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Double-entry bookkeeping is very easy to understand once you ditch the ridiculous "credit" and "debit" terminology. Essentially, the goal is to keep the accoun

Double-entry bookkeeping is very easy to understand once you ditch the ridiculous "credit" and "debit" terminology. Essentially, the goal is to keep the accounting equation true at all times. The equation is: Equity = Assets - Liabilities. Eventually, earnings (Income - Expenses) will become part of equity, so splitting that out, you have: Equity + Income - Expenses = Assets - Liabilities. Rearranging to get rid of the minus signs you get: Equity + Income + Liabilities = Assets + Expenses. This equation must be true or something has gone wrong - like money appearing or disappearing out of nowhere. To keep it true at all times, it should be clear that any time you add money to an account on the left side of the equation (say, to an Income account), you must either add the same amount to an account on the other side or subtract the same amount from the same side. For example, you sell a lemonade for $5. You add $5 to Sales (Income) and add $5 to Current Account (Assets). The "credit" and "debit" terminology is ridiculous because their definitions swap around depending on which account you're talking about, which is an utterly absurd (mis)use of language and the main reason people find this confusing.

jandrese 2y ago
The one thing I remember most from my economics courses in college is that economists have highly idiosyncratic mathematical conventions and they don't care. So many graphs with the independent variable on the Y axis...
- abtinf 2y ago
  > So many graphs with the independent variable on the Y axis I was perplexed by this as well and none of my profs could cogently explain it. The classic example are supply and demand curves, with price as the Y axis. I finally realized they are actually trying to communicate that price is not under the control of the buyer or seller, but that the market dictates the price given a level of production. This kind of “spherical cow” thinking made me develop a healthy contempt for conventional economics.
  - abdullahkhalids 2y ago
    Indeed, one of the main problems with econ education is that at the most basic level they teach a model for the "spherical cow" free-market. Which is all that most people end up learning. And then those people try to apply this reasoning to real world markets - the vast majority of which do not satisfy the assumptions of the free-market model. So almost all public discussions of micro-economics is totally useless.
    - freedomben 2y ago
      I mostly agree, but I hardly think it's useless. Much like beginning your understanding of physics with Newtonian equations, it just needs to be qualified. But it's shocking how many people don't understand the basic idea of supply and demand and how the relate relative to some rationing system (usually price). If you don't understand that foundational idea, then considering the effects of different rationing systems is utterly impossible. For example, that gets you a whole lot of people who make decisions that exacerbate housing crises by creating rent controls or building restrictions, and then being utterly perplexed when there isn't enough supply to go around (because they decoupled the signalling mechanism that the suppliers use (aka price) from what the buyers use (who got there first, or who is luckier with timing, or who is more politically connected). This is not to say that price controls are always bad, because real life is much more complicated than econ101 concepts lay out. But with nearly every other subject we expect people to have a basic level of understanding (like biology, history, english, etc) because we recognize it's importance for society and individuals to have at least a basic level of understanding in many different subjects. One that has as big an impact on life as economics seems like one of the worst to omit. Just like we tell 8th grade physics students that "in the real world, cows aren't spherical so it's a little more complicated than this, but this gets you 80% to 90% of the way there" I don't see why we shouldn't do the same for economics.
    - pas 2y ago
      ... microeconomics works amazingly well! scroll down and look at that graph! https://www.fda.gov/about-fda/center-drug-evaluation-and-research-cder/generic-competition-and-drug-prices https://www.fda.gov/about-fda/center-drug-evaluation-and-res... also go to and read about the studies https://www.noahpinion.blog/i/142905737/the-evidence-is-in-favor-of-market-rate-housing https://www.noahpinion.blog/i/142905737/the-evidence-is-in-f... and you can see the exact numbers from the datasets, these are all spherical cow parameters basically!
juped 2y ago
Double entry bookkeeping is very easy to understand once you ditch the ridiculous "accounting equation". "Credit" means "source", "debit" means "sink". Suppose you invoice a customer 10,000 euros. You now have a promise for 10,000 euros, but you account in dollars so it's a promise for 11,000 dollars at current exchange rates. So you credit the source, your "Income: Customer A" account ("income" and "expense" accounts represent the external world) $11000, and debit "Assets: Accounts Receivable" (an account for trade-credit promises like this) $11000. Later, the customer pays your invoice, which gets you $10,500 because exchange rates have moved around. How do you account for this? Your promise, which you accounted as $11000, is the source, so you credit Accounts Receivable $11000. You debit cash $10500, because you got $10500 in cash. Finally, credits and debits have to balance, so you debit "Expenses: Loss on Foreign Exchange" $500. (recall that "expenses", like "income", represents the external world, and you lost the other $500 to forex traders or whatever.) Since you don't liquidate the business on any typical day of its operation, why would you attempt to figure out how that $500 fits into a hypothetical instantaneous liquidation when you could just... account for it by balancing credits with debits? (You do sort of instantaneous-liquidate when preparing financial statements, an infrequent task which is very mechanical compared to ledger entry.)
