[dkyc]

I find it a strange choice to explain double-entry bookkeeping with the example of "one entry for Alice, one entry for Bob". That's really not what it's about. It's obvious that a transaction with two parties could be recorded in two places, but to me the crucial point of double-entry bookkeeping is that it requires two entries for each party of the transaction. So if Alice buys book from Bob, four entries are made.

I get that this is supposed to be a simplification for educational purposes, but I find this is simplification is an oversimplification, since it omits the key point.

[btown]

In all fairness, if you're trying to understand a piece of software like Quickbooks and are not coming from an accounting background, anthropomorphizing each "account" at your company as an individual actor with their own ledger can actually be a helpful mental model. Everything needs to be a dance between actors, and, for instance, when you make a vendor payment in cash, you can only do so as a message sent simultaneously to the Accounts Payable actor and the Cash actor, and each actor must accumulate the effects of that message/event in the way that makes sense. (Namely, each one will translate the event into credits/debits based on the characteristics of who they are, and maintain a balance accordingly. Double-entry, I suppose, means each event must be ingested exactly once by an even number of actors.)

If you're building payment rails, that event might itself be one of a pair of events, sourced from a meta-event tracking the transaction intent. (As a meta-point, I find it much more useful to think of the "graph" in accounting as having edges not made of money, but of data in a derived-event hierarchy.)

And a first step towards being able to have that mental model is ensuring that you have a good mental model of multiple physical-human actors accumulating events in a structured and atomic way.

But the OP doesn't actually make it clear that this is what the analogy is in service of! And I fear that the OP article will cause more confusion than it solves.

[fauigerzigerk]

>Double-entry, I suppose, means each event must be ingested exactly once by an even number of actors.)

No, the number of accounts (actors) does not have to be even. The sum of debits and credits has to be equal (or zero if you like).

[em-bee]

anthropomorphizing the accounts is not the problem. the problem is that in the example the two parts of the double-entry are the two partners of the transaction. to anthropomorphize properly alice and bob would be two employees of the company buying a book from a bookstore.

[Mister_Snuggles]

> if you're trying to understand a piece of software like Quickbooks and are not coming from an accounting background

Unfortunately, QuickBooks won't help you understand accounting. It's not a true double-entry accounting system, at least it wasn't the last time I touched it. That said, it still does its job and does it well enough, and real accountants are fine with dealing with it.

Simply Accounting is a better example of a true double-entry system.

[em-bee]

i was about to write the same thing. knowing that double-entry is meant to apply to myself only, i actually found the example confusing, because well, of course bob is going to have an entry in his accounting book, but i don't care about bobs accounts, i don't want to track that. i only care about mine. i buy a book. how do i record this transaction using double entry bookkeeping in my accounting book?

and bob is not even doing any bookkeeping. he is bookselling ;-)

[toong]

You gained $20 worth of assets, so the counterpart of the $20 leaving your bank account is countered by your assets-account gaining $20

Now each year your book loses 1/5th of its value, due to wear and tear (4$ disappearing from your assets-account), this is countered by your depreciation-account (4$ tax write off, every year!)

After 5 years, it is worth $0 according to your books, but you manage to sell it again for $10: your bank account gets debited for $10, while your capital-gains-account gets credited for $10

[orthoxerox]

In a nutshell, double-entry bookkeeping is tracking all your money in two ways:

- where has it come from/has it forever gone? - where is it now?

So, you start a simple ledger of having $100 in cash with a transaction like this:

    Dr "cash" Cr "original funds" $100

Then you spend some of it on food and loan some to Bob:

    Dr "food expenses" Cr "cash" $25
    Dr "loan to Bob" Cr "cash" $20

Bob pays you back $22:

   Dr "cash" Cr "loan to Bob" $20
   Dr "cash" Cr "interest income" $2

You can't write 'Cr "Bob" $22', because... I don't want to get into the principles of accounting, but basically all asset accounts only go one way. You can't have minus two dollars in your pocket, and Bob can't owe you minus two dollars either.

