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?
- $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)
You wouldn't account for the customer's side of things because the customer is not on your books.