You don't need accounting or double-entry bookkeeping to compute net worth.
Net worth is easy: assets - liabilities
You get the figures from your financial institutions and counting up your cash on hand.
The purpose of double-entry bookkeeping is to track the flow of money and to make sure nothing was missed.
But for net worth, you only need the end result, which you don't need any computation for.
The only thing that this solves is tracking money in flight, because during a transfer it disappears from your view of the accounts. There are simpler solutions to this problem than tracking absolutely everything.
I get that people on here don't like subscriptions, and I understand why, but I've been using You Need a Budget for well over a decade, and it is probably the last subscription I'd ever give up.
The automatic import of expenses is so valuable for my family and keeping track of how much we've spent and how much we have left for the month.
We used the fixed-cost version for years beyond when it was officially supported, and it didn't have the automated import, and I don't think I could ever go back to a system that didn't. There were always a few days a month, at least, when I wasn't exactly sure where we were in our expenses.
I dont mind paying for a personal finance tool, but I feel like most of them are made for an average consumer who spends in one currency and needs budgeting. I operate in at least 3 currencies, don’t care about budgeting, and need support for tracking stocks and automatic currency conversions.
The only tools that were able to provide that were GnuCash and PTAs like beancount.
My point is, there is a big segment of people who are not served by existing personal finance tools simply because they operate in more than 1 currency, or have a slightly more complicated setup than envelope budgeting.
I used YNAB since back when they used to just sell the software and maintained a subscription for a little while. I will say that their approach to budgeting has changed the entire way of how I look at money, and even though I have switched to GNU Cash, I have essentially replicated the envelope method there (it requires four entries per transaction instead of the standard two).
For anyone who wants to use this envelope method without paying for YNAB, I recommend checking out Buckets, which is another software that works similarly.
What does Ynab do that I would get for free with gnu cash? Just downloading bank statements which I’m not ok with and against my banks t&c.
Other wise all non envelope budget systems are horrible for me because I want the budget to be self adjusting so if I spend more on household items 1 month it needs to ensure I have less to spend over the next set of periods till I’ve gone back into positive . Rollover basically
I'm a huge fan of YNAB. It's a morning routine to log in (really, the tab is always up) and reconcile accounts. The zero-based budgeting method, while not requiring YNAB, is beautifully represented in the software. I'm sure I could use some free software to accomplish the basic tasks but having an associated app my spouse can review for quick decision making is very valuable.
It's made budgeting a tool to accomplish savings, wealth growth, and expense smoothing rather than simply a survival strategy. When you have to deliberately shift funds out of one category to cover another, you really consider the relative priorities.
I used Ledger for a while, then some other tools. Now I'm on Actual Budget, a nice FOSS envelope budget app that can import transactions from my bank.
I find value in tracking everything, tracking it by hand, and tracking it with precision (our household budget has 68 categories).
When I've tried easing up in the past (e.g., with Mint's lightweight approach) I was left with a budgetary black box where I felt like I never had enough information to make big purchasing decisions. I knew what I had in the bank account, but I didn't know if it was earmarked for anything, or whether the next surprise expense was going to wreck my plans. I felt afraid and paralyzed.
Earning more didn't make the problem go away. Like the financial equivalent of Parkinson's Law, more income just meant more spending. I couldn't out-earn unrestrained consumption. I had to monitor & manage it.
For peace of mind, I found YNAB's philosophy helpful: one-off expenses often repeat predictably on a long-enough time horizon, and can be amortized accordingly. If I itemize all predictable expenses and save a little each month, I know everything is taken care of, and what I really have left over. I never get blindsided because several big expenses hit at once.
I know not everyone has these problems. But I like to talk about my experiences because people don't all need the same things from their finances. It's okay and normal to want control and visibility. Budget apps exist because people find them useful, not because the whole userbase has failed to reach enlightenment and transcend budgeting.
