Comment by pgt | Hacker News Reader

Comment by pgt | Hacker News Reader

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Ledgers are typically debit-normal from the perspective of the asset-holder. As a bank, your asset is my liability and vice versa, i.e. your mortgage (liability) is my asset (receivable), so it can make sense to model movement of funds as credit-normal to ease the construction of financial statements from the perspective of the bank.

By convention:

- Asset & Equity accounts are increased by Debits, decreased by Credits.

- Liabilities, Expenses & Income are increased by Credits, decreased by Debits.

Whichever convention you choose, consider that an Asset account like cash (Current Account) has to be funded from somewhere: either from a Owner Equity (investment in the business) or a Liability like a loan, so funds will flow from Equity -> Cash, i.e. credit Equity & debit Cash. To repay the loan, the flow is reversed: Cash -> Loan, i.e. credit Cash & debit Loan.

Thus holds the accounting equation that:

    Assets = Liabilities + Equity

(I build double-entry accounting ledgers for a living.)

Agree about most of your text with one note: Expenses are always Debits, thus they increased by Debits. Consider buying a can of CocaCola by cash: - you give your cash — its amount decreases, that is you credit your Assets:Cash account — money flow goes to Expenses account, let's assume Expenses:Food. In terminology of beancount this transaction will look like this:

Assets:Cash -1 USD Expenses:Food

From the perspective of the asset-holder, expenses are increased by Debits, yes - unless you're a bank and want to account for both parties with a single set of ledger entries.

For example, if you are a bank and I am your customer, then when I spend some of my money to buy your products, my Expense is your Income. My cash asset is your liability.

At scale, it can be convenient to construct statements for both parties by regarding the same entries as credit-normal. Alternatively you have to mirror all entries in a 99%-similar ledger, but reversed.

> From the perspective of the asset-holder

Does it matter who holds an asset when determining whether to debit or credit an expense? I would think the question is who is making the expense, not who holds an asset, which may or may not be used to pay the expense.

In any case, unless you are talking from multiple perspectives, which would be unnecessarily confusing, expenses and income have opposite signs.

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