Keeping track of small debt between friends, both ways

[Pedro Emílio Machado de Brito]

On Tue, Aug 4, 2015 at 11:42 AM, Buddha Buck <blaisepascal at gmail.com> wrote:
> The Fundamental Equation of double-entry bookkeeping is:
>
>   Assets = Liabilities + Equity
>
> In other words, everything you (or the company, or whatever accounting
> entity you are working with) have (Assets) is either owed to someone else
> (Liabilities) or is owned by the entity owners (Equity). In personal
> accounting, "Equity" is often synonymous with "Net Worth".
>
> Income and Expense accounts are really sub-accounts of equity. Income
> increases your equity, Expenses decrease your equity. Some folks write the
> equation as "Assets = Liability + (Equity+Income-Expenses)" or as
> "Assets+Expenses = Liability+Equity+Income" to include all five main account
> types (the last has the advantage of reminding you that assets and expenses
> are debit accounts, and liabilities, equities, and incomes are credit
> accounts), but really income and expenses are subordinate to equity.
>
> "Closing the books" simply moves the accumulated totals of income and
> expenses into equity so you can see the balances in them as "current",
> rather than "over all time".

On Tue, Aug 4, 2015 at 12:41 PM, Mike or Penny Novack
<mpnovack at mtdata.com> wrote:
> "It doesn't feel right to put this under Assets or Liabilities because it
> can represent either, depending on the sign of the balance. Cheers"
>
> So can those.
>
> Look, this is really a problem (in perception) because in order to save time
> most of us are jumping right in without taking the time to understand the
> fundamentals of double entry bookkeeping, especially not in terms of old
> fashioned debits and credits.
>
> a) Asset, Liability, and Equity are the three FUNDAMENTAL types of accounts
> (Income and Expense accounts are really "temporary" accounts of fundamental
> type Equity, to which they would be closed by the traditional "close the
> books" operation)
>
> b) Accounts of type Asset NORMALLY have a debit balance.
>
> c) Accounts of type Liability and Equity NORMALLY have a credit balance.
>
> Take your checking account for example. It's an account of type Asset (under
> Current Assets). It would NORMALLY have a debit balance. But suppose you got
> into an "overdraft" situation. The account would then have a credit balance,
> you OWE the bank money, this asset is acting as a liability (a negative
> asset). Doesn't mean you need to move the account!

I *think* I understand the basics of accounting and double entry
bookkeeping. I read most of the documentation a few months ago, when I
started using Gnucash. It's just that a negative asset or negative
liability seems odd, that's all, it's nothing technical, I was trying
to find another way to deal with it that seemed more natural.

> For your problem, decide what the NORMAL situation would be. Do you expect
> this friend would be owing you more often than not, or would you be owing
> the friend more often than not. THAT is how you choose between Asset and
> Liability. If you can't predict or it really flips back and forth all the
> time, flip a coin.

I just wish there was a category for "flips back and forth all the
time". Oh well, it's under Assets now.

-- 
Pedro Emílio Machado de Brito

Ciência da Computação 2012 - Unicamp
Coordenador Financeiro - Centro Acadêmico da Computação (CACo)