I can identify with this a lot. I don’t budget as religiously as I used to, but there was a time where I was writing little console apps to process all my recurring stuff and adding one-offs in from a separate file to help project future money. I turned the idea into a website, but really nobody ever used it but me. Shut it down probably a decade ago, and then found YNAB myself, but for the time period it reduced my anxiety by a lot.
This is neat, but I'm not really convinced this level of granularity makes sense for personal finances? Or at least it does not for me personally. I find that simply entering all my accounts into one big excel once a month more than suffices to keep track of everything. Maybe I make a typo here and there but it doesn't really matter in the grand scheme of things cuz I'm gonna type a new number next month anyway.
I guess it depends on the complexity of ones personal finances? The author had multiple currencies, investments, and who knows what else.
I ran a small business for a while, and I would draw a parallel to that. Once a family's finances hits the complexities of a small business, multiple assets, loans, cars, long term savings, investments, I'd say the granularity is worth it. I would certainly like to try it out.
I used to do this during my first real job and was tracking every sandwich I bought, then one of the senior engineers told me to stop wasting time with it and make more money, and then I was enlightened.
Tracking expenses doesn't take more than 5-10 minutes per day, if you do it daily. With the correct workflow, it shouldn't take more than 30 minutes per month. There are even apps that would do that for you without any effort, though not so perfectly as fine tuned apps.
And now, the enlightenment part: how is expense tracking preventing you from making more money than visiting hecker news, reddit, social media, listening to the radio, watching TV, reading the news, or a million other things? Do you really spend all your waking hours earning more money so tracking expenses for a few minutes would make you make less?
I really enjoyed reading this, and it is inspirational as it is something I have wanted to do for a long time. And as a software developer, it really appeals to me.
How do you think it compares time-wise to using existing accounting software? Was the time investment worth it to get the control and visibility you now have?
> How do you think it compares time-wise to using existing accounting software?
Author here. I tried various consumer budgeting apps before I ended up building my own (and then going to Beancount). The main problem with every one of the apps I tried is that they don't handle investments well. 99% of my money is invested and having net worth figures which are wildly wrong because the app is only tracking bank accounts really annoyed me. That was the reason I built my own thing in the first place.
> Was the time investment worth it to get the control and visibility you now have?
Absolutely yes. I think it helps me really understand where my money is going, how I can make it work harder etc. Even though the RE part of FIRE doesn't appeal to me, the FI part does and knowing where I stand at all times has been very motivating.
As being discussed in another thread about plain-text accounting[1], what I've found most difficult about these tools is the learning curve between "Assets = Liabilities + Equity" and the realities of modeling a household economy.
I appreciate the level of detail in this post. I think there's often confusion that plaintext == easy/simple. The real takeaway is: "if you're going to go through all of the trouble of managing your economy, you may as well make sure you control your data and own your system."
will resolve the weirdness that occurs when trying to access localhost vs 127.0.0.1 (as there is an OS-native *:5000 listener that the fava :5000 binding overlaps) and fix the bison build errors (once you've brew install'd bison).
I like having an archive of PDF statements but the downside is that it’s usually a tedious manual process to download them. There’s so many to track - bank accounts, credit cards, investments, utilities, doctor bills… Every website is different, and they are rarely batch-downloadable. So I tend to be a few months behind at any given moment until I get around to it.
Anyone found a better way to keep on top of downloading statements?
> The key insight is that bank statement PDFs are almost always columnar. Of course, this relies on the PDF having a proper text layer; if your bank sends you scanned images, you’re out of luck (though I’ve yet to encounter one that does). When you convert them to text while preserving the layout, you get something that looks like this:
So I decided to try this out with my bank who's export options are (one of the mentioned slightly silly multi-line format) XLSX or PDF only, and it appears they've done some "encryption" (really a simple substitution cipher and an embedded font with the characters jumbled up so it renders correctly) to the PDF to prevent this. All the marketing text and headers are in the pdftotext output fine but the actual data is all accented and non-printable characters (also if you copy/paste out).
