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This blog entry taught me a mathy way of understanding double-entry accounting: https://martin.kleppmann.com/2011/03/07/accounting-for-computer-scientists.html

This blog entry taught me a mathy way of understanding double-entry accounting: https://martin.kleppmann.com/2011/03/07/accounting-for-computer-scientists.html https://martin.kleppmann.com/2011/03/07/accounting-for-compu... Summarized: a ledger is a directed graph of accounts, where edges are transactions, and each transaction is recorded twice: in the "from" node and the "to" node.

rahimnathwani 5y ago
The article is mostly correct[0], and is very good if the explanation clicks for you. I suspect some people (even some HN readers) would find it easier to think of ledgers as lists of transactions with running totals. [0] e.g. it's not strictly true that book value is a lower bound on company value
wutangson1 5y ago
But “a ledger” is not a directed graph of accounts, is it? There is no ‘from - to’ in a ledger. A ledger simply reorganizes the transactions from chronological order (aka journal entries) into subject/account headings. Not the same, but similar to clicking ‘subject’ column tab on your email client to reorganize your emails from descending date to subject attribute.
- rahimnathwani 5y ago
  That explanation didn't click with me, either. But I guess you could model each transaction as an edge, with the direction specifying which account is debited and which credited, and the weight determining the amount. I don't find that particularly helpful myself, but I put that down to my unfamiliarity with graph data structures and the associated algorithms. Maybe there's something you can do more easily with a graph database, than you can if you have the same info in a table?
  - wutangson1 5y ago
    Sure. Just like blockchain- or any other decentralized ledger- may be a tremendously disruptive technology for property recording, sale/transfer, and financing in the future (compared to the current archaic system of deeds/titles for real property or UCC financing recording for secured transactions); so to, a graph database may clearly illustrate the point of bookkeeping along with the share of assets creditors and investors are entitled to realtime.
lazyasciiart 5y ago
I found it an interesting and useful explanation, but the bit in the middle where he just says "now categorize each node, I colored them in!" is the bit I always had more trouble with, so I was disappointed to see basically the same explanation as I've heard before.
- rahimnathwani 5y ago
  Perhaps my explanation will help? In your chart of accounts, each account corresponds to exactly one of these: - Asset - Liability - Equity (changes in this affect the income statement) Whenever a transaction takes place, the debits and credits must sum up. For example, when you take a bank loan, your assets increase (debit) but your liabilities also increase (credit) by the same amount. Sometimes something touches more than two accounts. For example, if you sell a cup of coffee for $2, using up $0.50 worth of beans: CR Revenue $2 DR COGS $0.50 DR Cash $2 CR Materials $0.50 The first two lines increase the book value of the business by $1.50. The last two lines increase the assets of the business by $1.50 (cash up by $2, bean inventory down by $0.50). It's easy to get confused about debits and credits. I attempted to create a memorable explanation here: https://www.encona.com/posts/debits-and-credits https://www.encona.com/posts/debits-and-credits

rahimnathwani 5y ago

The article is mostly correct[0], and is very good if the explanation clicks for you. I suspect some people (even some HN readers) would find it easier to think of ledgers as lists of transactions with running totals. [0] e.g. it's not strictly true that book value is a lower bound on company value

wutangson1 5y ago

But “a ledger” is not a directed graph of accounts, is it? There is no ‘from - to’ in a ledger. A ledger simply reorganizes the transactions from chronological order (aka journal entries) into subject/account headings. Not the same, but similar to clicking ‘subject’ column tab on your email client to reorganize your emails from descending date to subject attribute.

rahimnathwani 5y ago
That explanation didn't click with me, either. But I guess you could model each transaction as an edge, with the direction specifying which account is debited and which credited, and the weight determining the amount. I don't find that particularly helpful myself, but I put that down to my unfamiliarity with graph data structures and the associated algorithms. Maybe there's something you can do more easily with a graph database, than you can if you have the same info in a table?
- wutangson1 5y ago
  Sure. Just like blockchain- or any other decentralized ledger- may be a tremendously disruptive technology for property recording, sale/transfer, and financing in the future (compared to the current archaic system of deeds/titles for real property or UCC financing recording for secured transactions); so to, a graph database may clearly illustrate the point of bookkeeping along with the share of assets creditors and investors are entitled to realtime.

lazyasciiart 5y ago

I found it an interesting and useful explanation, but the bit in the middle where he just says "now categorize each node, I colored them in!" is the bit I always had more trouble with, so I was disappointed to see basically the same explanation as I've heard before.

rahimnathwani 5y ago
Perhaps my explanation will help? In your chart of accounts, each account corresponds to exactly one of these: - Asset - Liability - Equity (changes in this affect the income statement) Whenever a transaction takes place, the debits and credits must sum up. For example, when you take a bank loan, your assets increase (debit) but your liabilities also increase (credit) by the same amount. Sometimes something touches more than two accounts. For example, if you sell a cup of coffee for $2, using up $0.50 worth of beans: CR Revenue $2 DR COGS $0.50 DR Cash $2 CR Materials $0.50 The first two lines increase the book value of the business by $1.50. The last two lines increase the assets of the business by $1.50 (cash up by $2, bean inventory down by $0.50). It's easy to get confused about debits and credits. I attempted to create a memorable explanation here: https://www.encona.com/posts/debits-and-credits https://www.encona.com/posts/debits-and-credits