I see, sorry. Thanks for clarifying your question.

Transactions always balance. Money always comes from somewhere, and it always goes to somewhere. Total debit always equals total credit.

In a double entry accounting system you have to say where that $200 came from.

Did it come from a sale (you sold your work, an item), a loan you took, someone you loaned money yourself, or an investment in your company.

In double accounting it always balances.

Here I am talking debit and credit because this is nothing to do with my point about positivity or negativity. This is how double entry bookkeeping works.

If you make all the numbers positive, then the total credit has to equate ('balance') with the total debit.

So treating debit as negative and credit as positive, means 'balancing' is just summing to 0.

Before double entry bookkeeping was invented in the Renaissance, single entry accounting just kept separate lists for all things. This works for basic tracking of money. For individuals particularly. But has massive weaknesses for tracking where money is coming from how it moves around, and making sure there aren't errors. Money doesn't come out of the blue. Which is why it is the business standard. And the legal requirement in most of the world. One of the most amazing and significant human innovations, IMO.

The credit and debit/what to add/what to subtract rules are only because double entry accounting was invented before use of negative numbers (they were only a weird mathematical curiosity at the time).

So I am not reinventing anything.

I still don't get it, sorry. So I worked and earned $200 for my work. It (obviously) came from somewhere—that "somewhere" being the pocket of the dude that paid me. But why is that relevant here? Am I not doing accounting properly until I start tracking what's in others' pockets'? I need to make an "account" for that dude and write down a debit of $200 for him just because he gave me $200 and the sum just has to be $0, or else some catastrophe happens? Isn't that nonsensical?

I suspect the misconception might be that you think individual accounts must balance (Or think that what I'm saying). Transactions always balance, companies always balance.

In double entry accounting you track where money came from to you. You are right in not having to worry where they get their money from. But you do have to track how/why it came to you.

You will have an account in your accounting of 'income' (it's usually called 'Revenue'). If you have even the slightest complexity in your business, you will have many income accounts. Some businesses will definitely track at the level of detail where they have accounts for each customer, so they can see who purchased how much.

Each transaction balances.

Each line in a transaction is associated with an account.

So if you have done 50 weekly transactions of:

Revenue>Consulting $1,000CR

Assets>Bank $1,000DB

Each one balances.

But in total you will have $50,000CR in Revenue>Consulting and $50,000DB in Assets>Bank, but your company will still balance.

If you pay yourself $45,000 in salary from that, let's say in one go at the end of the year (to save me typing) you would have a transaction:

Assets>Bank $45,000CR (it came from your bank account)

Expenses>Salary $45,000DB (it went to your salary)

So at the end, your accounts are:

Assets>Bank $5,000DB

Revenue>Consulting $50,000CR

Expenses>Salary $45,000DB

This still balances. Double accounting always balances companies and transactions.

Historically it balances credits and debits. All I'm saying is it makes more sense to think of debits as negative and credits as positive, and all the math becomes much much simpler. Which is how accounting software is written.

Ah okay thanks a ton! I think that clears it up. So basically:

- The idea is that every source/destination ("node") of funds keeps their own account for every node they deal with. And every transaction ("directed edge") necessarily needs to be tracked by both accounts in an equal and opposite manner.

- This is mainly only useful for businesses, as they generally have multiple sources of income (and/or multiple creditors) and need to be able to explain/track them. (At least as far I can see, I don't really see much of a point in doing this for the average person.)

Yes on both fronts. Thanks for continuing until we've got on the same page.

The only slight curve ball in your part one is that transactions are not always between two accounts. The joke is that 'double entry' sometimes has more than two.

The classic example is sales tax. E.g. a transaction:

Revenue>Product $100CR

Liability>Sales tax $5CR

Asset>Bank $105DB

(Although the specific form/standard categories will massively depend on how sales tax works in your jurisdiction.)

There are plenty of other examples (in my consulting: the customer paid some their bill in advance, or I pay a bill in a different currency and have to pay a fee).

So I like the idea of making it a topology question, but it would be nice if it were only two.

Yeah I almost mentioned multiparty transactions too, but thought I'd keep it simple since I got the crux of it :) thanks!

That's easy. The $200 would be income (that had no associated expense!)

So, you credit your income account (income generally reflects your effort "going out" - did you have to make someone like you to get a gift?)

And you debit your cash account $200. Everything is balanced.

At the end of the year, you close your books by debiting income and crediting owner's equity. That's you. Congratulations!

(See my post on debit/credit above).

If you receive money out of the blue, then you credit your "Received Money Out of the Blue" account and debit your "Cash" account.

An account doesn't have to be money that you actually owe someone and have to pay back, but regardless of whether you have to pay the money back or not, you still want to track where the money came from and where you put it.

The amounts have to balance because you can't create or destroy money unless you are the Federal Reserve.