The substitution cipher does seem stable across a few statements, but still seems like less work to work off the XLSX
I remember seeing an online shop that did the whole font substitution to prevent web-scraping of their prices.. I think they even changed the substitution between elements so one couldn't just do a single pass replacement and get the original data back..
I guess nowadays it's very cheap to run a headless browser, screenshot the output, and run it through OCR.. hah, to prevent that they'd have to design their webpage as 1 full screen Captcha..
I agree with an earlier post that asserted "net worth = assets - liabilities" but I'd like to do better at understanding what that really means.
Some are easy like the size of your bank balance. Others are much harder.
For example, one asset we have is our home and there are many websites out there that tell you how much it's worth but they each vary an awful lot and change dramatically - so much so sometimes that any savings you've made in the same period are eclipsed.
Similarly, the 401k I've been building up for years seems like a decent amount but trying to calculate what it's worth after taxes and therefore how much you'll have to spend each month seems unknowable.
I think the same is true of investment accounts. If we seeded one with $500 and it's now worth $250, it's easy to think your net worth has risen by $250 but it really hasn't when taxes, fees and who knows what else is taken into account.
> asset we have is our home and there are many websites out there that tell you how much it's worth but they each vary an awful lot and change dramatically - so much so sometimes that any savings you've made in the same period are eclipsed
I honestly completely ignore my purchased home value. It is not a regular asset because you have to make use of it, you can’t really liquidate it without a substantial change in your life (renting, marrying, going homeless, etc). If you trade it, you’d have to use that money to get some other housing. My strategy in my personal finances is to threat the house as if I’m renting. The money is gone from the balance, the equity isn’t tracked anywhere.
I stopped most of my Parkinson’s disease medications due to severe side effects and I started on herbal treatments from Limitless Herbs Centre (Limitlesshealthcenter. com), the treatment has made a very huge difference for me. My symptoms including body weakness and Swallowing difficulties disappeared after few months on the treatment. I am getting active again since starting this treatment.
I didn’t think negative amounts were a real thing in double-entry accounting? Instead some things are debits and others are credits, and whether each of those reduces or increases an account balance depends on the type of account it’s against. Like, you could pay an expense out of a debt account, which would increase the debt, or out of a cash account, which would decrease the cash. Debits and credits should still be equal, though.
Can somebody explain to me the advantage of double-entry bookkeeping? Is it basically just a "checksum" so it's easier to notice when something is off?
I found this document[0] very insightful. It's quite a long read, but gradually introduces the concepts needed for double-entry bookkeeping.
I think the main advantage is that you can granularly keep track of the movement of money, stocks, commodities, etc., and their conversions. As a day-to-day example, it gives you the ability to follow, for example, invoices received (Liabilities or Accounts Payable), transactions on a bank account (Assets), and what you are going to spend (or at some point, have spent) (Expenses).
This separation allows you to, for example, enter an invoice you've received on January 1 in Accounts Payable, with a corresponding value in Expenses. At this moment, nothing happened yet, it's simply an administrative transfer of some amount from an asset account to an expenses account (the sum of these transfers must be zero, so one amount is negative whereas the other amount is positive. See [0] for more details).
As a result, this gives you insight in what still needs to be paid. Once a transaction for that invoice enters your bank account on, for example, January 10, it gets "paid" to Accounts Payable, thus giving you a link between an invoice, its payment, and finally the amount spent. (This concept also works the other way around, see this sibling comment[1], where it's also extended into working with multiple accounts.)
Double-entry accounting models the source and destination of funds. If you keep all of your money in one bank account and neither owe anyone or have anyone that owes you, then double-entry accounting is not necessary because you can record just the one side of every transaction – your bank account is the other side.
However, if you have more than one account or debts, or budgets, then it becomes useful to track both sides of a transaction. If you track both sides of a transaction then you can easily answer questions like:
1. how much money do I have in my investment account?
2. how much debt do I have?
3. how much did I spend on recreational social activities?
You can track debts and investments separately, but then you are still making two entries just in two places.
