[ale] OT: Bank of America

[Kenneth W Cochran]

>Date: Fri, 21 Nov 2003 14:45:03 -0500
>From: Bob Toxen <bob at verysecurelinux.com>
>To: Atlanta Linux Enthusiasts <ale at ale.org>
>Subject: Re: [ale] OT: Bank of America
>
>On Fri, Nov 21, 2003 at 01:20:39PM -0500, Jeff Hubbs wrote:
>> Any good quickie tutorials on double-entry?  I'm thinking about starting
>> to use SQL Ledger.
>I don't know of any.  I learned from the text book for the Accounting class
>that my Accounting Major GF at the time was using.
>
>The basic idea is that any transaction involves moving money or "stuff" with
>a specified value from account to another.  Thus, the amount is recorded
>in two different columns, with one column for each account.  For example,
>one account (column in the paper or electronic ledger) would be the balance 
>in the business checking account.  Others would be "Office Supplies",
>"Computer Supplies", "Salary", etc.
>
>When you buy a $3 stack of note pads you credit Office Supplies because it
>you now have $3 worth of stuff and debit the checking account, usually
>represented as the "balance" on the ledger.

Really more the "reverse..."
>From my college accounting class(es), just about the 1st
"rule" the professor mentioned was: "An *increase* in an
*asset* is a *debit*."

Therefore, using the above example of office supplies,
you buy some office supplies & pay for it from checking:

Office Supplies is an asset, so you *debit* that.

We have to offset that total with a credit someplace...

So you *credit* "cash" (cash being the checking account).

This takes care of things like taxes & shipping too,
which are typically expenses; for example, if there were
some sales tax on that item & you wanted to track it,
you would *debit* something like "Sales Tax Expense"
while *credit*ing cash that amount as well.

>The beauty of double entry accounting is that you then "balance the books"
>by summing up each column and the summing across the last row.  The sum of
>the last row should equal zero since you started with zero.  By having the
>"double entry" of each transaction (on at least two different accounts),
>almost any error will show up as accounts not balancing.  Thus, it's much
>harder to make an unintentional error.

Quite correct.

>At tax time, the final row is that data that you give to your accountant
>or tax software.  It also has the data in a form that the IRS will accept
>if they do an audit.
>
>
>> - Jeff
>Bob

-kc