- bongodongobob 2y ago
  The only time I've ever seen source and sink used is in electronics. You may as well call it squeem and flurb, source and sink isn't helping anyone.
  - temporarely 2y ago
    Well, this is hacker news, so a generous reading of the comment is that it is being mapped to semantics most of us here fully grok, and not as a general audience rewording for accounting.
    - bongodongobob 2y ago
      Just because someone knows how to build a website doesn't mean they know anything about discrete electronics. I'd wager the majority of this audience doesn't. It's mostly software people.
mijoharas 2y ago
> The "credit" and "debit" terminology is ridiculous because their definitions swap around depending on which account you're talking about, which is an utterly absurd (mis)use of language and the main reason people find this confusing What would you suggest as an improvement? The article suggests "incoming" and "outgoing" which seems to have the same issue, as does everything I see in your comment (the person spending 5$ on lemonade sure as hell isn't putting 5$ in their accounts sales entry). I'm not fully understanding the confusion both here and in the article.
- globular-toast 2y ago
  It doesn't matter about the person buying lemonade. Their accounts are theirs alone and don't affect your accounts.
- DwnVoteHoneyPot 2y ago
  When I talk to accountants, I get confused with debit/credit so I use "increase" and "decrease". Everyone seems to understand me fine. For example, "Decrease cash", to buy equipment "increases assets". "Increase cash" by borrowing money is "increasing liability".
  - freedomben 2y ago
    Indeed, the dirty secret is that many accountants think of debit and credit as decrease and increase as well. After using the terms for a little while they switch the symbol (word) they think of, but it still retains the same meaning. They are basically synonymous. source: friends and family members who are accountants and have generously given free bookkeeping tutorials
    - fauigerzigerk 2y ago
      >Indeed, the dirty secret is that many accountants think of debit and credit as decrease and increase as well. So how would you correctly express the parent's example in terms of debit/credit if debit/credit are synonymous with decrease/increase?: >>"Increase cash" by borrowing money is "increasing liability". "Crediting cash by borrowing money is crediting liability" would sound obviously incorrect to any accountant.
EvanAnderson 2y ago
The accounting equation is the right thing to think about. People want debit and credit to mean something more than they need to. My 100-level accounting instructor said it pretty succinctly: Debit means an entry in the left column. Credit means an entry in the right column. What a transaction means for the business depends on the accounts.
- mikeyouse 2y ago
  Right - the words themselves aren't as important as the concept. Any replacement word will suffer the same confusion. There's a reason that the language of debits and credits has largely remained the same for the past thousand years, and the language describing accounting is unlikely to be 'optimized' by first-principles CS concepts from people only loosely familiar with the field.
  - eviks 2y ago
    There's a reason, but it's definitely not that any replacement is just as bad since that's close to an impossibly strong statement
  - grantc 2y ago
    Well said. It's actually not complicated or arbitrary. It also works effectively in practice over the gdp of the known universe. If you are savvy enough to be interested in and understand the different computing approaches to double-entry bookkeeping, one can assume the whole DR/CR concept isn't beyond you.
- fauigerzigerk 2y ago
  And what if there are no columns? Google "journal entries for X" and you're going to find something like this: Dr accountX £100 Cr accountY £90 Cr accountZ £10 Left and right was fine when T accounts were universally used to record entries, but that's no longer the case.
  - eviks 2y ago
    I did, opened one random top result https://www.deskera.com/blog/journal-entries/ https://www.deskera.com/blog/journal-entries/ And got left/right as explanation and also as left and right columns
sudhirj 2y ago
The way I understand debits and credits is to take the same equation and name the left and right side. Assets + Expenses = Equity + Income + Liabilities Sum of all debits = sum of all credits These two equations have their sides associated. Assets and equities increase with a debit and decrease with a credit, and vice versa.
- deleted 2y ago
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abtinf 2y ago
> The "credit" and "debit" terminology is ridiculous because their definitions swap around depending on which account I find it easy to just think of debit as adding to the left and credit as adding to the right. Their definitions are always the same that way.
- lisper 2y ago
  But that just begs the question because you have to remember the arbitrary assignments of what things go on the left and what things go on the right.
  - freedomben 2y ago
    It's easy! Debits add to the left, credits add to the right :-) (to be clear, I'm backing up your point by giving the same circular explanation that I got constantly through Accounting 101 and 102, and then occasionally after that when dealing with the books)
