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Comment by nyrikki | Hacker News Reader

Double entry accounting is the original immutable event architecture.

They call out that it is hard to learn, but most of that in my experience is because people don't realize that credit cards and debit cards.

Just remember the formula:

Assets= liabilities + capital

It may be counterintuitive at first, but keeping that formula true is the requirement.

Debits on the left and are positive Credits on the right and are negative.

Using Excel and a cash basis has killed lots of companies where customers pay for services and products, which looks like income, while the related expenses haven't been paid for.

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https://martin.kleppmann.com/2011/03/07/accounting-for-compu...

Accounting for computer scientists is a good read. it presents double entry accounting in a way that should be more familiar to us, as a graph theory problem.

This is amazing, I never understood double entry accounting this clear (I've a background in theoretical CompSci). Thanks for sharing.

re: debits and credits

Sometimes non-accounting people get hung-up on the words "debit" and "credit" and think they have to do with "owing" or "being owed" money, being "positive" or "negative", etc.

The effect of a debit or credit on the business depends on the accounts in the transaction and debit and credit don't have anything to do with the "direction" of a flow of money.

My 100-level accounting instructor summarized it as: "A debit is the entry in the left column, and a credit is an entry in the right column." Without the context of the specific accounts being debited or credited the terms themselves don't confer significant meaning.

A basic knowledge of bookkeeping and accounting terminology can confer near "super powers" when it comes to dealing with finance people. It's easy to learn and worth the time.

Double-entry bookkeeping is one of the oldest and longest-practiced "IT" disciplines. Your work probably touches revenue / expenses for your employer and someday you'll need to interface with accounting or finance people. Being able to speak the language, even poorly, has helped me gain trust and credibility that I don't believe speaking only in IT terms would have.

Ledger kind of side steps this "debit" and "credit" issue by just using positive and negative numbers to add to or subtract from a particular account.

If you get paid $1000, your Income account gets -1000 and your Checking account gets +1000.

Well, income getting the negative number only makes sense if you know that it is a credit account that increases with credit.

In the case of Ledger, it also makes sense because -1000 + 1000 = 0.

I do wish accounting practice would finally accept the mathematical advancements of the last 500 years and start using negative numbers. Combined with the "transactions sum to zero" rule it makes things blindingly obvious.

Background: I studied the basics of accounting on 8th and 9th grade, and acted as a treasurer or auditor in some university student associations. I accepted the traditional presentation as a given; "it'll make sense in the end".

Then I learned the negative number thing and the sums-to-zero concept and suddenly it was completely clear what was happening. Ledger manual's "Principles of Accounting with Ledger" was where this finally kicked in.

https://ledger-cli.org/doc/ledger3.html#Principles-of-Accoun...

Right. From a recent https://fosstodon.org/tags/plaintextaccounting thread:

PTA sign convention makes it very straightforward:

If the posting amount is negative it's a credit

If the posting amount is positive it's a debit.

I use this mnemonic:

debit / to / plus / left / short words

credit / from / minus / right / longer words

> Assets= liabilities + capital

Lol, that'd be nice! I think you'll want to edit that.

Are you complaining about the order of the C and L terms?

Because the accounting equation has been the same for centuries.

Assets = Capital + Liabilities

https://www.accaglobal.com/gb/en/student/exam-support-resour....

It took a second for me because I'm accustomed to people talking about Assets and Liabilities to describe the picture, so the equation in my head is the inverted one:

Capital = Assets - Liabilities.

I can imagine GP had a similar confusion.

Thanks for that explanation, Thinking about it. I was taught to call that proprietorship. Which was probably meant to remove that ambiguity.

A - L = P

We put it on the right side to say that was the Owners value.

I never knew why they insisted on that but now I do.

It's standard for accounts that normally maintain a debit balance be on the left side, and accounts that maintain a credit balance be on the right.

So, the usual accounting equation is written:

assets = liabilities + capital

Yes, capital is similar to liabilities. It is owed to the investors (which may just be an individual).

The full equation prior to closing the books for a period is:

assets + expenses = liabilities + income + capital

For an individual, 'capital' is usually called 'net worth'.

Once the books close, (income - expenses) is moved to capital as 'retained earnings'.

In traditional, hand entered debit/credit accounting, the left hand side adds up to the same number as the right hand side. The books are balanced - the accounts on the left 'weigh' the same as the ones on the right.

In computerized accounting, the left hand side (debit) accounts are normally positive and the right hand side (credit) accounts are normally negative. There is no equation - all the accounts add up to zero, and every double entry transaction adds up to zero.

This was exactly why I was confused. And still am, in fact. I guess I don't understand accounting?

Capital = Assets - Liabilities -> Assets = Capital + Liabilities is grade school arithmetic though.

Ah, now it's clear. Some of the other long-winded responses unhinged my thought train into wondering if accounting uses some kind of atypical or asymmetrical equation system. So, no; it's an equation, and it's simple.

I think in the US we usually call Capital "Equity", so it's

Assets = Liabilities + Equity

Or net assets = equity.

The corollary for an accounting period

Assets + Expenses = Liabilities + Equity + Income

is more interesting. We say that the left side has a debit balance and the right side has a credit balance. It's easy to see how a few transactions work.

Pay a bill from checking, debit Expenses, credit Assets.

Buy something on credit card, debit Expenses, credit Liabilities.

Pay credit card, credit Assets, debit Liabilities.

Receive a payment for services, debit Assets, credit Income.

To close the accounts for the period, credit total Expenses to 0, debit Equity by that amount, and debit total Income to 0 and credit Equity by that amount.

Naturally, things are kept in subaccounts but this is the overall effect on the accounting equation.

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