[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.

[BayesianDice]

And when the book is ruined, she credits her books account (an asset account) $20 and debits her "depreciation/impairment" account (an expense account) $20.

[victor106]

> She -credit's her books account $20 and her net worth goes down by $20.

Stupid question maybe.

Is net worth an account too? Where does the debit side of Alice’s credit go?

[Delk]

Cash might be an account, and a bank account might be another one. So if Alice buys with cash, it'd be $20 debit in the books account [1] and $20 credit in the cash account. Or if she paid for the book with something that directly takes the money from the bank account, the credit would be to the bank account.

Note that "credit" in double-entry bookkeeping means a transfer from that account and debit means a transfer to that account. So the debit side of buying the book goes into the books account. The credit entry is for whatever account value is transferred from in the transaction.

I'm not sure I'd say that Alice's net worth goes down by $20 when she buys the book since the financial value of the book would technically also be part of her net worth.

I also wouldn't consider "net worth" to be a single account.

Technically net worth would be the sum of all of Alice's assets in cash, bank accounts, real estate, books and other non-financial assets etc., minus all her liabilities. Each of those might be a separate account in the bookkeeping.

Disclaimer: I'm not an accountant.

[1] There might not be a separate account for books unless Alice is a real books aficionado and a meticulous bookkeeper, so the account might also be "books, movies & music", "entertainment & culture", or just "personal items" depending on what granularity is desired/needed.

It might also be that such items are not considered to have financial value in the system (which would probably be the correct unless Alice collects books) and the debit ("to") would actually go in some kind of an (abstract) expenses account instead. Either way, both the value leaving cash/bank and the value "entering" some other account would be entered.

[kaynelynn]

In a real world example you would be correct. This would fall under the “equity” of the accounting equation assets = liabilities + equity. The equity part can be confusing but is where many of the non obvious second entries end up.