    - lisper 2y ago
      Yeah, they should be called leftits and rightits. Or CARs and CDRs.
  - nuttingd 2y ago
    It's the accounting equation being represented in canonical form. A chart of accounts is visualized in the minds of an accountant as: Assets | Liabilities + Equity Accounts classified as assets are debit accounts (left side), and accounts classified as liabilities or equity are credit accounts (right side). The theory discussed everywhere in this thread is sound. You really don't need to use terminology like debit/credit for accounting. What the discussion misses is the application of this framework. It is useful for a human to be able to visualize a complex transaction and work through missing pieces with the hints this framework provides. I'm missing something on the left? Oh yeah, I missed the deferred revenue debit.
    - 2y ago
globular-toast 2y ago
I find it more intuitive to use negatives. Then it's just equity + income + liabilities + assets + expenses = 0. In fact, every transaction and therefore the entire ledger sums to zero at all times. So if you take out a loan to buy lemonade: +$5 to expenses, -$5 to liabilities. If you sell lemonade: -$5 to income, +$5 to assets. You just have to remember that equity, income and liabilities will be negative so flip them if you want to answer questions like "how much do I owe?"
jancsika 2y ago
> The "credit" and "debit" terminology is ridiculous because their definitions swap around depending on which account you're talking about, which is an utterly absurd (mis)use of language and the main reason people find this confusing. As a neophyte: "credit" and "debit" make me think I'd need both entries to do books at all. The way you've written it makes me think: "Oh, this is just single-entry accounting for people who aren't careful like me!" So perhaps historically there was value in misusing terminology sufficiently to cause people to people turn off the optimizing compiler in their brain so that they just learn and do it correctly from the beginning? Edit: clarification
jncfhnb 2y ago
Imo the only time the terms get confused is because there are classes of accounts where it was decided it was preferable to give it the opposite name rather than carry a negative balance. If we didn’t do that, the separation would be intuitive.
mrkeen 2y ago
> Double-entry bookkeeping is very easy to understand once you ditch the ridiculous "credit" and "debit" terminology. I'm with you so far. > the goal is to keep the accounting equation true at all times Perfectly reasonable. > For example, you sell a lemonade for $5. You add $5 to Sales (Income) and add $5 to Current Account (Assets). And now you've completely lost me. Money appeared. Lemonade disappeared. I want to see the corresponding +$5 and -$5. Making it fit the equation (Equity + Income + Liabilities = Assets + Expenses) is not an intellectually satisfying reason for 'Assets' to go up by $5 when I just lost $5 of assets. What if it worked this way in physics? I could write Force * mass = acceleration 1N * 500g lemonade = 0.5 m/s/s Then I could say: "If we halve the mass of lemonade, then we double the acceleration:" 1N * 1000g lemonade = 1.0 m/s/s And then you could say "But you didn't halve the mass, you doubled it!" and then I could say "Yes I did, look, the equation still holds."
- thetwentyone 2y ago
  The -5 doesn't belong in your ledger, it belongs in the ledger of the person who bought the lemonade. As other commenters have pointed out, the "double entry" refers to multiple entries within your own ledger, it has nothing to do with someone else's ledger.
  - mrkeen 2y ago
    > The -5 doesn't belong in your ledger, it belongs in the ledger of the person who bought the lemonade. This is just prescriptive (do it because I say so). It doesn't explain anything. > As other commenters have pointed out, the "double entry" refers to multiple entries within your own ledger, it has nothing to do with someone else's ledger. I didn't introduce the other guy's ledger, but since you did: I lost lemonade (which is somehow an addition to my assets). So the "-5" which belongs in the buyer's lemonade - is the negative sign there to indicate that he gained an asset?
    - deleted 2y ago
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    - 2y ago
balderdash 2y ago
It think that’s right, but where people struggle so much is the splitting up transactions between these accounts the right way
hencq 2y ago
Totally agree. That's what I like about the way e.g. beancount does it [1]. Instead of using the debit/credit nomenclature, it just relies on positive and negative numbers. This way all the legs in a transaction just sum to zero, making it easy to spot if something is off. In the example, you'd have -5 Income (it's coming from income) and +5 Assets (it's going to Assets). The left side is typically negative and the right side positive. [1] https://beancount.github.io/docs/the_double_entry_counting_method.html#credits-debits https://beancount.github.io/docs/the_double_entry_counting_m...
omichowdhury 2y ago
Yeah, I think a more intuitive way is to replace credit and debit with State and Change as the pair of things in double-entry. It means that you don't have to swap meanings based on context and can use negative numbers intuitively. State Accounts track your net worth Assets: what you own Liabilities: what you owe Change Accounts track why your net worth changes Income: what you've earned Expense: what you've spent The accounting equation that follows is ∆ State = ∆ Change: Assets - Liabilities = Income - Expense Selling lemonade is +$5 Asset balanced by +$5 Income. If you substitute into the equation, it's: $5 Asset = $5 Income Taking out a loan is +$10 Asset balanced by +$10 Loan. In the equation: $10 Asset - $10 Liability = $0. In general, say you have a +Asset action, to balance the equation you can do it 4 ways: +Asset -Asset aka swapped for equal value +Asset +Liability aka took out a loan +Asset +Income aka sold something +Asset -Expense aka got a refund I've left out Equity as a separate account type since you can just treat it mathematically as a Liability account. This is the system we've implemented in our ledger API (https://fragment.dev https://fragment.dev)