I think many people have few enough debts and investment account that they track these separately, and the third question, budgeting, can be simplified if each vendor is only ever considered for a single budget, for example, all your flights are part of your vacation budget, and you don't care to break out a flight to a career related conference.
Yes, it makes it both really simple to spot mistakes and also allows you to easily audit the whole thing after the fact. In corporate contexts it's a straightforward way to make sure your bookies are also honest, just have an external firm look through the whole thing every now and then.
Here is my explanation for "software people who understand databases". The structure of the explanation will be as follows:
1. Explain how you would do simple accounting with a database
2. Point out which indices you'd create for performance
3. Show how the "double entry" part of double entry accounting is about the indices
1. The way you'd do accounting in a database is with two tables: One table for accounts (e.g. your checking account, or the supermarket account, which you don't own) and another table for transactions. The transactions move an amount of money from one account to another, e.g. from your checking account to the supermarket account. Or if you use it for budgeting, you might split your checking account into a groceries account, a rent account etc. (think "categories").
2. For performance, you would create indices based on the accounts in the transaction table, so you could easily check what's going on e.g. in your groceries account or how much you spent at the supermarket.
3. Double entry accounting was formalized in the 15th century, way before computers became a thing, but bound paper books were already somewhat affordable. The way you'd do accounting is like this: During the business day, you would write down your transactions as they happen, into a scrapbook, similar to the transactions table mentioned above. At the end of the day, you'd do the "double entry" part, which means you take your "index" books where each book is about one account and you transcribe each transaction from your scrap book into the two books of the two accounts that are mentioned in the transaction, e.g. if you spent $10 from your groceries account into the supermarket account, you'd double enter that transaction both into your "groceries" book and into your "supermarket" book. Then, when you want to check on how much you spent at the supermarket in a particular month, you could easily look it up in the supermarket book (this would be very tedious when using the scrap book). These account centered books are like the indices in the database mentioned above.
So the double entry part is about clever index building for making it easier and faster to understand what's going on in your accounting system.
I must have read half a dozen intro-to-accounting books, and it never ever clicked for me. I understood the concepts, the benefits, but it just felt 'wrong'.
It wasn't wrong of course, there is so much history, ingenuity and the invention of double entry accounting, but I just couldn't get my brain to understand it.
The way the concepts settled in my head was: double entry accounting is just an excellent way of modelling a graph with nodes and edges. Accounts are nodes, transfers are edges. Every edge has a source and a destination.
For a paper ledger, each column is graph node, and each row is a graph edge.
That was enough for me to be able to learn the rest of the things I needed for interacting with the accounting world.
But I also realised that that description really only helps a very small part of the population. :D It makes things so much worse for most people.
"Hey could you help me understanding this accounting thing?"
"Sure, but first thing is, let's learn graph theory! You know who Dijkstra right?"
Whole buckets of nope.
But thats a digression from your actual question - whats the point?
It presents a rigid set of rules of recording transfers, everything has to have a from account and to account (i.e. a graph edge), every row must add up to zero.
Because of that, it makes it easy to spot any mistakes in data entry. If any of your rows dont add up to zero - then you've made a mistake.
It's not really a checksum. It can sometimes function as one (everything should sum to zero, if it doesn't then you have a math error), but since most records you make will just have two entries (spent $25 on groceries, remove $25 from checking account) the everything-sums-to-zero feature isn't going to catch math mistakes most of the time, because there is no math to be done on most entries. Rather, the fact that everything sums to zero helps you track things later on.
To explain that, I'll rephrase, in my own words, the restaurant example from the article, because that was a good example of the concept. Let's say you went to a restaurant with two friends and decided to split the $90 bill three ways, but your friends didn't have $30 in cash on them at the time. You put the whole $90 on your credit card, and your friends paid you back $30 each the next week: one on Monday, and one on Wednesday.
