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add some of richards changes, and some of my own (linas).

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git-svn-id: svn+ssh://svn.gnucash.org/repo/gnucash/trunk@2748 57a11ea4-9604-0410-9ed3-97b8803252fd
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Linas Vepstas
2000-09-01 23:55:58 +00:00
parent 3ee49ead90
commit c43a842818
1 changed files with 72 additions and 58 deletions
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doc/sgml/C/xacc-doubleentry.sgml
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@@ -7,15 +7,12 @@
<SECT1>
<TITLE> Why Use Double Entry Accounting?</TITLE>
<PARA> </PARA>
<PARA>If you are a novice to accounting, you <EMPHASIS>need</EMPHASIS> double
entry accounting to help you keep your accounts straight. It
will keep you from creating an unverifiable mess. It will make
your life easier, and it will make this software easier to
understand and to use.
</PARA>
<PARA>And if you are an experienced accountant, you would likely
feel <EMPHASIS>ill</EMPHASIS> at the thought of life without it.
<PARA>
Double-entry accounting helps you avoid mistakes. This is why
professional accountants use it. If you are new to accounting,
it will help you organize your records and keep you from creating an
unauditable mess. If you are an experienced accountant, then you
probably won't want to imagine what life was like before it.
</PARA>
</SECT1>
@@ -24,73 +21,90 @@
<PARA> </PARA>
<PARA>Double entry bookkeeping is an accounting methodology
introduced in the 13th century to to make sure that each
accounts and indeed <EMPHASIS>each transaction</EMPHASIS> is properly
balanced.
</PARA>
<PARA>When these are all required to balance, the likelihood of
data-entry errors is greatly reduced. For large, complex sets
of accounts with many transactions, it is distressingly easy to
make errors that may go undetected for a long time, and be
appallingly difficult to track down, even when double-entry
bookkeeping is used.
transaction and account is properly balanced.
It greatly reduces the likelihood of data-entry errors.
</PARA>
<PARA>A double-entry transaction is a transaction that contains
entries for two (or more) accounts that balance against one
another. One account is <EMPHASIS>debited</EMPHASIS> by an amount exactly
another. One account is <EMPHASIS>debited</EMPHASIS> by an amount
equal to what the other is <EMPHASIS>credited.</EMPHASIS> By ensuring that
each transaction balances, a balanced set of accounts is
guaranteed. This doesn't prevent you from having errors, but
certainly eliminates the large class of <EMPHASIS>I forgot to enter
that part of the transaction</EMPHASIS> errors.
guaranteed. This doesn't totally prevent errors, but it does
eliminate the class of <EMPHASIS>"I forgot to enter
that part of the transaction"</EMPHASIS> errors.
In the course of maintaining large, complex sets of accounts with many
transactions, it is very easy to make errors that may go undetected for
a long time, and be appallingly difficult to track down, even when
double-entry bookkepping is used.
</PARA>
<PARA>Double-entry may be introduced in a more intuitive way via
the notion of a transfer from one bank account to another,
where an amount is taken out of one bank account and deposited
in the other. This is effectively the "rule" of double entry
accounting; if you add something in to one account, you <EMPHASIS> have</EMPHASIS> to have another component to that transaction to
balance it.
</SECT1>
<SECT1>
<TITLE> The Rule of Double-Entry Accounting</TITLE>
<PARA>The intuitive way of understanding double-entry
is as a transfer from one bank account to another,
where the amount taken out of one bank account must equal that
deposited in the other. This is effectively the "rule" of double entry
accounting; if you add something in to one account, you
have to subtract it from somewhere else.
When this is done regularly and consistently, this results in the
magical identity of accounting:
<ENVAR>Total of Debits = Total of Credits.</ENVAR>
</PARA>
<PARA><EMPHASIS>Not-quite-an-aside:</EMPHASIS> If you look at your bank
statements, they are typically written up from the <EMPHASIS> bank's</EMPHASIS> perspective, which is exactly <EMPHASIS>opposite</EMPHASIS> to
yours. For instance, when you put money in, establishing a
deposit, this establishes a <EMPHASIS>DEBT</EMPHASIS> on their part.
