5 ms·

Transaction: Income > Work: $200 (or $200CR) Assets > Bank Account: -$200 (or $200DB) This is exactly how it would be stored in any software system behind-th

by sago 6y ago

Transaction: Income > Work: $200 (or $200CR) Assets > Bank Account: -$200 (or $200DB) This is exactly how it would be stored in any software system behind-the-scenes, and how it would be submitted in statutory accounts. The only thing that makes this look weird is that you are used to seeing your bank account statement with 'credit'. But that's only because the bank account statement is from their accounting perspective. Money comes from somewhere (Positive, Credit); it goes somewhere (Negative, Debit). The entire confusion about signs and what to add and remove, and what categories 'increase' with debit or credit, it all disappears when you allow negative numbers. I guarantee your accounting software _will_ simply store them as positive or negative. It is frustrating that it appears so complex simply because of avoiding negative numbers.

mehrdadn 6y ago
I don't understand where the negative comes from. I just gained $200. Why would my bank balance go down by $200?! If you're talking about the bank's perspective, why is that relevant to me? I'm just asking about how to do my own accounting.
- sago 6y ago
  Debit is where you put money. Credit is where it came from. I am not inventing this. Money in your bank is debit in _your_ accounting. You are very welcome to treat it as positive and add. As long as you keep track of where every positive number is a credit or a debit, and you learn all the rules about which accounts to add and which ones need taking away. Or you can just treat credits as positive numbers and debits as negative. Literally the only 'weirdness' is that money you have put somewhere for future use (like a bank) is negative. Your initial reaction might be "that's just nonsense and ridiculous!" But I guarantee that is how your accountant and accountancy software is storing it. Your bank balance is debit from your accounts. Legally and intuitively. The only reason it is weird is because you receive statements from the bank from their perspective (a credit because they received the money from you). If you have made it to junior high school you are quite capable of the math. Treat debits as negative and credits as positive. No accountancy ed / special rules needed. If you want to get it more intuitive you can think of it as: Negative numbers are money that you put somewhere and is now owed to you. If you have $1000 in 'your' account, legally that means you are $1000 down because you are owed that money by the bank. It is your debit. You have given them credit. It may not feel like a loan because it feels like you can get the money any time you want. But loans you have given and bank accounts are both assets in your accounting. They are both debit. They are both money you have put somewhere.
  - mehrdadn 6y ago
    I think you're confused on what I'm confused about. The positive or negative sign isn't the issue. You could flip all the signs and I'd still have the same problem. > Literally the only 'weirdness' is that money you have put somewhere for future use (like a bank) is negative. But that is literally what I'm talking about. Whether the sign is positive or negative isn't the issue. It just makes no sense for this to be a zero-sum game, is all I'm saying. You're telling me if I get $200 out of the blue I suddenly owe someone that $200 instantly? How does that work?
    - sago 6y ago
      I see, sorry. Thanks for clarifying your question. Transactions always balance. Money always comes from somewhere, and it always goes to somewhere. Total debit always equals total credit. In a double entry accounting system you have to say where that $200 came from. Did it come from a sale (you sold your work, an item), a loan you took, someone you loaned money yourself, or an investment in your company. In double accounting it always balances. Here I am talking debit and credit because this is nothing to do with my point about positivity or negativity. This is how double entry bookkeeping works. If you make all the numbers positive, then the total credit has to equate ('balance') with the total debit. So treating debit as negative and credit as positive, means 'balancing' is just summing to 0. Before double entry bookkeeping was invented in the Renaissance, single entry accounting just kept separate lists for all things. This works for basic tracking of money. For individuals particularly. But has massive weaknesses for tracking where money is coming from how it moves around, and making sure there aren't errors. Money doesn't come out of the blue. Which is why it is the business standard. And the legal requirement in most of the world. One of the most amazing and significant human innovations, IMO. The credit and debit/what to add/what to subtract rules are only because double entry accounting was invented before use of negative numbers (they were only a weird mathematical curiosity at the time). So I am not reinventing anything.
      - mehrdadn 6y ago
        I still don't get it, sorry. So I worked and earned $200 for my work. It (obviously) came from somewhere—that "somewhere" being the pocket of the dude that paid me. But why is that relevant here? Am I not doing accounting properly until I start tracking what's in others' pockets'? I need to make an "account" for that dude and write down a debit of $200 for him just because he gave me $200 and the sum just has to be $0, or else some catastrophe happens? Isn't that nonsensical?