In single-entry accounting you might have written the following transactions:
Thursday Jan 1st: $90 restaurant (credit card)
Monday Jan 5th: $30 repaid from Alice (cash)
Wednesday Jan 7th: $30 repaid from Bob (cash)
Thing is, there's nothing to link those transactions together. If you look at these entries three years later, you'll probably be left scratching your head as to why Alice paid you back $30: there's no $30 transaction, so the $90 restaurant transaction won't jump out at you as the reason why Alice paid you back.
But with double-entry bookkeeping, you'd write that as follows:
Thursday Jan 1st:
-$90 restaurant (credit card)
+$30 my share of the restaurant bill (expenses)
+$30 Alice's share of the restaurant bill (money owed to me)
+$30 Bob's share of the restaurant bill (money owed to me)
Monday Jan 5th:
-$30 Alice's share of the restaurant bill (money owed to me)
+$30 cash received (cash)
Wednesday Jan 7th:
-$30 Bob's share of the restaurant bill (money owed to me)
+$30 cash received (cash)
It's not always obvious when you're new to double-entry accounting which entries should be positive or negative, but if you remember the "must add to zero" rule you'll be more likely to get it right. Money flowing into an account is positive, money flowing out of an account is negative. For credit cards, the money flows "out of" your credit card and into the restaurant's ownership, so the sign should be negative. When you pay the credit card bill later, the sign will be positive on the credit card account (and negative on your checking account, thus again adding to zero) because money is flowing out of your checking account and into your credit card account.
Now, look at that double-entry accounting. When you look at the Wednesday Jan 5th entry, and you see that Alice paid you back $30, you'll start searching for a $30 transaction earlier, and you'll pretty quickly find the January 1st and figure out that she owed you $30 because you had paid her share of the restaurant bill on the 1st. And even if the amounts don't line up (let's say she paid you $20 on Jan 5th and $10 on Jan 12th), there's still a "money Alice owes me" category which has a +$30 entry on the 1st, then -$20 on the 5th and -$10 on the 12th, all of which makes it pretty easy to figure out what Alice is paying you back for.
So by recording each entry in at least two places (it's not always exactly two places, e.g. the January 1st expense is recorded in four places total), you get more linkage between the items and it becomes a lot easier to see why the money was going out or coming in.
I have looked at beancount and a few other double entry systems several times over the years. None of the applications I've found except for Microsoft My Money (Sunset Deluxe) has felt intuitive and not wasted my time. One of my accounts can't be imported via csv but other than that it is painless. I recommend it to people who just want a quick, free program for simple reporting.
tantalor|1 month ago
Net worth is easy: assets - liabilities
You get the figures from your financial institutions and counting up your cash on hand.
The purpose of double-entry bookkeeping is to track the flow of money and to make sure nothing was missed.
But for net worth, you only need the end result, which you don't need any computation for.
The only thing that this solves is tracking money in flight, because during a transfer it disappears from your view of the accounts. There are simpler solutions to this problem than tracking absolutely everything.
bombcar|1 month ago
For personal finance the problem is almost always very obvious ($3,000 on candles) and all the spreadsheets and budgets won’t change that.
8n4vidtmkvmk|1 month ago
If you transfer 50k from one account to another and want to check your networth before the money comes back in, summing your balances won't help you.
I think this is besides the point though, I suspect OP wants to track networth over time.
huhkerrf|2 months ago
The automatic import of expenses is so valuable for my family and keeping track of how much we've spent and how much we have left for the month.
We used the fixed-cost version for years beyond when it was officially supported, and it didn't have the automated import, and I don't think I could ever go back to a system that didn't. There were always a few days a month, at least, when I wasn't exactly sure where we were in our expenses.
skwee357|1 month ago
The only tools that were able to provide that were GnuCash and PTAs like beancount.