- lisper 2y ago
  > +Asset +Income aka sold something Don't you mean -Asset here?
  - omichowdhury 2y ago
    Nope, in these examples the +Asset on the left means you received say cash. The right side shows various ways to balance that out based on the accounting equation I did an explanation with numbers here: https://news.ycombinator.com/item?id=40021506 https://news.ycombinator.com/item?id=40021506
    - lisper 2y ago
      > in these examples the +Asset on the left means you received say cash. Ah. So... where is the value of the lemonade before you sold it? Wasn't that an asset before you sold it?
      - 2y ago
thomastjeffery 2y ago
The purpose of the words "credit" and "debit" is the same purpose of the structure of double-entry bookkeeping: to make every statement unambiguous, no matter what order or context you put the words in. By replacing familiar verbs like "paid" and "earned" with the nouns "debit" and "credit", we can write sentences where the order of words doesn't change the meaning, and where we never need to figure out what tense (past, present, future) to apply. To simply write that, "Bob's account has a credit of $12 and a debit of $7" is timeless. That sentence can go anywhere, and always be explicitly correct. It is context-free grammar: the same category that all programming languages belong to. Because a programming language is context-free, it can be perfectly understood (and translated) by a parser and compiler. Because statements using the nouns "credit" and "debit" are context-free, they can be perfectly understood as the data they represent. > The "credit" and "debit" terminology is ridiculous because their definitions swap around depending on which account you're talking about, which is an utterly absurd (mis)use of language and the main reason people find this confusing. On the contrary! Their definitions are always the same. They apply specifically to the account you are talking about, because they are that account: an account is a list of credits and debits. The reason that people get confused is that we are used to using verbs like "paid" and "earned". When we use verbs, the data is the transaction, not the account. When we use the nouns "credit" and "debit", the data is the account, and not the transaction. Most people are introduced to these words with "credit card" and "debit card". That was the mistake, because cards are used for transactions, which is precisely the wrong context to use these words. It would have been much more clear to talk about "crediting cards" and "debiting cards".
- mrkeen 2y ago
  > Bob's account has a credit of $12 and a debit of $7 (I'm 80% sure that the above reads that Bob actually owns $5 he can spend. But I'm equally sure that I get Debits and Credits backward, so I probably read it wrong.) In any case, you've only described a single account at rest. You need to go one step further and describe an entire transaction in those terms, so that someone can swoop in and say "you got it backwards".
  - thomastjeffery 2y ago
ChirronT447 2y ago
'Double-entry bookkeeping is very easy to understand once you ditch the ridiculous "credit" and "debit" terminology.' I love it, let's do it! Thank you this is very helpful. The whole credit/debit terminology usage here is incredibly confusing to someone who hasn't studied accounting and many of the comments and replies to people who are confused are, while technically correct, simultaneously, unhelpful - to those not familiar with the terminology. I read a comment earlier: "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?" And thought: "Yes! Great question! This doesn't make sense..because debits are always negative right? A direct debit takes money out, you spend money using a debit card, a debit is a debt right? So debits are always negative and debiting is always minus-ing money..." - but the replies, while technically correct weren't satisfying at all because they assumed knowledge. It's both amusing and frustrating to watch people effectively speaking past each other like they're talking a different language. Especially when you have the same perspective as the person who is confused and trying to seek understanding. It seems like people nitpick on small points of what was said seemingly in order to be right.
- omichowdhury 2y ago
  I think the fundamental problem is the traditional accounting equation: Assets + Expenses = Liabilities + Equity + Income We try to group the accounts by left and right side and find a common term for them (credit-normal and debit-normal). But it’s really hard to come up with an intuitive answer for why Assets and Expense should be on one team, and why the rest should be on the other team. So we just pick some team names and say shut-up-and-calculate. What if we re-arranged the equation to: Assets - Liabilities = Income - Expenses The accounts on the left side track your net worth. The accounts on the right side track why net worth changes. What should be the names for the two sides? I call them State and Change. You can then ditch credits and debits and ask - what is the impact of this financial transaction on my net worth? The equation will tell you which accounts should go up and go down using positive and negative numbers. I go more into how this works here: https://news.ycombinator.com/item?id=39994335 https://news.ycombinator.com/item?id=39994335

