[lisper]

It doesn't matter whether you encode the signs in the terminology or in the equation. If you say X + Y = 0 i.e. X = - Y and stipulate that a transaction adds to X and subtracts from Y, that is completely equivalent to saying X - Y = 0 i.e. X = Y and stipulating that a transaction adds to both X and Y.

[fauigerzigerk]

Sure, but if you want to keep your terminology consistent with the math, you would then have to make a distinction based on the types of the accounts involved in a journal entry.

E.g, this would be correct:

  increase bank
  increase equity

but this would be incorrect:

  increase bank
  increase receivables

If all numbers are positive then there would be no way to check whether the journal entries balance out without considering the account types.

If, on the other hand, you encode the sign in the amounts then the sign would disagree with the semantics of the label and you would have to flip signs based on the account type at the time of recording the entries:

  increase bank $100
  increase receivables -$100

I don't suppose this is what you meant.

[lisper]

> you would then have to make a distinction based on the types of the accounts involved in a journal entry

That's right. The distinction is based on whether the account represents an asset or a liability.

> increase bank

> increase receivables

You would have to define what you mean by "bank" in order for this to make sense. But in general, receivables represent money that a company is owed from orders that have not yet been paid for, i.e. they are a effectively a loan from the company to its customer, and like all loans they are an asset to the creditor, which in this case is the company. When a payment is made against an outstanding receivable, the receivable is debited (the loan balance is reduced) and the company's cash balance is credited. Because cash and receivables are both assets, these add together and cancel out just as you would expect.

The rules under my system are still very simple:

1. Every financial asset is someone else's liability, and vice versa. Cash is an asset to its owner and a liability to society at large. Loans are assets to the creditor and a liability to the debtor. Purchase orders are a liability to the purchaser and an asset to the supplier. Etc. etc.

2. Every financial transaction is a change in someone's liability coupled with a change of equal magnitude in someone else's assets.

3. The absolute value of your assets minus the absolute value of your liabilities is your net worth.

A completely equivalent formulation is that liabilities have negative signs attached to them, and then your net worth is the sum of your assets and liabilities, but this is just a question of where you hide the negative sign. A - B is the same as A + (- B). It really doesn't matter except insofar as one convention might make it easier to think about things. Most people are used to seeing their liabilities expressed as positive numbers, i.e. if you owe money on your credit card bill, the balance due is positive, and if you have a credit balance, the balance due is negative. But it's all just a shell game with where you hide the signs.

[omichowdhury]

Yup, this is the same way of thinking I described here: https://news.ycombinator.com/item?id=39994335

Instead of grouping together accounts into credit-normal and debit-normal, to make things balance, I think it’s more intuitive to group accounts by usage and use negative numbers.

Asset and Liability accounts appear on a Balance Sheet and are called State accounts. State accounts track the current state of your net worth.

Income and expense accounts appear on an Income Statement and are called Change accounts. Change accounts since they track why your net worth changed.

[fauigerzigerk]

>You would have to define what you mean by "bank" in order for this to make sense.

Bank means bank ledger account. The bank balance and receivables cannot both increase because they are both assets.

>That's right. The distinction is based on whether the account represents an asset or a liability. ... A completely equivalent formulation is that liabilities have negative signs attached to them

Understood. My point was merely that you cannot just change the labels.

The downside of this approach is that you would no longer be able to see whether a journal entry balances out based on the labels alone.

[lisper]

> The downside of this approach is that you would no longer be able to see whether a journal entry balances out based on the labels alone.

Yeah, well, there is this cool new invention called a "digital computer" that can help a lot with that. You don't have to keep the ledger on paper using quill and ink any more.

[fauigerzigerk]

Absolutely, but digital documents are not accounting software either. Communication would definitely get harder if we lose debit/credit and with it the left/right visualisation of T accounts.

Perhaps some simple convention would help, like attaching +/- to account names. We do have account numbers and accountants know their meaning but most people don't.

[lisper]

> like attaching +/- to account names

Or "asset" and "liability". (Big displays are a thing now too.)