3 ms·
> 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
by mrkeen 3y 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 3y ago[deleted]
- MajimasEyepatch 3y agoInventory is an asset, so if you want to account for inventory in this example, you would record two debits and two credits: - $5 debit to cash (asset => debit means +5) - $5 credit to revenue (equity => credit means + 5) - $X debit to cost of goods sold (liability => debit means - X) - $X credit to inventory (asset => credits mean - X) Where X is the cost of the materials that went into the lemonade. So if X < 5, you made a profit. In terms of the equation, this comes out to: Assets = Liabilities + Equities (5 - X) = (-X) + (5) So it all adds up to 0, but you make a (gross) profit or loss depending on the value of X. You wouldn't account for the customer's side of things because the customer is not on your books.