My point is, there is a big segment of people who are not served by existing personal finance tools simply because they operate in more than 1 currency, or have a slightly more complicated setup than envelope budgeting.
ajdude|1 month ago
For anyone who wants to use this envelope method without paying for YNAB, I recommend checking out Buckets, which is another software that works similarly.
dugite-code|2 months ago
zaphirplane|1 month ago
Other wise all non envelope budget systems are horrible for me because I want the budget to be self adjusting so if I spend more on household items 1 month it needs to ensure I have less to spend over the next set of periods till I’ve gone back into positive . Rollover basically
x187463|1 month ago
It's made budgeting a tool to accomplish savings, wealth growth, and expense smoothing rather than simply a survival strategy. When you have to deliberately shift funds out of one category to cover another, you really consider the relative priorities.
spiffytech|1 month ago
I find value in tracking everything, tracking it by hand, and tracking it with precision (our household budget has 68 categories).
When I've tried easing up in the past (e.g., with Mint's lightweight approach) I was left with a budgetary black box where I felt like I never had enough information to make big purchasing decisions. I knew what I had in the bank account, but I didn't know if it was earmarked for anything, or whether the next surprise expense was going to wreck my plans. I felt afraid and paralyzed.
Earning more didn't make the problem go away. Like the financial equivalent of Parkinson's Law, more income just meant more spending. I couldn't out-earn unrestrained consumption. I had to monitor & manage it.
For peace of mind, I found YNAB's philosophy helpful: one-off expenses often repeat predictably on a long-enough time horizon, and can be amortized accordingly. If I itemize all predictable expenses and save a little each month, I know everything is taken care of, and what I really have left over. I never get blindsided because several big expenses hit at once.
I know not everyone has these problems. But I like to talk about my experiences because people don't all need the same things from their finances. It's okay and normal to want control and visibility. Budget apps exist because people find them useful, not because the whole userbase has failed to reach enlightenment and transcend budgeting.
twodave|1 month ago
Etheryte|2 months ago
phil-martin|1 month ago
I ran a small business for a while, and I would draw a parallel to that. Once a family's finances hits the complexities of a small business, multiple assets, loans, cars, long term savings, investments, I'd say the granularity is worth it. I would certainly like to try it out.
symbogra|1 month ago
miroljub|1 month ago
Tracking expenses doesn't take more than 5-10 minutes per day, if you do it daily. With the correct workflow, it shouldn't take more than 30 minutes per month. There are even apps that would do that for you without any effort, though not so perfectly as fine tuned apps.
And now, the enlightenment part: how is expense tracking preventing you from making more money than visiting hecker news, reddit, social media, listening to the radio, watching TV, reading the news, or a million other things? Do you really spend all your waking hours earning more money so tracking expenses for a few minutes would make you make less?
BeetleB|1 month ago
Then you discover that you really do need to know how much you are spending on sandwiches.
I went through this a bunch of times. Always hoping for an obvious smoking gun expense I could just cut. It always was many little things adding up.
tonyedgecombe|1 month ago
alexnewman|1 month ago
phil-martin|2 months ago
How do you think it compares time-wise to using existing accounting software? Was the time investment worth it to get the control and visibility you now have?
lalitmaganti|1 month ago
Author here. I tried various consumer budgeting apps before I ended up building my own (and then going to Beancount). The main problem with every one of the apps I tried is that they don't handle investments well. 99% of my money is invested and having net worth figures which are wildly wrong because the app is only tracking bank accounts really annoyed me. That was the reason I built my own thing in the first place.
> Was the time investment worth it to get the control and visibility you now have?
Absolutely yes. I think it helps me really understand where my money is going, how I can make it work harder etc. Even though the RE part of FIRE doesn't appeal to me, the FI part does and knowing where I stand at all times has been very motivating.
thomascountz|1 month ago
I appreciate the level of detail in this post. I think there's often confusion that plaintext == easy/simple. The real takeaway is: "if you're going to go through all of the trouble of managing your economy, you may as well make sure you control your data and own your system."
[1]: https://news.ycombinator.com/item?id=46463644
altairprime|1 month ago
pimlottc|1 month ago
Anyone found a better way to keep on top of downloading statements?
