Comment by sago | Hacker News Reader

Comment by sago | Hacker News Reader

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This has been an interesting conversation with several people. I am really surprised how much negative numbers are confusing or interpreted as my idiosyncrasy.

> I’ve seen financial accounts quite more complex than two lines

Definitely.

For hundreds of years the convention has been columns. Credit values in the right-hand column, debit values in a left-hand column. The column is the label of which type of money it is. Most accountancy software (other than very simple personal tracking apps) use this when displaying.

Your printed bank statement probably does (and it may label the columns credit and debit as well, though never line by line, iirc). Mine did back when paper was the thing.

Digital bank statements usually do use negative numbers (DB being negative, as I've been saying). You are used to seeing this, but not used to thinking in your own accounting terms rather than theres. Which is fine. But there is a reason that accountancy education has to undo that assumption.

I have no problem with negative numbers.

But most people would find your idea of using negative numbers for assets rather idiosyncratic.

It's more natural to say that the assets of Goldman Sachs are $1trn than to say that they are -$1trn, for example.

It's definitely not my idea! It wasn't Goldman Sachs, but I did a consultancy 15 Years ago for a large bank (my little job was a long way from programming the core, but used it extensively). Their system stored debit as negative numbers. That's when I learned it and had the aha moment when everything instantly simplified. Since then all the accounting software I've seen the inside of do.

Most lay-people find double entry in accounting idiosyncratic. It has this bad reputation for being full of special case rules.

It is interesting that the one comment I got from an accountant on here it seemed fine with debit as negative numbers.

Goldman Sachs absolutely know that they have DB$1tn! Anyone who thinks it is either a credit account or just a bare number is not going to be dealing with that!

Thanks for carrying on the chat.

> It stored debit as negative numbers.

Did it display assets in the balance sheet as negative numbers?

> the one comment I got from an accountant on here it seemed fine with debit as negative numbers

Was that accountant fine with assets as negative numbers?

> Goldman Sachs absolutely know that they have DB$1tn!

The did have $1tn in their balance sheet. No DB, no CR. Just $1tn.

> Did it displayed assets

It's an API. There are many tools built on top of it, many with UIs. I'm sure they display things in many different ways for people internally and externally. The system I was working was back-end. It used negative numbers for debits. And it was really important you didn't confuse credit and debit numbers.

> Was that accountant fine with assets as negative numbers?

I find it hard to believe they didn't understand that's what Using negative numbers for debits means. They would be pretty aware that assets are debit accounts.

> The did have $1tn in their balance sheet. No DB, no CR. Just $1tn.

Did they have a complex balance sheet (I.e. beyond that just a couple of lines summary) with no columns? How do they represent a balance if you couldn't tell which were credits and debits?

For the record, this is what the consolidated balance sheet looks like: https://imgur.com/a/i8q0Fa2

Neat. Thank you. I get what you're saying now.

And that makes sense. You can see the balance. Because it will balance. Or you'd know which of the things were debit accounts and which went credit accounts.

Yep.

But I definitely bet it's not raw unsigned/untyped numbers behind that document! I suspect we've just been mismatching on different levels: I began this discussion about developers understanding double entry bookkeeping. I would be surprised if you could get very far if you didn't understand the difference between debit and credit. But your pushback makes sense. Thank you.

I do understand the difference between debit and credit. The point is not whether you can balance the books looking at them when they fit in a single page. The point is that in a balance sheet assets appear as $x (where x is rarely negative, an asset with negative value would become a liability).

People want assets to be positive in the balance sheet. This may be a convention but it's a reasonable convention. I don't think you're helping developers who try to understand accounting by telling them that assets are negative quantities (it may make sense as an implementation detail, but not so much as an accounting concept).

If you are using a negative numbers you can do it in three ways.

1. positive numbers represent the default for an account (A positive number in a debit account is a debit, but a positive number in a liability say, is a credit). This is done a lot. But he causes a lot of rules about when to add and went to subtract what the balance with what. I think this is why they lot of double entry bookkeeping and has a hard reputation. Certainly if you coded it you would have to code all those rules manually.

2. The approach I'm used to of having negative numbers in the debits and positive credits. This makes all the double accounting balancing much simpler. But I can see it may confuse some people when assets are negative.

3. Make credits at the beauty of an debits positive (incidentally I only today learned that beancount does it this way). Again balancing and double-entry accounting becomes simpler. Now money in the bank would be positive, like your bank statement. But sales income would be negative (it is a credit). I wonder if that would confuse people.

So maybe that's why UI should make everything positive and undifferentiated. But given the amount of time the Accounting 101 has to drill in all the rules of what

> 2. The approach I'm used to of having negative numbers in the debits and positive credits. This makes all the double accounting balancing much simpler. But I can see it may confuse some people when assets are negative.

So, if people were able to overcome their confusion, would you have balance sheets written like this?

   $ in millions
   
   ASSETS                                        LIABILITIES AND SHAREHOLDERS' EQUITY
   
   Cash and Short Term Investments   -133546     Deposits                      117756
   Other Assets                      -859422     Other liabilities             784947
   ------------                      -------     -----------------             ------
   Total Assets                      -992968     Total liabilities             902703

                                                 Shareholders' equity           90265
                                                 ====================          ======
                                                 Total liabilities
                                                 and shareholders' equity      992968

If you really want to change the signs in one of the sides, so instead of getting the same totals they sum to zero, it would make much more sense to do it the other way: keep assets positive and let liabilities be negative (as other commenters have suggested).

   $ in millions
   
   ASSETS                                        LIABILITIES AND SHAREHOLDERS' EQUITY
   
   Cash and Short Term Investments    133546     Deposits                     -117756
   Other Assets                       859422     Other liabilities            -784947
   ------------                       ------     -----------------            -------
   Total Assets                       992968     Total liabilities            -902703

                                                 Shareholders' equity          -90265
                                                 ====================         =======
                                                 Total liabilities
                                                 and shareholders' equity     -992968

But one property of the usual presentation is lost: equity is no longer equal to net assets (which are $90265mn). You would need to change the sign of equity when considering it as an asset.

> But sales income would be negative (it is a credit). I wonder if that would confuse people.

It does tend to cause some confusion, but IMHO less than you would get with negative asset balances, much less the traditional version where "credits" and "debits" have different signs depending on the type of account and nothing ever just sums to zero.

The less confusing way to think of it is that an income account represents not "how much income have I received" but rather the source of the income, e.g. your employer or customer. They paid you, so they have less than they started with.

⋄ Money moves from employer to me: decrease "Income:Employment" and increase "Assets:Cash".

⋄ Money moves from me to my landlord: decrease "Assets:Cash" and increase "Expenses:Rent".

⋄ Deposit money at the bank: decrease "Assets:Cash" and increase "Assets:Bank:Checking".

⋄ Take out a loan: decrease "Liabilities:Loan" (negative since I owe them money) and increase "Assets:Cash".

Note that Income and Expense account balances are relative—which is why it makes sense for Income balances to sometimes be negative, and why these accounts are zeroed out at the end of the reporting period with transfers to or from equity—in contrast to most other accounts which have absolute balances.

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