mumbo jumbo" are fundamental to keeping proper books. Proper bookkeeping is also regulated so it is not just my opinion.
- chris_wot 8y ago
  Agreed. If you haven't spent the time to understand what debits and credits are in a double-entry book keeping system, then you really shouldn't be trying to do accounting.
  - kungtotte 8y ago
    There's a large use case for simple personal bookkeeping that doesn't require double-entry accounting. Most people have some fixed recurring bills (insurance, rent, subscriptions, etc.), some variable recurring bills (utilities, etc.), standing payments like savings, and monthly spends like groceries. For them (myself included) something that lets you simply input recurring expenses and your income and show a running tally is pretty much all that's needed, add some simple transaction tracking and you're there. Basically all you really want is two things: 1) Given $2000 at payday, how much of that is available to spend if $X is going towards known expenses. 2) The day before payday I have $Y left in my account. Where did I spend the $2000-$X?
    - chris_wot 8y ago
      Which means you have to take out money from one account and transfer it into another. Which means that you need to understand that you must debit an expense as it decreases the owners equity credit balance, and then you must understand that it causes a credit on your bank account. If you don't have this, then you won't be able to work out where you spent your $X amount of money.
      - kungtotte 8y ago
        I don't need to understand any of that for simple personal finance. A transaction with a negative amount with a to and from field is all that I need. If I see 15 bucks each month going to "Spotify" I don't have to be a CPA to work out that I spend 15 bucks a month for Spotify...
        chris_wot 8y ago
        Which is an expense, and it takes money out of your bank account and into the Spotify expense account. You have just understood it, intuitively.
gamblor956 8y ago
Those are extremely basic financial terms. If you (meaning the generic you, not you specifically) can't understand them you really shouldn't be doing your own accounting. It would be like creating a niche programming IDE for people who don't understand the term "computer" or "programming" or "code."
- adius 8y ago
  And that's exactly what e.g. Zapier and Airtable Blocks do ... and quite successfully so. In specialized communities there is a lot of gatekeeping just by their slang. If I can explain something in plain english without using numerous technical terms, I've mastered the first hurdle to make it more accessible.
  - gamblor956 8y ago
    A cursory view of their homepages reveals a large amount of tech "lingo" that require a fair amount of computer savvy, so nothing at all like what I'm describing.

adrianratnapala 8y ago

Accounting is not my area of expertise, but I have been learning it -- in simple terms -- by doing my personal accounts. When I started, I found these distinctions confusing, but I assumed they were wise. Now I find them arbitrary and annoying, although I am less confused by them. I suspect there will be a third stage where I will learn their true value. But I also strongly expect that the value lies in them being a common language that other accountancy uses. If so, then they will never be useful in my own personal accounts.

hosh 8y ago
Some mathematicians had constructed a group (Pacioli Group) to analyze the characteristics of using such a system. One thing a double-entry system can do that a single-entry cannot is to quickly verify the consistency of the transactions. The specific names of "debit", "credit", etc. are jargon. The properties that allow for quick verification works on more complex transactions. I might use a single-entry ledger for my personal finances (though I prefer the double-entry). I wouldn't run a business on it though.
- adrianratnapala 8y ago
  This is going far beyond my own knowledge. I only use double-entry. Or at least I use a style where everything is a transaction that adds up to zero -- there can be more than two accounts in a transaction. I don't even understand single-entry. [UPDATE: I am now pretty sure there is a serious misunderstanding my paragraph above, but think it is more constructive to note it, than to delete it.] My main objection was to making account types so so fundamental. From the POV of my account book "Assets:InTheBank" behaves just like "Liabilities:CreditCard". True, the later balance is almost always negative, but it is the minus sign and not the word "Liabilities" that matters. Similarly for transactions, a plus or a minus in front of a delta is less confusing to me than the equivalent accountant-jargon. But here, for some reason, I have more sympathy for accountants and their jargon.
  - hosh 8y ago
    I see. Thst makes more sense. I took an intro accounting class in a community college as well as microeconomics in high school, so I have an inkling where this stuff comes from. I look askance at stuff like "contra assets" too. But yes: boiled down, those are legacy words indicating positive or negative.

TeMPOraL 8y ago

Somebody should write a proper "accounting for regular people" guide, because I too find those terms confusing - and also completely separated for any experience ever that I had with money. And it only gets worse from there, with "accounts receivable" and "accounts payable". Is that an American thing? I try not to fall into the trap of being proud of my own ignorance; but after many hours of reading introductory accounting articles linked by various accounting software sites, I still don't get any of it. I'd love a cheat-sheet or plain-English example of how to model the following with GAAP: I'm an individual, I have couple bank accounts, get a salary and occasional invoice, I pay for various stuff, I sometimes use cash. I do not own shares in companies. I want to do budgeting, including some sort of "envelopes" or "virtual accounts" so that I can earmark some money for particular use. I tried to build something like that with Ledger CLI several times now, but I always bounce off the confusion about terminology, and not knowing what goes into "Equity", what into "Liabilities", etc., and why does everything expect me to have "accounts payable" and "receivable"... Knowing what's the proper, idiomatic representation of such financial system would go a long way towards me understanding what the hell all those terms mean.

deltux 8y ago
I found that this tutorial [1] was really helpful to help me understand how it works, in layman's terms. I followed it with hledger [2], but it should work with any double-entry bookkeeping system. You can also find a lot of resources here [3]. [1] http://www.dwmbeancounter.com/tutorial/Tutorial.html http://www.dwmbeancounter.com/tutorial/Tutorial.html [2] http://hledger.org/ http://hledger.org/ [3] http://plaintextaccounting.org/ http://plaintextaccounting.org/
mbrock 8y ago
Consider watching this little series on Khan Academy and then sketching out your start of year balance sheet and a month's income statement. https://www.khanacademy.org/economics-finance-domain/core-finance/accounting-and-financial-stateme https://www.khanacademy.org/economics-finance-domain/core-fi... This might clarify the account types (assets, liabilities, equity, income, and expense) as structuring the income/balance reports, and accrual basis accounting as the reason to have "accounts payable/receivable." Consider also thinking of your accounts as nodes in a directed graph. When you credit account 1 and debit account 2, you draw an edge from 1 to 2, representing a transaction. The credit is the "source" and the debit the "target." (Double entry means you record a transaction as two updates with opposite charge, so credits and debits are listed separately. This is basically an error-correcting heuristic from 15th century Italy, which is still a good practice.) So when you send an invoice to a client, that's a transaction. You obtain an asset taken from another entity. So you credit a revenue account and debit an asset account called "accounts receivable" (it's not "cash"). When you receive the payment, you credit accounts receivable and debit cash.

Bromskloss 8y ago

About that, isn't the difference between "debit" and "credit", and between "asset" and "liability", just a minus sign?