Recording the twofold aspect of transactions.

[Robert Graham Merkel]

Phillip J Shelton writes:
 > I am not sure if this is a user or devel subject so please forgive me if
 > I have used the wrong list.  I am also sorry about the lenght of this
 > missive.
 > 
 > I have noticed, and suffered it my self, that a lot of new users of the
 > double entry system seem to be confused as to why it is needed and how
 > to use it.  I bought a book (that is going out of print) that helped me
 > greatly.   If any of the following is going to be of any use I can
 > contact the publisher to see if we can get permission to repoduce it in
 > the gnucash docs.
 > 
 > First, who the record is for.
 > 
 >     ... In the analysis of transactions, it is necessary that they be
 > recorded from the viewpoint of the firm itself, [in our case, the user]
 > otherwise the directions of the flows will be reversed ...
 > 
 > Then what is flowing and which way is it going.
 > 
 >     ... all transcations involve a flow of resources of cash into the
 > firm and a reverse flow of cash or resources out of the firm to the
 > particular source concerned.  Thus, when resources are purchased from
 > the factor markets, resources flow in and cash is paid out; when the
 > firm sells goods and services, resources flow out and cash flows in. On
 > the input side, all inward flows of purchased resourses are debited in
 > the relevant resource accounts, and the related cash outflow to the
 > factors is credited in the cash account.  On the output side, all
 > outward flows of goods and services are credited in the sales account,
 > and the cash received in return is debited to the cash account. ...
 > [examples left out] only two rules are needed for determining the debit
 > and credit aspects of a transaction --- all inward flows are debited in
 > the appropriate account, and all outward flows are credited in the
 > related account. ... debit the account into which the item flows (where
 > to?) , and credit the account from which it flows (where from?). The
 > credit account can be referred to in general terms as the source
 > account, and the debit account as the inflow account.  These two rules
 > for debit and credit are completly general and they cover all credit
 > transactions plus all internal transfers of values ...
 >     It should be noted that each transaction must affect two accounts.
 > Every transaction must have a debit in one account and an equal credit
 > entry in another if the two-way flow aspects are both recorded . ...
 > 
 > A.D. Barton, The Anatomy of Accounting, third edition. Universtiy of
 > Queensland Press
 > 
 > If the above is usefull then I will try to get the permision to allow us
 > to use it.

It's a good explanation, but we'd probably use something a little more
GnuCash-specific and less company-oriented, so it's probably not
necessary to do so.  

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Robert Merkel	                           rgmerk@mira.net

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