[GNC] Thank You Michael D Novack

[Geoff]

Hello Michael

Thank you very much for this little history lesson and your many other 
erudite responses on this mailing list.  I always look forward to 
reading your answers knowing that I will both be entertained and learn 
something new.

I particularly enjoy the way you often relate seemingly abstract 
concepts back to physical objects like paper ledgers and the ink entries 
therein.

Thanks again for sharing.

:--))

Regards

Geoff
=====

On 6/05/2024 12:44 am, Michael or Penny Novack wrote:
> On 5/4/2024 10:53 PM, flywire wrote:
>> David, the  guide even warns that accounting debits and credits are
>> used contrary to the way most people understand them. The average
>> punter will be wrong, and if they get it right the next punter will
>> likely bet they are wrong.
> 
> Yes, depends on perspective, your point of view or the bank's.
> 
> But also  and explaining where YOUR point of view comes from (the origin 
> of the terms) think of who in say 1200 CE would be needing to keep 
> books. What sort of business would you be in? A moneylender, of course. 
> And keep in mind that in 1200 in Europe, if literate, probably Latin not 
> a strange language (especially not when dealing across multiple local 
> languages).
> 
> Debit comes from "he owes" (me). In other words, your assets are debts 
> owed to you as well as cash on hand available to be loaned out. Thus the 
> money you have on deposit at some bank is a debit because the bank owes 
> you that money.
> 
> Credit comes from "he trusts" (me). In other words, your liabilities. 
> Money you owe somebody else that they are trusting you can pay back. 
> It's why on the statement from the bank your account balance is a credit 
> (you are trusting the bank will give you this money of you ask for it) 
> but in your books a debit because the bank owes this money to you.
> 
> Initially (way back then) there were no special accounts of type 
> "income" and "expense" so the other side of a transaction we would call 
> income or expense was equity. Immediately entered against equity. That 
> made it easy to see at any moment what to see what total equity was but 
> hard to look up the totals for any particular expense. Had to do work to 
> answer questions like "how much was our interest income last month?" 
> (remember, we are moneylenders). So a couple hundred years ago (I don;t 
> know exactly when) somebody got the bright idea to have TEMPORARY 
> accounts of type "income" and "expense" of fundamental type "equity". 
> Instead of the other side of the transactions immediately being main 
> equity use these "temporarily" and only every so often transfer to main 
> equity through a process known as "close thew books" with this process, 
> along the way, creating a report called "profit and loss" << originally 
> this was another temporary account, closed to equity by the net profit 
> or loss amount >>
> 
> BTW, a moneylender WOULD be wanting to have liabilities. These would 
> have come into being by exchange with another moneylender in some other 
> town/country. These documents were useful in TRADE, serving as a way of 
> transporting money without the risk of bandits stealing the gold or 
> silver money on the way. You are a moneylender in place A. A merchant 
> planning to travel to B might come to you and ask "Do you have a debt 
> document from a moneylender in B?" If you did, you could sell him that 
> debt (endorse it over to him) collecting a fee for the service. He then 
> could travel to B and present it there for payment. Useless for a bandit 
> to steal as it wasn't made out "pay to the bearer" but "pay to some 
> specific person" (the merchant).
> 
> Note something here. If two banks are exchanging these IOU's no silver 
> or gold has changed hands. Who says that the silver or gold has to 
> actually exist? In other words, these banks have created money and all 
> will be well only as long as they have enough gold and silver on hand to 
> pay out when any of these IOU's are presented. Does the term "he trusts" 
> make more sense now? There was no FDIC guaranteeing the deposits. That 
> is a very recent change. A hundred years ago you WERE trusting that the 
> bank could give you back what you had on deposit there.
> 
> Michael D Novack
> 
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