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Comment by tgb | Hacker News Reader

The stumbling block for me learning it was understanding how to record the simplest and most common transactions like buying a banana. Surprisingly many explanations only use examples like paying your home mortgage where the credit and debit side of things are clear. But then they never tell me about where on earth does my banana go as a credit since I'm not stockpiling bananas to later sell. Even though that use case is almost all of my transactions!

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If your banana is for consumption and you pay cash: Then debit Food Expenses (decrease equity) and credit Cash (decrease assets). Accounting equation is balanced.

If your banana is for resale and you pay cash: Credit Cash (decrease assets) and Debit Trading Stock (increase assets). Accounting equation is balanced.

If your banana is for consumption and you buy it on credit from your supplier: Credit Loan account (increase liabilities). Debit Food Expenses (decrease equity). Accounting equation is balanced.

If your banana is for resale and you buy it on credit: Debit Trading Stock (increase assets). Credit Loan account (increase liabilities). Accounting equation is balanced.

If your banana is for resale and it spoils before you sell it: Credit Trading Stock (decrease assets) and Debit Spoilage Expenses (decrease equity). Accounting equation is balanced.

If your banana is for resale and you sell it [this one I'm a bit rustier on, it's been 25 years, but I'm pretty sure it's correct]: Debit cash (increase assets). Credit Sales income (increase equity). ALSO Debit Cost of Sales (an expense, so decrease equity). Credit trading stock (decrease assets). Accounting equation is balanced. (Your Gross Profit is reflected in Sales minus Cost of Sales).

Granted, these are unsophisticated examples, and based solely on decades-old high school-level accountancy, but I think your banana example should be covered here.

I'm glad you guys understand it in South Africa, and if I ever wanna open an accounting start-up, I'll be sure to source talent from there, but you lost me:

> Then debit Food Expenses (decrease equity) and credit Cash (decrease assets)

Why are you decreasing the number in two columns?

I don't really need to know personally, but I hope this gives you an idea of what kind of things confuses people.

I don't think the basis of double accounting in the sense that "every thing in and out must end up equalling zero" is super sophisticated concept to grasp, at least superficially.

But once it is applied to situations where things intuitively are just going out of your budget (like buying and eating something: you're left with no money and no banana) and on top of that use counter-intuitive words, I hope you can appreciate that people get confused.

> Why are you decreasing the number in two columns?

It's not two columns, it's both sides of the equation:

Assets = Equity + Liabilities

So if you're decreasing equity, but not gaining any liability, then the only option is to decrease assets to be balanced.

It doesn’t quite. You’ll also need to consider allocations and accounting for tax (sales and income), depreciation, transaction fees, warehousing, shipping revenue and expenses, revenue and expense recognition, discounts, returns, overpayments, prepayments, futures, chargebacks, refunds, credit notes, invoicing, subscriptions, subsidies, tariffs, reconciliation, adjustments in the current financial year, adjustments for already reported periods, gains & losses on foreign exchange, and subledger roll-up for your parent fruit company’s GL.

You’ll need to maintain consistency and coherence in multiple combinations of the above, and when the auditors show up, be able to show unequivocally that you understood every edge case when recording and reporting transactions, especially the ones that crossed a financial year boundary.

Accounting software mechanises all this. It is not simple.

I specifically stated it was an unsophisticated example. GP wanted to know what happens with the "simplest transaction" when he buys a banana.

Yeah, exactly. The first or second example in any explanation should be buying a banana that you immediately eat. That way the reader sees that an "account" doesn't have to be a bank account nor even a collection of physical goods that exist, it's just a virtual bucket made to keep track of certain transactions. Until I figured that out, double-entry made no sense at all. This is all exacerbated by the common "Assets = Liabilities + Equity" equation which hides expenses entirely. All of this is, of course, a problem about pedagogy in the quick guides found all over the internet. (Including the one linked to here, though the second example is at least an expense but not in the way that would enlighten a beginner.)

That was the simplified version.

Apples and oranges. By way of analogy, the OP was talking about C while you are describing building a commercial Windows app. DE accounting is a simple tool that can be used in complex ways.

OP is neither, it is in Python, but this merely demonstrates that accounting can be incorrect in any language.

The problem isn't just terminology, but when people use the term double-entry accounting interchangeably with double-entry book-keeping, they reveal how little they know about the subject matter, and how unqualified they are to be implementing either.

To an expense account.

Same here. Even a simple transaction such as recording my salary still leaves me confused.

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