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I’ve read that the development of double entry book keeping was very important, enabling less error in accounting, then driving significant gains in commerce.

• hirundo 4y ago
  The importance is in the "accountability" of accounting. By forcing each entry to cross accounts, you make each account reconcilable with the others. "Books" are no longer independent because they can be cross-checked. Where books are departments that makes departments responsible for justifying each entry in a way that is visible across accounts, to the cent. It's a validation layer. With double entry you can't cook just one book, you have to cook all the books.
  • rco8786 4y ago
    This is what is sold in theory. Practice is wildly different. Reconciling across departments looks absolutely nothing like what you’ve described and does not go to the cent or even close. As long as in you’re in the ballpark of reconciling and can reasonably explain the sql queries and reports that got you to a number within an okay range of error you’re good to go.
    • doctor_eval 4y ago
      This is absolutely not my experience at all. Books that don’t balance to the cent suggest a problem that needs to be resolved. Electronic books that don’t balance to the cent are defective. I’ve certainly seen lax accounting and reconciliation practices in businesses such as those you describe but it’s absolutely not been the norm in my experience.
      • nulbyte 4y ago
        I agree, mostly. You have to understand the implications of a few cents' difference. One cent (or even one dollar) could be the effect of rounding. Or it could be a single typo. Or it could be multiple errors involving larger transactions with opposite signs.
      • rco8786 4y ago
        > Books that don’t balance to the cent Individual books, yes (though I am still very dubious of the value in doing this given the guarantees that modern computers/databases offer). I'm talking specifically about cross-department reconciliation where different departments are keeping their own books and have their own data pipelines/etc. They absolutely still have to be reconciled, but there is no expectation of an exact match from the SEC or internal/external auditors.
  • jimnotgym 4y ago
    Can I give an example to extend your comment. I have a remote shop that takes cash and credit card payments. If i just ran a cash book like some on here are suggesting how would I know my sales for a day? I could wait until the money hits my bank account and categorise it, but then how much of that money is sales tax not sales? How much did the goods they sold cost me? Did they put all of the cash in the bank or did they steal some. Did the credit card merchant pay me everything due? Imagine the customers have credit terms with you? Now when do you know your sales, when they pay? What if they don't pay? Double entry has answers to all of those questions.
• wolfgang42 4y ago
  In addition to error checking, the process of double-entry bookkeeping also provides a way to get different views into the state of a business: balance sheets, P&L statements, transaction histories, and so on. A lot of the mechanics of doing it manually—journals, ledgers, day books, trial balances, etc.—are less important now that computers can slice-and-dice at the push of a button, but the fundamental idea of a business transaction as a set of balanced money movements between different accounts is still a useful way to structure financial data. (“Double entry” is also something of a misnomer; it’s really “N-entry” accounting, where all N entries that make up a transaction have to balance out to make sure you know where the money came from and where it went to. It’s just that for simple transactions the minimum number of entries that makes sense is 2.)
  • kqr 4y ago
    This is indeed the right answer. I sometimes try to use simpler accounting mechanics than double entry (usually because the person I'm doing it for requests it) but it doesn't take long until I want to run a query against the data that becomes complicated under simpler systems but just falls out of the data under double entry.
  • fsckboy 4y ago
    > “N-entry” accounting it's called double entry bookkeeping because each value (each number) gets entered in two places, once as a debit, and once as a credit.
    • pgt 4y ago
      Yes, but in practice split transactions are common, where you will have 1 credit and 2 debit entries in a transaction. For example, if you work from home and pay rent out of one account, the you may want to claim back tax on the office portion of your rent: 1. Credit $1000 Cash account, 2. Debit $600 Personal Rent account and 3. Debit £400 Office Rent account, considered a tax-deductible Expense account. Sum of credits = Sum of debits, but now you can account for different tax treatments.
      • 4y ago
• rahimnathwani 4y ago
  "does that mean double entry is no longer as important as it once was?" What are the alternatives? Sure, you could do single entry accounting (making an entry corresponding to each cash movement, but then you'd need a separate system to keep track of - money the business owes - money the business is owed - inventory - other assets I don't know much of the history, but I can say: - I've found it helpful to compare to look at the income statement alongside the opening and closing balance sheets. I've even found errors this way. - AFAIK all business accounting systems are based on double-entry accounting, so the existence of these systems can't obviate the need for double-entry accounting. If you have a cash business where you hold almost no inventory, e.g. if you're a baker who buys flour at the beginning of each day, and close your shop when you've sold out of bread, you might not care about tracking assets, accounts payable etc.