Macha|1 month ago
So I decided to try this out with my bank who's export options are (one of the mentioned slightly silly multi-line format) XLSX or PDF only, and it appears they've done some "encryption" (really a simple substitution cipher and an embedded font with the characters jumbled up so it renders correctly) to the PDF to prevent this. All the marketing text and headers are in the pdftotext output fine but the actual data is all accented and non-printable characters (also if you copy/paste out).
The substitution cipher does seem stable across a few statements, but still seems like less work to work off the XLSX
netsharc|1 month ago
I guess nowadays it's very cheap to run a headless browser, screenshot the output, and run it through OCR.. hah, to prevent that they'd have to design their webpage as 1 full screen Captcha..
lalitmaganti|1 month ago
For that type of "obfuscated" PDFs I've come across, it does well, it's just a lot slower to run than pdf2text.
abdullahkhalids|1 month ago
inetknght|1 month ago
Print the PDF to an image. Then use OCR. Then import the output from that instead.
callumprentice|1 month ago
Some are easy like the size of your bank balance. Others are much harder.
For example, one asset we have is our home and there are many websites out there that tell you how much it's worth but they each vary an awful lot and change dramatically - so much so sometimes that any savings you've made in the same period are eclipsed.
Similarly, the 401k I've been building up for years seems like a decent amount but trying to calculate what it's worth after taxes and therefore how much you'll have to spend each month seems unknowable.
I think the same is true of investment accounts. If we seeded one with $500 and it's now worth $250, it's easy to think your net worth has risen by $250 but it really hasn't when taxes, fees and who knows what else is taken into account.
kassner|1 month ago
I honestly completely ignore my purchased home value. It is not a regular asset because you have to make use of it, you can’t really liquidate it without a substantial change in your life (renting, marrying, going homeless, etc). If you trade it, you’d have to use that money to get some other housing. My strategy in my personal finances is to threat the house as if I’m renting. The money is gone from the balance, the equity isn’t tracked anywhere.
kravosecdonna|1 month ago
twodave|1 month ago
simonmic|1 month ago
nubg|2 months ago
mrngm|1 month ago
I think the main advantage is that you can granularly keep track of the movement of money, stocks, commodities, etc., and their conversions. As a day-to-day example, it gives you the ability to follow, for example, invoices received (Liabilities or Accounts Payable), transactions on a bank account (Assets), and what you are going to spend (or at some point, have spent) (Expenses).
This separation allows you to, for example, enter an invoice you've received on January 1 in Accounts Payable, with a corresponding value in Expenses. At this moment, nothing happened yet, it's simply an administrative transfer of some amount from an asset account to an expenses account (the sum of these transfers must be zero, so one amount is negative whereas the other amount is positive. See [0] for more details).
As a result, this gives you insight in what still needs to be paid. Once a transaction for that invoice enters your bank account on, for example, January 10, it gets "paid" to Accounts Payable, thus giving you a link between an invoice, its payment, and finally the amount spent. (This concept also works the other way around, see this sibling comment[1], where it's also extended into working with multiple accounts.)
[0] https://beancount.github.io/docs/the_double_entry_counting_m...
[1] https://news.ycombinator.com/item?id=46464893
iljya|1 month ago
However, if you have more than one account or debts, or budgets, then it becomes useful to track both sides of a transaction. If you track both sides of a transaction then you can easily answer questions like: 1. how much money do I have in my investment account? 2. how much debt do I have? 3. how much did I spend on recreational social activities?
You can track debts and investments separately, but then you are still making two entries just in two places.
I think many people have few enough debts and investment account that they track these separately, and the third question, budgeting, can be simplified if each vendor is only ever considered for a single budget, for example, all your flights are part of your vacation budget, and you don't care to break out a flight to a career related conference.
Etheryte|2 months ago
RedNifre|1 month ago
2. For performance, you would create indices based on the accounts in the transaction table, so you could easily check what's going on e.g. in your groceries account or how much you spent at the supermarket.