jandrese 2y ago

The one thing I remember most from my economics courses in college is that economists have highly idiosyncratic mathematical conventions and they don't care. So many graphs with the independent variable on the Y axis...

abtinf 2y ago
> So many graphs with the independent variable on the Y axis I was perplexed by this as well and none of my profs could cogently explain it. The classic example are supply and demand curves, with price as the Y axis. I finally realized they are actually trying to communicate that price is not under the control of the buyer or seller, but that the market dictates the price given a level of production. This kind of “spherical cow” thinking made me develop a healthy contempt for conventional economics.
- abdullahkhalids 2y ago
  Indeed, one of the main problems with econ education is that at the most basic level they teach a model for the "spherical cow" free-market. Which is all that most people end up learning. And then those people try to apply this reasoning to real world markets - the vast majority of which do not satisfy the assumptions of the free-market model. So almost all public discussions of micro-economics is totally useless.
  - freedomben 2y ago
    I mostly agree, but I hardly think it's useless. Much like beginning your understanding of physics with Newtonian equations, it just needs to be qualified. But it's shocking how many people don't understand the basic idea of supply and demand and how the relate relative to some rationing system (usually price). If you don't understand that foundational idea, then considering the effects of different rationing systems is utterly impossible. For example, that gets you a whole lot of people who make decisions that exacerbate housing crises by creating rent controls or building restrictions, and then being utterly perplexed when there isn't enough supply to go around (because they decoupled the signalling mechanism that the suppliers use (aka price) from what the buyers use (who got there first, or who is luckier with timing, or who is more politically connected). This is not to say that price controls are always bad, because real life is much more complicated than econ101 concepts lay out. But with nearly every other subject we expect people to have a basic level of understanding (like biology, history, english, etc) because we recognize it's importance for society and individuals to have at least a basic level of understanding in many different subjects. One that has as big an impact on life as economics seems like one of the worst to omit. Just like we tell 8th grade physics students that "in the real world, cows aren't spherical so it's a little more complicated than this, but this gets you 80% to 90% of the way there" I don't see why we shouldn't do the same for economics.
  - pas 2y ago
    ... microeconomics works amazingly well! scroll down and look at that graph! https://www.fda.gov/about-fda/center-drug-evaluation-and-research-cder/generic-competition-and-drug-prices https://www.fda.gov/about-fda/center-drug-evaluation-and-res... also go to and read about the studies https://www.noahpinion.blog/i/142905737/the-evidence-is-in-favor-of-market-rate-housing https://www.noahpinion.blog/i/142905737/the-evidence-is-in-f... and you can see the exact numbers from the datasets, these are all spherical cow parameters basically!

juped 2y ago

Double entry bookkeeping is very easy to understand once you ditch the ridiculous "accounting equation". "Credit" means "source", "debit" means "sink". Suppose you invoice a customer 10,000 euros. You now have a promise for 10,000 euros, but you account in dollars so it's a promise for 11,000 dollars at current exchange rates. So you credit the source, your "Income: Customer A" account ("income" and "expense" accounts represent the external world) $11000, and debit "Assets: Accounts Receivable" (an account for trade-credit promises like this) $11000. Later, the customer pays your invoice, which gets you $10,500 because exchange rates have moved around. How do you account for this? Your promise, which you accounted as $11000, is the source, so you credit Accounts Receivable $11000. You debit cash $10500, because you got $10500 in cash. Finally, credits and debits have to balance, so you debit "Expenses: Loss on Foreign Exchange" $500. (recall that "expenses", like "income", represents the external world, and you lost the other $500 to forex traders or whatever.) Since you don't liquidate the business on any typical day of its operation, why would you attempt to figure out how that $500 fits into a hypothetical instantaneous liquidation when you could just... account for it by balancing credits with debits? (You do sort of instantaneous-liquidate when preparing financial statements, an infrequent task which is very mechanical compared to ledger entry.)

