4 ms·
> the point is to double the amount of work in the hopes of catching certain kinds of errors That's also how I like to think about it, as a kind of checksum me
by t_mann 3y ago
> the point is to double the amount of work in the hopes of catching certain kinds of errors
That's also how I like to think about it, as a kind of checksum mechanism. Double-entry bookkeeping originated in medieval European markets, which were often open-air, noisy, dirty, full of thieves and other dangers. Keeping your records straight in that environment must be a challenge, and having a logic that allows you to catch some mistakes can be a powerful tool in that context.
But there's more to it, eg it allows you to make a distinction between expenses and investments, so it is actually a truly different way to think about your financial situation than eg looking at cash flows only. Spending X on a buying livestock has a different economic meaning than spending X to pay a security guard. There are economic historians who argue that this kind of perspective was an enabler of early capitalism, because it enables people to see that money spent on an investment isn't lost value.
- jfengel 3y agoThanks for that. Lemme probe a bit deeper. If you spend $X on sheep, you credit $X where? Debit it from where? You put "$X worth of sheep" on what account? When the sheep die, do you credit some account with "$X worth of dead sheep?" (Where presumably they remain as dead-sheep forever.) (I'm sorry, I know that sounds dumb.) How is that "$X worth of dead sheep" different from "$X worth of security guarding" that you supposedly received?
- t_mann 3y ago> If you spend $X on sheep, you credit $X where? Debit it from where? You debit your 'sheep' account (maybe called sth like inventory) and you credit your cash account, or a liabilities towards suppliers account. Your equity stays constant in either case (no profit or loss impact), if you paid cash you've swapped X worth of cash for X worth of sheep, otherwise your liabilities went up by X. When they die, you debit some kind of expense account (extraordinary losses or sth like that), and you credit the sheep account. In that case, you've made a loss of X and your equity (when you next draw up your balance sheet) will be lower by X (assuming that's the only business case). It might even go negative, eg if the sheep were your only asset and you still have the liability towards the guy who sold them to you.
- jfengel 3y agoThank you. I really appreciate that. It still feels exactly the opposite of what I thought a credit and debit were. Surely when you add sheep, you credit the sheep account and debit the cash. I get it. It's just a shift.
- t_mann 3y agoYeah, best not to think of any semantics wrt to the words debit and credit. Debit is left-hand side, credit is right-hand side, and just remember the rules how they work :)
- omichowdhury 2y agoHaha that sounds like shut-up-and-calculate to me. The alternative is to update the rules to use our intuition on whether the action we’re tracking is good or bad for us and map that to increasing or decreasing balances that represent what we own, owe, earn and spend. More deets here: https://news.ycombinator.com/item?id=40021506 https://news.ycombinator.com/item?id=40021506