3 ms·

My understanding of double-entry bookkeeping is that it does not care who Alice bought the book from, nor what their accounts look like. Instead, the "double e

by pcrh 3y ago

My understanding of double-entry bookkeeping is that it does not care who Alice bought the book from, nor what their accounts look like. Instead, the "double entry" that complements the money leaving Alice's cash ledger is the entry of the value of the book into Alice's "book ledger", one decreases by $20, and the other increases by the same amount.

rco8786 3y ago
You're right about the double-entry part, but bookkeeping more generally definitely cares about who Alice bought the book from.
- grantc 3y ago
  Indeed. While dr==cr gets you far towards being able to calculate account balances and an entity's aggregate financial position, it's also fairly foundational that you are able calculate the company's position with different counterparties. So knowing that Alice purchased the book from Foo Booksellers, but maybe hasn't settled with FooBooks yet is super relevant. The company's accountant may care about balances and reconciling them back to things like the existence of said book, a receipt for payment or a bank transaction indicating settlement happened. At a big enough company, the accounts payables nerds may come along and be focused on making sure the full process procuring and paying has happened correctly, including record-keeping, tax compliance, and the actual movement of funds. When you start to scale how all of these processes are executed and recorded, it's dense enough that it still surprises me many years later.
kayo_20211030 3y ago
Kinda yes and no on this. The journal entry capturing the transaction will be for the transaction of Alice buying the book from Bob. The debits and credits will be tied to that JE. Somebody is keeping book and the accounts are the accounts of that somebody. A fictional bookstore will have all the info, but Alice's and Bob's bank might not.
evrimoztamur 3y ago
In real-life bookkeeping the journal entries contain a lot of metadata which link the individual entries to other objects such as invoices, fixed assets (computers, equipment, furniture, etc.), contacts. In an organisation's accounting (Alice LLC), the basis entry would state a debit (increase of expense) in the book expenses account, credit (decrease of asset) in the cash balance. The complete entry would then make a reference to the invoice/receipt of the purchase and the contact details of the bookstore (address, chamber of commerce registration ID, tax number, etc.). The exact level of detail is determined by how 'complete' your books are supposed to be. A book expense might not mean much to Alice LLC (which does not deal in book sales/purchases), but a laptop should (see more on the subject of fixed asset registries), or a large invoice from a business from a different country (which will require a lot more diligence with tax 'metadata'). On the other hand, the bookstore definitely cares more about books and will then consider the sale and replenishment of its book inventory, and once again introduce more meta-accounting data (see more on the subject of management/manufacturing accounting).

by pcrh 3y ago

rco8786 3y ago

You're right about the double-entry part, but bookkeeping more generally definitely cares about who Alice bought the book from.

grantc 3y ago
Indeed. While dr==cr gets you far towards being able to calculate account balances and an entity's aggregate financial position, it's also fairly foundational that you are able calculate the company's position with different counterparties. So knowing that Alice purchased the book from Foo Booksellers, but maybe hasn't settled with FooBooks yet is super relevant. The company's accountant may care about balances and reconciling them back to things like the existence of said book, a receipt for payment or a bank transaction indicating settlement happened. At a big enough company, the accounts payables nerds may come along and be focused on making sure the full process procuring and paying has happened correctly, including record-keeping, tax compliance, and the actual movement of funds. When you start to scale how all of these processes are executed and recorded, it's dense enough that it still surprises me many years later.

kayo_20211030 3y ago

Kinda yes and no on this. The journal entry capturing the transaction will be for the transaction of Alice buying the book from Bob. The debits and credits will be tied to that JE. Somebody is keeping book and the accounts are the accounts of that somebody. A fictional bookstore will have all the info, but Alice's and Bob's bank might not.

evrimoztamur 3y ago

In real-life bookkeeping the journal entries contain a lot of metadata which link the individual entries to other objects such as invoices, fixed assets (computers, equipment, furniture, etc.), contacts. In an organisation's accounting (Alice LLC), the basis entry would state a debit (increase of expense) in the book expenses account, credit (decrease of asset) in the cash balance. The complete entry would then make a reference to the invoice/receipt of the purchase and the contact details of the bookstore (address, chamber of commerce registration ID, tax number, etc.). The exact level of detail is determined by how 'complete' your books are supposed to be. A book expense might not mean much to Alice LLC (which does not deal in book sales/purchases), but a laptop should (see more on the subject of fixed asset registries), or a large invoice from a business from a different country (which will require a lot more diligence with tax 'metadata'). On the other hand, the bookstore definitely cares more about books and will then consider the sale and replenishment of its book inventory, and once again introduce more meta-accounting data (see more on the subject of management/manufacturing accounting).