bongodongobob 2y ago
The only time I've ever seen source and sink used is in electronics. You may as well call it squeem and flurb, source and sink isn't helping anyone.
- temporarely 2y ago
  Well, this is hacker news, so a generous reading of the comment is that it is being mapped to semantics most of us here fully grok, and not as a general audience rewording for accounting.
  - bongodongobob 2y ago
    Just because someone knows how to build a website doesn't mean they know anything about discrete electronics. I'd wager the majority of this audience doesn't. It's mostly software people.

mijoharas 2y ago

> The "credit" and "debit" terminology is ridiculous because their definitions swap around depending on which account you're talking about, which is an utterly absurd (mis)use of language and the main reason people find this confusing What would you suggest as an improvement? The article suggests "incoming" and "outgoing" which seems to have the same issue, as does everything I see in your comment (the person spending 5$ on lemonade sure as hell isn't putting 5$ in their accounts sales entry). I'm not fully understanding the confusion both here and in the article.

globular-toast 2y ago
It doesn't matter about the person buying lemonade. Their accounts are theirs alone and don't affect your accounts.
DwnVoteHoneyPot 2y ago
When I talk to accountants, I get confused with debit/credit so I use "increase" and "decrease". Everyone seems to understand me fine. For example, "Decrease cash", to buy equipment "increases assets". "Increase cash" by borrowing money is "increasing liability".
- freedomben 2y ago
  Indeed, the dirty secret is that many accountants think of debit and credit as decrease and increase as well. After using the terms for a little while they switch the symbol (word) they think of, but it still retains the same meaning. They are basically synonymous. source: friends and family members who are accountants and have generously given free bookkeeping tutorials
  - fauigerzigerk 2y ago
    >Indeed, the dirty secret is that many accountants think of debit and credit as decrease and increase as well. So how would you correctly express the parent's example in terms of debit/credit if debit/credit are synonymous with decrease/increase?: >>"Increase cash" by borrowing money is "increasing liability". "Crediting cash by borrowing money is crediting liability" would sound obviously incorrect to any accountant.

EvanAnderson 2y ago

The accounting equation is the right thing to think about. People want debit and credit to mean something more than they need to. My 100-level accounting instructor said it pretty succinctly: Debit means an entry in the left column. Credit means an entry in the right column. What a transaction means for the business depends on the accounts.

mikeyouse 2y ago
Right - the words themselves aren't as important as the concept. Any replacement word will suffer the same confusion. There's a reason that the language of debits and credits has largely remained the same for the past thousand years, and the language describing accounting is unlikely to be 'optimized' by first-principles CS concepts from people only loosely familiar with the field.
- eviks 2y ago
  There's a reason, but it's definitely not that any replacement is just as bad since that's close to an impossibly strong statement
- grantc 2y ago
  Well said. It's actually not complicated or arbitrary. It also works effectively in practice over the gdp of the known universe. If you are savvy enough to be interested in and understand the different computing approaches to double-entry bookkeeping, one can assume the whole DR/CR concept isn't beyond you.
fauigerzigerk 2y ago
And what if there are no columns? Google "journal entries for X" and you're going to find something like this: Dr accountX £100 Cr accountY £90 Cr accountZ £10 Left and right was fine when T accounts were universally used to record entries, but that's no longer the case.
- eviks 2y ago
  I did, opened one random top result https://www.deskera.com/blog/journal-entries/ https://www.deskera.com/blog/journal-entries/ And got left/right as explanation and also as left and right columns

sudhirj 2y ago

The way I understand debits and credits is to take the same equation and name the left and right side. Assets + Expenses = Equity + Income + Liabilities Sum of all debits = sum of all credits These two equations have their sides associated. Assets and equities increase with a debit and decrease with a credit, and vice versa.

deleted 2y ago
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abtinf 2y ago

> The "credit" and "debit" terminology is ridiculous because their definitions swap around depending on which account I find it easy to just think of debit as adding to the left and credit as adding to the right. Their definitions are always the same that way.

lisper 2y ago
But that just begs the question because you have to remember the arbitrary assignments of what things go on the left and what things go on the right.
- freedomben 2y ago
  It's easy! Debits add to the left, credits add to the right :-) (to be clear, I'm backing up your point by giving the same circular explanation that I got constantly through Accounting 101 and 102, and then occasionally after that when dealing with the books)
  - lisper 2y ago
    Yeah, they should be called leftits and rightits. Or CARs and CDRs.
- nuttingd 2y ago
  It's the accounting equation being represented in canonical form. A chart of accounts is visualized in the minds of an accountant as: Assets | Liabilities + Equity Accounts classified as assets are debit accounts (left side), and accounts classified as liabilities or equity are credit accounts (right side). The theory discussed everywhere in this thread is sound. You really don't need to use terminology like debit/credit for accounting. What the discussion misses is the application of this framework. It is useful for a human to be able to visualize a complex transaction and work through missing pieces with the hints this framework provides. I'm missing something on the left? Oh yeah, I missed the deferred revenue debit.
  - 2y ago

