11 ms·

I find it a strange choice to explain double-entry bookkeeping with the example of "one entry for Alice, one entry for Bob". That's really not what it's about.

• em-bee 2y ago
  i was about to write the same thing. knowing that double-entry is meant to apply to myself only, i actually found the example confusing, because well, of course bob is going to have an entry in his accounting book, but i don't care about bobs accounts, i don't want to track that. i only care about mine. i buy a book. how do i record this transaction using double entry bookkeeping in my accounting book? and bob is not even doing any bookkeeping. he is bookselling ;-)
  • toong 2y ago
    You gained $20 worth of assets, so the counterpart of the $20 leaving your bank account is countered by your assets-account gaining $20 Now each year your book loses 1/5th of its value, due to wear and tear (4$ disappearing from your assets-account), this is countered by your depreciation-account (4$ tax write off, every year!) After 5 years, it is worth $0 according to your books, but you manage to sell it again for $10: your bank account gets debited for $10, while your capital-gains-account gets credited for $10
    • nolongerthere 2y ago
      This is the best explanation, everyone else is giving wrong explanations that appear to be at least partially sourced from some AI.
    • probably_wrong 2y ago
      And how about food? I can understand a book having a resale value I keep in my books, but once I've eaten the hot-dog I bought it is gone forever.
      • chimeracoder 2y ago
        > And how about food? I can understand a book having a resale value I keep in my books, but once I've eaten the hot-dog I bought it is gone forever. Perishable and consumable food wouldn't be counted as an asset in the first place. You spend the money - it's credited to your asset account (reducing the value of your cash-in-hand) and then debited from your expense account (reducing the value of your equity - or, in more layperson's lingo, increasing the total sum of the expenses you incurred during that period).
        • eviks 2y ago
          Of course it would be, asset is anything of value, you're confusing with subtypes of assets. Just mujhe liability is anything you owe regardless of for how long
          • chimeracoder 2y ago
            > Of course it would be, asset is anything of value, you're confusing with subtypes of assets. Just mujhe liability is anything you owe regardless of for how long If an office buys snacks on Monday for the office party on Friday, they're not counting it as an asset and depreciating it on their books. If food production or delivery were part of the core business, it would be one thing, but in the context that OP's talking about, it would be overkill at best (and fraudulent, in extreme cases) to try and count a transient consumable as an asset on their books.
            • eviks 2y ago
              Depreciation isn't relevant here, again, you're confused in the types of assets, not all of them are depreciated, only some with some specific properties like time of expected user. Just read the definition of assets in any (accounting) dictionary, or try to record your snack purchase in real accounts and see which side of the balance sheet this account end up in (hint: inventories, assets).
    • mulmen 2y ago
      It’s been 15 years since I took an accounting course. Why would my bank account be debited when the balance went up? Is a debit not negative? Is the cash balance presented as a negative?
      • lottin 2y ago
        In your books, your bank account is an asset, and therefore an increase in the balance is recorded with a debit. In the bank's books, it's the other way around.
      • awirick 2y ago
        Your bank account is an asset for you, so debits increase the balance while credits decrease it. This is also called a "debit normal" account. Liability accounts are tracked in reverse and are "credit normal". You increase the value (how much you owe) with a credit to the account and decrease the value (payments you receive) with a debit.
        • galaxyLogic 2y ago
          One way to think about is you always "credit" the source of the money. If you get money from somebody you "credit" them for giving you the money. You say "I must give you credit for having done this". If money goes into your bank-account you don't credit your bank-account because money didn't come from there it went there. If you don't credit the bank account you must be doing something else and that is called "debit". When money goes to your bank-account you "debit" it because now the bank-account is more "indebted" to you. You don't have the cash in your wallet but the bank-account is indebted to you by that amount. From the view-point of the bank-manager things are of course reverse. When you put money into your bank-account the bank-manager "credits" you-the-account (in their books) for having done so. I guess a crucial thing to realize is that your bank-account in your books is a different thing from your bank-account in the books of the bank. It seems like there is only one bank-account, but two different parties (you and the bank) each have their own version of that "account" in their book-keeping system. A double-entry book-keeping system is "subjective" in that it always describes things only from the viewpoint of whoever it is who is doing the book-keeping.
  • orthoxerox 2y ago
    In a nutshell, double-entry bookkeeping is tracking all your money in two ways: - where has it come from/has it forever gone? - where is it now? So, you start a simple ledger of having $100 in cash with a transaction like this: Dr "cash" Cr "original funds" $100 Then you spend some of it on food and loan some to Bob: Dr "food expenses" Cr "cash" $25 Dr "loan to Bob" Cr "cash" $20 Bob pays you back $22: Dr "cash" Cr "loan to Bob" $20 Dr "cash" Cr "interest income" $2 You can't write 'Cr "Bob" $22', because... I don't want to get into the principles of accounting, but basically all asset accounts only go one way. You can't have minus two dollars in your pocket, and Bob can't owe you minus two dollars either. Some of the accounts, like "original funds", aren't very useful by themselves, but they are the only way to make sure "money I literally have in my account/pocket", "money I owe people" and "money that people owe me" can all be counted together: if you tally up both kinds of the accounts, the total sum should be the same, just with the opposite "sign".
