[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.)

[fauigerzigerk]

It would be very confusing to label expense accounts as "liability".

Liability has a very specific meaning (debt) and expenses do not necessarily increase liability.

And then there are accounts that can be assets or liabilities depending on their balance.

(Besides, very small displays a thing now too)

[lisper]

> It would be very confusing to label expense accounts as "liability".

Why?

> expenses do not necessarily increase liability.

That depends on what you mean by "expenses". If you give someone an expense account, that is a commitment to make payments for expenses, i.e. debt, so it's a liability. When you actually pay for those expenses (or reimburse someone for incurring those expenses) you are paying off debt and reducing your liabilities. Why is that confusing?

> And then there are accounts that can be assets or liabilities depending on their balance.

Sure. So? An asset account is one which represents assets when its balance is positive, and a liability account is one which represents liabilities when its balance is positive. A negative balance in an asset account is a liability, and a negative balance in a liability account (like a credit card, for example) is an asset.

You could do away with this convention and just represent all assets as positive values and all liabilities as negative, but people are used to distinguishing "money that you have" from "money that you owe" and having both of those represented by positive numbers in the usual case.

> very small displays a thing now too

Not for accountants.

[fauigerzigerk]

>That depends on what you mean by "expenses". If you give someone an expense account, that is a commitment to make payments for expenses, i.e. debt, so it's a liability.

This is not what expense account means in accounting. An expense account is an account that records expenses incurred such as your AWS bill, rent payments or salaries paid.

These are not liabilities and labelling them as such is more than confusing.

>Sure. So? An asset account is one which represents assets when its balance is positive, and a liability account is one which represents liabilities when its balance is positive.

Exactly, so how do you label it if it can be either? The only way I see is to label it according to its main purpose and accept that it's sometimes semantically wrong. That's effectively what the chart of accounts does.

[lisper]

> An expense account is an account that records expenses incurred such as your AWS bill, rent payments or salaries paid.

Ah.

> These are not liabilities

Well, that depends.

Every expense that involves an invoice or purchase order that is not paid immediately in cash must be recorded as two transactions. The first transaction is the issuing of the invoice or the PO. That transaction is a liability to the buyer, an asset to the seller. The second transaction is the payment of the invoice. That transaction involves a decrease in the buyer's cash reserves (asset) and a discharge (decrease) of the the buyer's liability, and an increase in the seller's cash reserves (asset) and a decrease in the seller's accounts receivable (asset).

When I look in "accounting for dummies" type web sites, they all give examples of expense accounting as a single transaction. That is deeply broken. If you try to record an expense as a single transaction then your balance sheet is going to be wrong if you have any unpaid invoices, either payable or receivable. In fact, recording an expense as a single transaction doesn't even work if you're paying cash in a brick-and-mortar store unless you literally keep all your cash as physical cash in a safe because ATM withdrawals are transactions that need to be recorded too.

In a situation like an employee being reimbursed for a travel expense there are at least four transactions:

1. The employee using their credit card to buy something (liability to the employee, asset to the merchant)

2. The merchant getting paid by the credit card company (converting a receivable into cash, i.e. trading one asset type for another)

3. The employee submitting their expense report (invoice) to the company for reimbursement (liability to the company, asset to the employee)

4. The employee getting paid by the company for the incurred expense (company converts asset into a discharge of liability, employee converting receivable into cash)

I say "at least" because if there is a credit card involved then step 2 actually involves a bank issuing a loan to the credit card holder, so there is an additional entity involved, and more transactions on their end. And of course when I say "cash" I actually mean "demand deposit" which is not quite the same thing, though people tend to conflate the two.

[omichowdhury]

I think you’re missing the balancing that needs to happen that’s internal to each party’s books. That’s where an expense account would come in, using the accounting equation:

               ∆ State = ∆ Change
                       ↓ 
  Assets - Liabilities = Income - Expense

For example you had:

> 3. The employee submitting their expense report (invoice) to the company for reimbursement (liability to the company, asset to the employee)

So looking just at the company’s books:

  $0 Asset - $100 Liability = $0 Income - $100 Expense
                -$100 State = -$100 Change

Then in step 4: > The employee getting paid by the company for the incurred expense (company converts asset into a discharge of liability, employee converting receivable into cash)

The company’s books would be:

  -$100 Asset + $100 Liability = $0 Income - $0 Expense
                      $0 State = $0 Change

So the net impact on the ledger would be (putting these entries together):

  -$100 Asset - $100 Liability + $100 Liability = $0 Income - $100 Expense
                     -$100 Asset - $0 Liability = $0 Income - $100 Expense
                                    -$100 State = -$100 Change

Which is exactly what the company’s books would have recorded if they were using cash accounting instead of accrual. They spent $100 on an Expense.

So I think it’s super important to make a distinction between Liability and Expense Accounts because they’re on different sides of the accounting equation - State and Change. The same distinction applies to Asset and Income Accounts. [1]

[1] https://fragment.dev/docs#design-your-ledger-ledger-accounts