As a result, "newcomers to accounting," who only see the terms
"Debit" and "Credit" on statements from their bank seem to get
fairly confused about this.
<PARA>There is another important aspect to double-entry that
should also be understood: to get the complete picture,
you must also track income and expense. When you deposit
your paycheck into your bank account, that money didn't
come 'from thin air'. Thus, when you record that bank deposit,
you shouldn't fool your accounting system about that thin air.
You should record your income in an income account:
the money that goes into your bank comes from your income
account. Once again, adding in one place subtracts from another.
By keeping track of your income and expenses, you can ultimately
keep track of your equity: Simply put, after years of earning and
spending, what you have left is what you got in, minus the
amount you spent.
This is discussed in more detail in the
<LINK LINKEND="XACC-INCOMEEXPENSE">Income/Expense</LINK>
chapter.
</PARA>
<PARA>The perhaps less obvious extension is the notion that double
entry can be used to represent income and expenses as well as bank
transfers. See the <LINK
LINKEND="XACC-INCOMEEXPENSE">Income/Expense</LINK> page for a more
detailed discussion of that.
</PARA>
<PARA><ANCHOR ID="IDENTITY">In a traditional system that records
debits and credits separately, the identity that all
transactions are required to satisfy is that <ENVAR>Total of
Debits = Total of Credits.</ENVAR>
</PARA>
<PARA>The fact that the identity requires merely that the <EMPHASIS> total</EMPHASIS> balances means that it is a little bit misleading to
call this <EMPHASIS>double</EMPHASIS>-entry bookkeeping; it would be
<PARA><EMPHASIS>Insider knowledge:</EMPHASIS>
GnuCash treats "Debits" as positive values, and "Credits" as
negative values, and so the identity of accounting
simplifies to
<LITERAL>value<SUBSCRIPT>1</SUBSCRIPT> +
value<SUBSCRIPT>2</SUBSCRIPT> +
value<SUBSCRIPT>3</SUBSCRIPT> + ...
= 0</LITERAL>
Calling this
<EMPHASIS>double</EMPHASIS>-entry bookkeeping is a bit misleading;
it would be
somewhat more accurate to call it <EMPHASIS>multiple-</EMPHASIS>entry
bookkeeping. Unfortunately, there's 700 years of history of use
of the term, which sufficiently discourages changing it. (To
think some newcomers to UNIX think that it has some crufty old
bits of oddness. Hah! We've got UNIX beat by the better part of
a millennium!)
of the term, which sufficiently discourages changing it. (And you
thought parts of Unix were criufty and old!)
</PARA>
<PARA>GnuCash treats "Debits" as positive values, and "Credits" as
negative values, so that this identity simplifies to <LITERAL> value<SUBSCRIPT>1</SUBSCRIPT> + value<SUBSCRIPT>2</SUBSCRIPT> + value<SUBSCRIPT>3</SUBSCRIPT> + ...
= 0</LITERAL>
</PARA>
<PARA><EMPHASIS>Insider knowledge:</EMPHASIS>
Bank statements are frequently written up from the
<EMPHASIS>bank's</EMPHASIS> perspective, which is
exactly <EMPHASIS>opposite</EMPHASIS> to
yours. For example, when you make a deposit at the bank,
you are giving them money which they promise to pay you back
someday. To the bank, your money is a debt: it is money that they
owe you. Thus, when you receive a statement from them,
you may find the columns to be oddly mislabelled: your
deposits are marked as 'debits', and withdrawls as 'credits'.
This practice is particularly common at older and more staid
banks.
</PARA>
</SECT1>
<SECT1 ID="XACC-DOUBLEUSE">
<TITLE> Using Double Entry</TITLE>