  • jdougan 4y ago
    REA accounting is one of the alternatives [1]. It is used in some managerial accounting systems. I would imagine you could make it generate a set of double entry records to make regulating authorities for financial accounting happy, but you'd have to extend it a bit to add the unnecessary properties. [1] https://en.wikipedia.org/wiki/Resources,_Events,_Agents https://en.wikipedia.org/wiki/Resources,_Events,_Agents
    • jimnotgym 4y ago
      > regulating agencies for accounting happy That is not really what the accounting standards are for. The people that need to be kept happy are the users of the accounts. The standards are there to stop me misleading, or defrauding them. Here is a list of some users of my accounts: Managers: need to know how their business unit is performing so they can take action Shareholders: need to know how the directors are managing their money Banks: I borrow money from them, and they want to see that I can pay it back Tax authorities: I collect sales tax for them. I collect payroll taxes for them. I have to pay taxes on my profit Creditors: I need suppliers to advance me credit. They need to work out the risk of giving it to me. Employees: before I joined the company I wanted to know it was solvent Imagine how I could manipulate them if there wasn't a standard way of communicating the accounts.
• fsckboy 4y ago
  you get different amounts of money coming in at different times (investors, loans, revenue from sales) and you have different amounts of money flowing out at different times (paying workers, paying for supplies, equipment...) double entry bookkeeping not only "checksums" these quantities for errors, but also gives you different snapshots of your business, how much money do you owe in the short term, how much in the long term, on average what's the profit margin, how much tax do you owe this year. other people can also look at your accounts and check up on random sample pieces of information to ensure it's not all made up. It creates a clear picture where the raw data is somewhat murky, which enhances trust on many levels.
• rco8786 4y ago
  Yes! I was both tech lead and EM on a multi billion dollar double entry accounting system for years. It was completely unnecessary and overall a drag to keep the double entry system. You end up inventing a ton of random accounting procedure to account for the “other side” of transactions that just don’t need another side. You invent accounts that do nothing and mean nothing just for scorekeeping. If you trust computers to do basic arithmetic and if you trust ACID databases, double entry accounting is outdated and unnecessary.
  • langsoul-com 4y ago
    What's a good daily accounting system then? Would just a excel spreadsheet be good enough or a legit accounting software?
    • lakeeffect 4y ago
      I'm a CPA and I recommend my extremely small businesses clients use a single entry excel system. If they use debit for everything they can download the bank transactions in csv. Then use a deep downlist to categorize the transactions. Then a pivot table to display the year end or quarterly income statement. I usually send them the Excel with the pivot table and dropdown list.
      • jimnotgym 4y ago
        This sounds fine for a contractor sending out one bill per month, but would you recommend it for a larger entity? I couldn't fit all of the transactions in a given month into Excel for my business. There are more than 1m rows. We are only an SME.
        • hedora 4y ago
          Excel PowerBI would easily handle millions of transactions, but it's arguably a completely different product hidden inside an excel menu.
• danielschonfeld 4y ago
  I think the biggest and also least attributable benefit of it was it enabled the Venicians of Venice (iirc?) to create money, outside of what hard currency allowed at a time and with it opened the world of financing. By create money I mean the same way your bank today creates money anytime it finds a willing and credit worthy borrower. Double entry book keeping basically invented the concept of ledger money which is pretty much the “money” we use today. It enabled elasticity of the money supply where elasticity was lacking.
• galaxyLogic 4y ago
  I think there is more to it than meets the eye perhaps. It is the way to understand human activity as a set of transfers beween accounts. All the money must go somewhere, perhaps spent perhaps saved in a different currency. All these different types of transactions including startup of the business that occur within can all be modeled with the "simple" concept of 2-entry system. It is a general way to track human co-operation numerically.
• lottin 4y ago
  The kind of errors that double-entry accounting prevents aren't just arithmetic errors, but also conceptual errors. Double-entry accounting ensures that the accounting identity, which states that Assets = Liabilities + Equity, is true at all times, and it does that by requiring that all individual transactions are balanced.
• simonjgreen 4y ago
  In terms of error detection, one of the principal tools in double entry is the Trial Balance. A trial balance lists all of your accounts in your ledger, with debits and credits in opposing columns, sums them all, and the two columns totals should match. If they do then all entries are at least complete. If they don't then you have lost records along the way. By correctly assigning debit or credit normal to each account type you ensure there is always a credit for every debit and vice versa.
• mymythisisthis 4y ago
  It allowed people to be quantified with a single number, 'he owes X amount of dollars', 'he has X amount of dollars'. During the dark ages, and early middle ages, people didn't have much money. Instead there were complex relationships based on obligations 'loans', IOUs, real estate transactions to hide usury, dozens of different currencies with different exchange rates. Determining wealth was a complex affair. On a completely different tangent, Leonardo da Vinci probably illustrated the first book about double entry book keeping. He was interested in math and knew the author, most likely traded his artistic skills for math lessons.