by sago 6y ago

mehrdadn 6y ago

I don't understand where the negative comes from. I just gained $200. Why would my bank balance go down by $200?! If you're talking about the bank's perspective, why is that relevant to me? I'm just asking about how to do my own accounting.

sago 6y ago
Debit is where you put money. Credit is where it came from. I am not inventing this. Money in your bank is debit in _your_ accounting. You are very welcome to treat it as positive and add. As long as you keep track of where every positive number is a credit or a debit, and you learn all the rules about which accounts to add and which ones need taking away. Or you can just treat credits as positive numbers and debits as negative. Literally the only 'weirdness' is that money you have put somewhere for future use (like a bank) is negative. Your initial reaction might be "that's just nonsense and ridiculous!" But I guarantee that is how your accountant and accountancy software is storing it. Your bank balance is debit from your accounts. Legally and intuitively. The only reason it is weird is because you receive statements from the bank from their perspective (a credit because they received the money from you). If you have made it to junior high school you are quite capable of the math. Treat debits as negative and credits as positive. No accountancy ed / special rules needed. If you want to get it more intuitive you can think of it as: Negative numbers are money that you put somewhere and is now owed to you. If you have $1000 in 'your' account, legally that means you are $1000 down because you are owed that money by the bank. It is your debit. You have given them credit. It may not feel like a loan because it feels like you can get the money any time you want. But loans you have given and bank accounts are both assets in your accounting. They are both debit. They are both money you have put somewhere.
- mehrdadn 6y ago
  I think you're confused on what I'm confused about. The positive or negative sign isn't the issue. You could flip all the signs and I'd still have the same problem. > Literally the only 'weirdness' is that money you have put somewhere for future use (like a bank) is negative. But that is literally what I'm talking about. Whether the sign is positive or negative isn't the issue. It just makes no sense for this to be a zero-sum game, is all I'm saying. You're telling me if I get $200 out of the blue I suddenly owe someone that $200 instantly? How does that work?
  - sago 6y ago
    I see, sorry. Thanks for clarifying your question. Transactions always balance. Money always comes from somewhere, and it always goes to somewhere. Total debit always equals total credit. In a double entry accounting system you have to say where that $200 came from. Did it come from a sale (you sold your work, an item), a loan you took, someone you loaned money yourself, or an investment in your company. In double accounting it always balances. Here I am talking debit and credit because this is nothing to do with my point about positivity or negativity. This is how double entry bookkeeping works. If you make all the numbers positive, then the total credit has to equate ('balance') with the total debit. So treating debit as negative and credit as positive, means 'balancing' is just summing to 0. Before double entry bookkeeping was invented in the Renaissance, single entry accounting just kept separate lists for all things. This works for basic tracking of money. For individuals particularly. But has massive weaknesses for tracking where money is coming from how it moves around, and making sure there aren't errors. Money doesn't come out of the blue. Which is why it is the business standard. And the legal requirement in most of the world. One of the most amazing and significant human innovations, IMO. The credit and debit/what to add/what to subtract rules are only because double entry accounting was invented before use of negative numbers (they were only a weird mathematical curiosity at the time). So I am not reinventing anything.
    - mehrdadn 6y ago
      I still don't get it, sorry. So I worked and earned $200 for my work. It (obviously) came from somewhere—that "somewhere" being the pocket of the dude that paid me. But why is that relevant here? Am I not doing accounting properly until I start tracking what's in others' pockets'? I need to make an "account" for that dude and write down a debit of $200 for him just because he gave me $200 and the sum just has to be $0, or else some catastrophe happens? Isn't that nonsensical?