[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

[probably_wrong]

And how about food? I can understand a book having a resale value I keep in my books, but once I've eaten the hot-dog I bought it is gone forever.

[chimeracoder]

> And how about food? I can understand a book having a resale value I keep in my books, but once I've eaten the hot-dog I bought it is gone forever.

Perishable and consumable food wouldn't be counted as an asset in the first place. You spend the money - it's credited to your asset account (reducing the value of your cash-in-hand) and then debited from your expense account (reducing the value of your equity - or, in more layperson's lingo, increasing the total sum of the expenses you incurred during that period).

[eviks]

Of course it would be, asset is anything of value, you're confusing with subtypes of assets. Just mujhe liability is anything you owe regardless of for how long

[chimeracoder]

> Of course it would be, asset is anything of value, you're confusing with subtypes of assets. Just mujhe liability is anything you owe regardless of for how long

If an office buys snacks on Monday for the office party on Friday, they're not counting it as an asset and depreciating it on their books.

If food production or delivery were part of the core business, it would be one thing, but in the context that OP's talking about, it would be overkill at best (and fraudulent, in extreme cases) to try and count a transient consumable as an asset on their books.

[eviks]

Depreciation isn't relevant here, again, you're confused in the types of assets, not all of them are depreciated, only some with some specific properties like time of expected user. Just read the definition of assets in any (accounting) dictionary, or try to record your snack purchase in real accounts and see which side of the balance sheet this account end up in (hint: inventories, assets).

[mulmen]

It’s been 15 years since I took an accounting course. Why would my bank account be debited when the balance went up? Is a debit not negative? Is the cash balance presented as a negative?

[halfcat]

> Is a debit not negative?

Indeed this is confusing to most people (myself included the first time I dealt with it), since if your phone company says they’re giving you a credit, you're getting money.

[awirick]

Your bank account is an asset for you, so debits increase the balance while credits decrease it. This is also called a "debit normal" account.

Liability accounts are tracked in reverse and are "credit normal". You increase the value (how much you owe) with a credit to the account and decrease the value (payments you receive) with a debit.

[galaxyLogic]

One way to think about is you always "credit" the source of the money.

If you get money from somebody you "credit" them for giving you the money. You say "I must give you credit for having done this".

If money goes into your bank-account you don't credit your bank-account because money didn't come from there it went there. If you don't credit the bank account you must be doing something else and that is called "debit". When money goes to your bank-account you "debit" it because now the bank-account is more "indebted" to you. You don't have the cash in your wallet but the bank-account is indebted to you by that amount.

From the view-point of the bank-manager things are of course reverse. When you put money into your bank-account the bank-manager "credits" you-the-account (in their books) for having done so.

I guess a crucial thing to realize is that your bank-account in your books is a different thing from your bank-account in the books of the bank. It seems like there is only one bank-account, but two different parties (you and the bank) each have their own version of that "account" in their book-keeping system.

A double-entry book-keeping system is "subjective" in that it always describes things only from the viewpoint of whoever it is who is doing the book-keeping.

[mulmen]

Thanks this explanation helps. Does that mean that from the banks perspective my deposits are a liability?

[hhshhhhjjjd]

Yes! Because you can remove your deposits from the bank and they also have to pay you interest on that balance. Your mortgage is an asset to the bank for the opposite reasons.

[someguydave]

Exactly, from the bank’s point of view every dollar you deposit is incurring indebtedness to you

[lottin]

In your books, your bank account is an asset, and therefore an increase in the balance is recorded with a debit. In the bank's books, it's the other way around.

[nolongerthere]

This is the best explanation, everyone else is giving wrong explanations that appear to be at least partially sourced from some AI.

[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".