Some of the accounts, like "original funds", aren't very useful by themselves, but they are the only way to make sure "money I literally have in my account/pocket", "money I owe people" and "money that people owe me" can all be counted together: if you tally up both kinds of the accounts, the total sum should be the same, just with the opposite "sign".

[Octokiddie]

Every explanation of double entry accounting seems to do the same thing. If I'm trying to understand the double part of double-entry bookkeeping, what exactly does the "double" refer to? What's being "doubled"?

How would you salvage the article to actually explain the "double" part in detail? Could you do it purely from Bob's (or Alice's) perspective?

[bluepencil123]

The 'double' in double entry book-keeping is related only to the book keepers own records/books. It has nothing to do with counter party's record keeping.

If Alice purchases a house worth $100,000 in cash, then 2 (double) accounts will get effected. Her cash account will decrease (Credit) by $100,100 and simultaneously her House equity account (or any other appropriate name such as immovable asset etc) will increase by $100,000 (Debit).

This can be recorded in a 3 column table as

  Credit account -- value -- Debit account
  Cash -- $100,000 -- House equity

In the above transaction, two accounts were effected. Hence the name double entry. This gives a truer picture of ones assets and liabilities.

Note: 1. Debit and credit dont have much to do with increase decrease. 2. A transaction can be modelled to have affect more than 2 account. For example if Alice were to make the purchase with $80,000 loan, then the book keeping could go like

  Credit Lender $80,000
  Credit Cash $20,000
  Debit House Equity $100,000

For the sake of better understanding, if one is uncomfortable with having one record affecting 3 accounts, one can be more robust and split the loan and the purchase into 2 transactions. After all, taking a loan and purchasing a house are 2 different events(transactions).

  Transaction one ->
  Credit Lender $80,000
  Debit Cash $80,000

  Transaction two ->
  Credit Cash $100,000
  Debit House equity $100,000

edit 1: attempt at better formatting

[theptip]

It’s a checksum; by decomposing every transaction into a double of (credit A, debit B) that must sum to zero, you catch random arithmetic errors.

You can think of it as “conservation of value”, so you can’t just create money out of thin air in your payment service (credit), without tying it to some account with a corresponding debit.

This originally was intended to protect against typos; eg write a 10 instead of 100, at the end of the day your ledger needs to balance. In software typos are less likely bit it still provides auditability to prevent a large class of bugs from wiping you out.

[test6554]

Bob and Alice each have a "money" account and a "books" account. Each money account tracks how much money they have on hand while each books account tracks the total value of their private libraries.

So to be clear, there are 4 accounts. Bob's Money, Bob's Books, Alice's Money, Alice's Books.

Because these two homeless librarians only have money and books, you can add the two balances together for each person to get their net worth.

If Alice owns 3 books worth $120, then the "Alice's Books" account would show a balance of $120. Meanwhile, Bob has 12 books worth $700.

When Alice buys the books, she -credits her bank account $20 and +debits her books account $20 (the value of the new book). Thus her net worth stays the same, but she has more books assets and fewer cash assets.

Similarly Bob -credits his books account $20 and +debits his bank account $20. His net worth also stays the same but he now has more cash than before.

On Alice's way back to the bridge she resides under, it starts to rain. Alice's new book is ruined. She -credit's her books account $20 and her net worth goes down by $20.

Life as a homeless librarian is harsh.

[insane_dreamer]

Because double-entry accounting requires two (thus "double") entries for each transaction (i.e., Alice buys a book)

- one for the assets/liabilities account involved in sending or receiving the money ($30 credit, bank account) - one for the income/expense account to which the transaction corresponds ($30 debit, "education" expense account)

one of the two entries is a credit and the other a debit

[atomicfiredoll]

Remember, this was all done on paper before software with tagging and such existed.

I'll give a description shot, since I've been doing finance work recently. Other people can feel free to correct.

A company using double entry (as opposed to single) has a "chart of accounts." This means they have a bunch of imaginary accounts for tracking everything, including:

- Assets (e.g. cash on hand.)