globular-toast 2y ago

I find it more intuitive to use negatives. Then it's just equity + income + liabilities + assets + expenses = 0. In fact, every transaction and therefore the entire ledger sums to zero at all times. So if you take out a loan to buy lemonade: +$5 to expenses, -$5 to liabilities. If you sell lemonade: -$5 to income, +$5 to assets. You just have to remember that equity, income and liabilities will be negative so flip them if you want to answer questions like "how much do I owe?"

jancsika 2y ago

> The "credit" and "debit" terminology is ridiculous because their definitions swap around depending on which account you're talking about, which is an utterly absurd (mis)use of language and the main reason people find this confusing. As a neophyte: "credit" and "debit" make me think I'd need both entries to do books at all. The way you've written it makes me think: "Oh, this is just single-entry accounting for people who aren't careful like me!" So perhaps historically there was value in misusing terminology sufficiently to cause people to people turn off the optimizing compiler in their brain so that they just learn and do it correctly from the beginning? Edit: clarification

jncfhnb 2y ago

Imo the only time the terms get confused is because there are classes of accounts where it was decided it was preferable to give it the opposite name rather than carry a negative balance. If we didn’t do that, the separation would be intuitive.

mrkeen 2y ago

> Double-entry bookkeeping is very easy to understand once you ditch the ridiculous "credit" and "debit" terminology. I'm with you so far. > the goal is to keep the accounting equation true at all times Perfectly reasonable. > For example, you sell a lemonade for $5. You add $5 to Sales (Income) and add $5 to Current Account (Assets). And now you've completely lost me. Money appeared. Lemonade disappeared. I want to see the corresponding +$5 and -$5. Making it fit the equation (Equity + Income + Liabilities = Assets + Expenses) is not an intellectually satisfying reason for 'Assets' to go up by $5 when I just lost $5 of assets. What if it worked this way in physics? I could write Force * mass = acceleration 1N * 500g lemonade = 0.5 m/s/s Then I could say: "If we halve the mass of lemonade, then we double the acceleration:" 1N * 1000g lemonade = 1.0 m/s/s And then you could say "But you didn't halve the mass, you doubled it!" and then I could say "Yes I did, look, the equation still holds."

thetwentyone 2y ago
The -5 doesn't belong in your ledger, it belongs in the ledger of the person who bought the lemonade. As other commenters have pointed out, the "double entry" refers to multiple entries within your own ledger, it has nothing to do with someone else's ledger.
- mrkeen 2y ago
  > The -5 doesn't belong in your ledger, it belongs in the ledger of the person who bought the lemonade. This is just prescriptive (do it because I say so). It doesn't explain anything. > As other commenters have pointed out, the "double entry" refers to multiple entries within your own ledger, it has nothing to do with someone else's ledger. I didn't introduce the other guy's ledger, but since you did: I lost lemonade (which is somehow an addition to my assets). So the "-5" which belongs in the buyer's lemonade - is the negative sign there to indicate that he gained an asset?
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balderdash 2y ago

It think that’s right, but where people struggle so much is the splitting up transactions between these accounts the right way

hencq 2y ago

Totally agree. That's what I like about the way e.g. beancount does it [1]. Instead of using the debit/credit nomenclature, it just relies on positive and negative numbers. This way all the legs in a transaction just sum to zero, making it easy to spot if something is off. In the example, you'd have -5 Income (it's coming from income) and +5 Assets (it's going to Assets). The left side is typically negative and the right side positive. [1] https://beancount.github.io/docs/the_double_entry_counting_method.html#credits-debits https://beancount.github.io/docs/the_double_entry_counting_m...

