The trouble with double-entry...

[Robert Uhl]

Rod Engelsman <rodengelsman at ruraltel.net> writes:
>
> ...accounting is that it doesn't have the mechanisms to accurately and
> easily deal with certain real-life situations.

I rather doubt it, since it's the method of accounting used by
honest-to-goodness accountants...

> So if I buy 100 shares of XYZ stock and the price subsequently
> doubles, where does that extra value come from? Is that an income?

Yes: it's an unrealised gain.

> But that's not real money, is it?  You can't buy groceries with it or
> pay the rent.

You can, when transfer money from stock and into chequing or cash or
whatever.  That is, stock is just another asset, and like any asset its
value fluctuates.

> And just the reverse if the price goes down.  Where did the money go?

It leaves the stock and goes back into unrealised gains (or whatever).

> Does it wreck your budget?

Nope--see, you're still thinking in terms of Quicken or My Money.  Capital
fluctuation isn't something that affects your monthly budget (although
it may be something that you project & plan for).

> Another real-life situation: Suppose you strike ill and incur a large
> medical bill.  So large, in fact that you have to pay it over time.

Just had one of those in November, actually.

> Logically, that's a liability.

Yup: I created a liability account to cover the entire matter, and
sub-accounts for each of the practises whom I owed money when all was
said and done.

> So to create the liability you have to incur a corresponding expense.
> Payments against the liability are transfers that don't change your
> net worth.

Also true.  Money moves from the liability into the expense, leaving the
liability negative (and needing to be paid down to $0) and the expense
positive (as expense accounts always are).

> But medical expenses are deductible.  But you can only claim that part
> of the bill that you have actually paid.  So you're in a situation
> where it's damn difficult to simultaneously track your net worth
> accurately (which is really the whole point of traditional
> double-entry) and account for your deductible expenses.

That's where it's false.  If you're in such a situation, just create
three Medical accounts: Expenses:Medical,
Expenses:Medical:Non-Deductible and Expenses:Medical:Deductible.  When
you receive the bill, move money from
Liabilities:Medical:Anaesthesiologist (or whatever) to the deductible
and non-deductible accounts in the correct amounts.  When you pay off
the bills, move money from chequing or credit card or whatever into
liability.

> Now here's where I screw with 700 years of accounting tradition.

That's where you should take a step back and reconsider.  It's the
height of hubris for me to think that I know better than centuries of
men (I happen to think so quite often, but that's because I'm a pompous
git...).  If folks have been doing it for so long, it's highly probable
that there's a good reason for it, although of course there may not be.

-- 
Robert Uhl <http://public.xdi.org/=ruhl>
According to the National Crime Survey administered by the Bureau of
the Census and the National Institute of Justice, it was found that
only 12 percent of those who use a gun to resist assault are injured,
as are 17 percent of those who use a gun to resist robbery.  These
percentages are 27 and 25 percent, respectively, if they passively
comply with the felon's demands.  Three times as many were injured if
they used other means of resistance.
          --G. Kleck, Policy Lessons from Recent Gun Control Research