3. Double entry accounting was formalized in the 15th century, way before computers became a thing, but bound paper books were already somewhat affordable. The way you'd do accounting is like this: During the business day, you would write down your transactions as they happen, into a scrapbook, similar to the transactions table mentioned above. At the end of the day, you'd do the "double entry" part, which means you take your "index" books where each book is about one account and you transcribe each transaction from your scrap book into the two books of the two accounts that are mentioned in the transaction, e.g. if you spent $10 from your groceries account into the supermarket account, you'd double enter that transaction both into your "groceries" book and into your "supermarket" book. Then, when you want to check on how much you spent at the supermarket in a particular month, you could easily look it up in the supermarket book (this would be very tedious when using the scrap book). These account centered books are like the indices in the database mentioned above.
So the double entry part is about clever index building for making it easier and faster to understand what's going on in your accounting system.
phil-martin|1 month ago
It wasn't wrong of course, there is so much history, ingenuity and the invention of double entry accounting, but I just couldn't get my brain to understand it.
The way the concepts settled in my head was: double entry accounting is just an excellent way of modelling a graph with nodes and edges. Accounts are nodes, transfers are edges. Every edge has a source and a destination.
For a paper ledger, each column is graph node, and each row is a graph edge.
That was enough for me to be able to learn the rest of the things I needed for interacting with the accounting world.
But I also realised that that description really only helps a very small part of the population. :D It makes things so much worse for most people.
"Hey could you help me understanding this accounting thing?"
"Sure, but first thing is, let's learn graph theory! You know who Dijkstra right?"
Whole buckets of nope.
But thats a digression from your actual question - whats the point?
It presents a rigid set of rules of recording transfers, everything has to have a from account and to account (i.e. a graph edge), every row must add up to zero.
Because of that, it makes it easy to spot any mistakes in data entry. If any of your rows dont add up to zero - then you've made a mistake.
rmunn|1 month ago
To explain that, I'll rephrase, in my own words, the restaurant example from the article, because that was a good example of the concept. Let's say you went to a restaurant with two friends and decided to split the $90 bill three ways, but your friends didn't have $30 in cash on them at the time. You put the whole $90 on your credit card, and your friends paid you back $30 each the next week: one on Monday, and one on Wednesday.
In single-entry accounting you might have written the following transactions:
Thing is, there's nothing to link those transactions together. If you look at these entries three years later, you'll probably be left scratching your head as to why Alice paid you back $30: there's no $30 transaction, so the $90 restaurant transaction won't jump out at you as the reason why Alice paid you back.But with double-entry bookkeeping, you'd write that as follows:
Thursday Jan 1st:
Monday Jan 5th: Wednesday Jan 7th: It's not always obvious when you're new to double-entry accounting which entries should be positive or negative, but if you remember the "must add to zero" rule you'll be more likely to get it right. Money flowing into an account is positive, money flowing out of an account is negative. For credit cards, the money flows "out of" your credit card and into the restaurant's ownership, so the sign should be negative. When you pay the credit card bill later, the sign will be positive on the credit card account (and negative on your checking account, thus again adding to zero) because money is flowing out of your checking account and into your credit card account.Now, look at that double-entry accounting. When you look at the Wednesday Jan 5th entry, and you see that Alice paid you back $30, you'll start searching for a $30 transaction earlier, and you'll pretty quickly find the January 1st and figure out that she owed you $30 because you had paid her share of the restaurant bill on the 1st. And even if the amounts don't line up (let's say she paid you $20 on Jan 5th and $10 on Jan 12th), there's still a "money Alice owes me" category which has a +$30 entry on the 1st, then -$20 on the 5th and -$10 on the 12th, all of which makes it pretty easy to figure out what Alice is paying you back for.
So by recording each entry in at least two places (it's not always exactly two places, e.g. the January 1st expense is recorded in four places total), you get more linkage between the items and it becomes a lot easier to see why the money was going out or coming in.
mfro|1 month ago
unknown|1 month ago
[deleted]
whattheheckheck|1 month ago
This was the cheapest and easiest way to account for stuff for me
Eliza33|1 month ago
[deleted]