• Octokiddie 2y ago
  Every explanation of double entry accounting seems to do the same thing. If I'm trying to understand the double part of double-entry bookkeeping, what exactly does the "double" refer to? What's being "doubled"? How would you salvage the article to actually explain the "double" part in detail? Could you do it purely from Bob's (or Alice's) perspective?
  • deleted 2y ago
    [deleted]
  • insane_dreamer 2y ago
    Because double-entry accounting requires two (thus "double") entries for each transaction (i.e., Alice buys a book) - one for the assets/liabilities account involved in sending or receiving the money ($30 credit, bank account) - one for the income/expense account to which the transaction corresponds ($30 debit, "education" expense account) one of the two entries is a credit and the other a debit
  • alexambarch 2y ago
    From what I got out of the article and my own limited understanding of double entry bookkeeping, the "double" seems to be referring to the part where we split a transaction into credits and debits as opposed to a transaction with positive or negative balance. The doubling is happening with the labels we use to describe what's happening with the money. From an individual account perspective, there's a doubling of the number of columns you could enter a transaction's amount into.
    • gorjusborg 2y ago
      The core innovation of 'double entry' is that you can see the flow of money between accounts for every transaction. This is possible because you (the accountant) are always adding a back-reference from the other account (hence the 'double' in 'double entry'). There's really not much to it. It throws people that are new to it for a loop, I think, because it is a strange way of behaving, and it isn't obvious why you're doing it until you have to track down something that doesn't balance. It's just a disciplined behavior that accountants started using because it allows one to track things that were difficult without it.
• btown 2y ago
  In all fairness, if you're trying to understand a piece of software like Quickbooks and are not coming from an accounting background, anthropomorphizing each "account" at your company as an individual actor with their own ledger can actually be a helpful mental model. Everything needs to be a dance between actors, and, for instance, when you make a vendor payment in cash, you can only do so as a message sent simultaneously to the Accounts Payable actor and the Cash actor, and each actor must accumulate the effects of that message/event in the way that makes sense. (Namely, each one will translate the event into credits/debits based on the characteristics of who they are, and maintain a balance accordingly. Double-entry, I suppose, means each event must be ingested exactly once by an even number of actors.) If you're building payment rails, that event might itself be one of a pair of events, sourced from a meta-event tracking the transaction intent. (As a meta-point, I find it much more useful to think of the "graph" in accounting as having edges not made of money, but of data in a derived-event hierarchy.) And a first step towards being able to have that mental model is ensuring that you have a good mental model of multiple physical-human actors accumulating events in a structured and atomic way. But the OP doesn't actually make it clear that this is what the analogy is in service of! And I fear that the OP article will cause more confusion than it solves.
  • Mister_Snuggles 2y ago
    > if you're trying to understand a piece of software like Quickbooks and are not coming from an accounting background Unfortunately, QuickBooks won't help you understand accounting. It's not a true double-entry accounting system, at least it wasn't the last time I touched it. That said, it still does its job and does it well enough, and real accountants are fine with dealing with it. Simply Accounting is a better example of a true double-entry system.
    • PopAlongKid 2y ago
      > It's not a true double-entry accounting system, at least it wasn't the last time I touched it. Can you elaborate? I've used Quickbooks for over 15 years and it has always been a true double entry accounting system during that time.
    • 2y ago
• winstonrc 2y ago
  I’m biased, but I hope my explanation[0] is more intuitive coming from a CPA. [0]: https://www.winstoncooke.com/blog/a-basic-introduction-to-accounting https://www.winstoncooke.com/blog/a-basic-introduction-to-ac...
• resters 2y ago
  I think the key point is that not only is double entry accounting a directed graph, so is single entry accounting. Therefore (and to your point) the observation is of limited usefulness.
• danielmarkbruce 2y ago
  It's also technically wrong. For example, a bank might decide you likely can't pay your loan and write it down to zero. You might still have the liability on your books because you plan to repay it. They'll make the relevant entries in their system (and the debits and credits will balance) and you'll do nothing (which balances). Double entry bookkeeping has zero to do with other entities. It's solely about your own books.
• galaxyLogic 2y ago
  > So if Alice buys book from Bob, four entries are made. What if Alice does double-entry bookkeeping but Bob does single-entry bookkeeping?