- Liabilities (e.g. loans)

- Equity (e.g. investments in the company from outside parties)

- Income/Revenue: (edit: as PopAlongKid kid mentioned, I forgot this one. This could include sales revenue, but also things like interest.)

- Expenses (e.g. team lunch or a flight cost)

Some of these "accounts" may map to actual bank accounts: there is likely a liability account for a credit card or an asset account for the company checking.

Knowing all that, every time money is deposited or withdrawn (a transaction) the "double" references the fact that it's recorded in the journal (a.k.a ledger) of two accounts. (Edit: As bregma mentioned, one records where money is coming from and the other where it's going.) Often, an expense is often recorded in the checking "account" and the and the corresponding expense "account." E.g. a flight may be recorded in a travel expense "account," but you also record that the money came from the checking account. Every transaction is recorded in two places.

Beyond just being more accurate than single entry, this helps with important finance reports like Profit & Loss, since you can now see how money is moving around.

Edit: Now that I'm back on my desktop, these are a couple of useful links for understanding basic double entry bookkeeping: Accounting for Computer Scientists [0] and Accounting for Developers, Part I | Modern Treasury Journal [1]. What is a Sample Chart of Accounts for SASS Companies [2] illustrates some charts, which may be helpful for some folks.

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

[1] https://www.moderntreasury.com/journal/accounting-for-develo...

[2] https://kruzeconsulting.com/startup-chart-accounts/

[bregma]

Every time money is exchanged, it has to come from somewhere and it has to go somewhere -- that's two places it need to be recorded (or "entered in the books").

Money can not be created out of thin air, and it can not be destroyed. Every movement of money has to be accounted for, which is why it's called "accounting". Double-entry accounting means you have to account for where the money comes from, and you have to account for where it goes, and each of those is a separate entry and it all has to add up to zero.

Where it can become confusing is when money leaves you or comes in from an external source. There are still two entries, but one entry is in one party's books and the other entry is the other's. For example, I get a paycheque and I enter my income in a little book with green paper and DB/CR columns. At the same time, my employer has entered an expense in their book. Double entries.

[alexambarch]

From what I got out of the article and my own limited understanding of double entry bookkeeping, the "double" seems to be referring to the part where we split a transaction into credits and debits as opposed to a transaction with positive or negative balance. The doubling is happening with the labels we use to describe what's happening with the money.

From an individual account perspective, there's a doubling of the number of columns you could enter a transaction's amount into.

[Linosaurus]

> actually explain the "double" part in detail?

$100 appears in your account. That’s one part. The other part depends on why.

* you moved money from another account, the double is -100 in that account.

* you sold stuff, +100 in income.

* you borrowed some money, +100 in ‘debt’.

In a physical book each of these categories would have a left and right column, and each transaction has numbers in one left and one right column. Or in many columns but the sums of left vs right columns must be the same.

[conductr]

Always needs two entries to keep assets equaling liabilities plus equity. If you do anything it effects both sides of the equation, thus “double entry” is required to keep this relationship. It’s the accounting equation.

https://www.investopedia.com/terms/a/accounting-equation.asp

[danielmarkbruce]

It's also technically wrong.

For example, a bank might decide you likely can't pay your loan and write it down to zero. You might still have the liability on your books because you plan to repay it. They'll make the relevant entries in their system (and the debits and credits will balance) and you'll do nothing (which balances).

Double entry bookkeeping has zero to do with other entities. It's solely about your own books.

[winstonrc]

I’m biased, but I hope my explanation[0] is more intuitive coming from a CPA.

[0]: https://www.winstoncooke.com/blog/a-basic-introduction-to-ac...

[resters]

I think the key point is that not only is double entry accounting a directed graph, so is single entry accounting.

Therefore (and to your point) the observation is of limited usefulness.

[galaxyLogic]

> So if Alice buys book from Bob, four entries are made.

What if Alice does double-entry bookkeeping but Bob does single-entry bookkeeping?