5 ms·

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

by 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).
        chimeracoder 2y ago
        > 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). Yeah, and as I said, this makes sense for a company for which food is a relevant part of their business, but in the context OP is asking about, nobody is tracking it this way.
        renewiltord 2y ago
        Do you actually do that? When people are working late at the office and you order pizzas you put that into your inventory and then remove it as people consume the pizzas? I record that into a separate operating expenses account meant for this kind of fringe benefit, not into inventory. Pretty small so I do the accounting as well, but I think I'd lose my mind if I had to record them into inventory. Then when they leave half the pizzas for the next day, I record that? No way.
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.

by toong 2y ago

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).
      - chimeracoder 2y ago
        > 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). Yeah, and as I said, this makes sense for a company for which food is a relevant part of their business, but in the context OP is asking about, nobody is tracking it this way.
      - renewiltord 2y ago
        Do you actually do that? When people are working late at the office and you order pizzas you put that into your inventory and then remove it as people consume the pizzas? I record that into a separate operating expenses account meant for this kind of fringe benefit, not into inventory. Pretty small so I do the accounting as well, but I think I'd lose my mind if I had to record them into inventory. Then when they leave half the pizzas for the next day, I record that? No way.

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.