omichowdhury 2y ago

Yeah, I think a more intuitive way is to replace credit and debit with State and Change as the pair of things in double-entry. It means that you don't have to swap meanings based on context and can use negative numbers intuitively. State Accounts track your net worth Assets: what you own Liabilities: what you owe Change Accounts track why your net worth changes Income: what you've earned Expense: what you've spent The accounting equation that follows is ∆ State = ∆ Change: Assets - Liabilities = Income - Expense Selling lemonade is +$5 Asset balanced by +$5 Income. If you substitute into the equation, it's: $5 Asset = $5 Income Taking out a loan is +$10 Asset balanced by +$10 Loan. In the equation: $10 Asset - $10 Liability = $0. In general, say you have a +Asset action, to balance the equation you can do it 4 ways: +Asset -Asset aka swapped for equal value +Asset +Liability aka took out a loan +Asset +Income aka sold something +Asset -Expense aka got a refund I've left out Equity as a separate account type since you can just treat it mathematically as a Liability account. This is the system we've implemented in our ledger API (https://fragment.dev https://fragment.dev)

lisper 2y ago
> +Asset +Income aka sold something Don't you mean -Asset here?
- omichowdhury 2y ago
  Nope, in these examples the +Asset on the left means you received say cash. The right side shows various ways to balance that out based on the accounting equation I did an explanation with numbers here: https://news.ycombinator.com/item?id=40021506 https://news.ycombinator.com/item?id=40021506
  - lisper 2y ago
    > in these examples the +Asset on the left means you received say cash. Ah. So... where is the value of the lemonade before you sold it? Wasn't that an asset before you sold it?
    - 2y ago

thomastjeffery 2y ago

The purpose of the words "credit" and "debit" is the same purpose of the structure of double-entry bookkeeping: to make every statement unambiguous, no matter what order or context you put the words in. By replacing familiar verbs like "paid" and "earned" with the nouns "debit" and "credit", we can write sentences where the order of words doesn't change the meaning, and where we never need to figure out what tense (past, present, future) to apply. To simply write that, "Bob's account has a credit of $12 and a debit of $7" is timeless. That sentence can go anywhere, and always be explicitly correct. It is context-free grammar: the same category that all programming languages belong to. Because a programming language is context-free, it can be perfectly understood (and translated) by a parser and compiler. Because statements using the nouns "credit" and "debit" are context-free, they can be perfectly understood as the data they represent. > The "credit" and "debit" terminology is ridiculous because their definitions swap around depending on which account you're talking about, which is an utterly absurd (mis)use of language and the main reason people find this confusing. On the contrary! Their definitions are always the same. They apply specifically to the account you are talking about, because they are that account: an account is a list of credits and debits. The reason that people get confused is that we are used to using verbs like "paid" and "earned". When we use verbs, the data is the transaction, not the account. When we use the nouns "credit" and "debit", the data is the account, and not the transaction. Most people are introduced to these words with "credit card" and "debit card". That was the mistake, because cards are used for transactions, which is precisely the wrong context to use these words. It would have been much more clear to talk about "crediting cards" and "debiting cards".

mrkeen 2y ago
> Bob's account has a credit of $12 and a debit of $7 (I'm 80% sure that the above reads that Bob actually owns $5 he can spend. But I'm equally sure that I get Debits and Credits backward, so I probably read it wrong.) In any case, you've only described a single account at rest. You need to go one step further and describe an entire transaction in those terms, so that someone can swoop in and say "you got it backwards".
- thomastjeffery 2y ago

ChirronT447 2y ago

'Double-entry bookkeeping is very easy to understand once you ditch the ridiculous "credit" and "debit" terminology.' I love it, let's do it! Thank you this is very helpful. The whole credit/debit terminology usage here is incredibly confusing to someone who hasn't studied accounting and many of the comments and replies to people who are confused are, while technically correct, simultaneously, unhelpful - to those not familiar with the terminology. I read a comment earlier: "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?" And thought: "Yes! Great question! This doesn't make sense..because debits are always negative right? A direct debit takes money out, you spend money using a debit card, a debit is a debt right? So debits are always negative and debiting is always minus-ing money..." - but the replies, while technically correct weren't satisfying at all because they assumed knowledge. It's both amusing and frustrating to watch people effectively speaking past each other like they're talking a different language. Especially when you have the same perspective as the person who is confused and trying to seek understanding. It seems like people nitpick on small points of what was said seemingly in order to be right.

omichowdhury 2y ago
I think the fundamental problem is the traditional accounting equation: Assets + Expenses = Liabilities + Equity + Income We try to group the accounts by left and right side and find a common term for them (credit-normal and debit-normal). But it’s really hard to come up with an intuitive answer for why Assets and Expense should be on one team, and why the rest should be on the other team. So we just pick some team names and say shut-up-and-calculate. What if we re-arranged the equation to: Assets - Liabilities = Income - Expenses The accounts on the left side track your net worth. The accounts on the right side track why net worth changes. What should be the names for the two sides? I call them State and Change. You can then ditch credits and debits and ask - what is the impact of this financial transaction on my net worth? The equation will tell you which accounts should go up and go down using positive and negative numbers. I go more into how this works here: https://news.ycombinator.com/item?id=39994335 https://news.ycombinator.com/item?id=39994335