It's the accounting equation being represented in canonical form. A chart of accounts is visualized in the minds of an accountant as:
Assets | Liabilities + Equity
Accounts classified as assets are debit accounts (left side), and accounts classified as liabilities or equity are credit accounts (right side).
The theory discussed everywhere in this thread is sound. You really don't need to use terminology like debit/credit for accounting.
What the discussion misses is the application of this framework. It is useful for a human to be able to visualize a complex transaction and work through missing pieces with the hints this framework provides. I'm missing something on the left? Oh yeah, I missed the deferred revenue debit.
> You really don't need to use terminology like debit/credit for accounting.
That's exactly right -- you don't need to. The problem is that people do use this terminology, and they use it in a way that conflicts with common usage, which makes a very simple concept vastly more confusing than it needs to be.
> That's exactly right -- you don't need to. The problem is that people do use this terminology, and they use it in a way that conflicts with common usage
I used to think that way, then I understood this thinking is the exact opposite of what’s happening.
Hundred million people on earth know how to work with debit and credit exactly as it has been written in accounting books for hundreds of years. When you need to expand your accounting department, you go and hire a person who understands things exactly the same way as your current accountants, can pick up their work, they can communicate effectively. As a CEO, you are spared of teaching every new junior accountant your own flavor of first-principles accounting, you don’t need to write your custom accounting software, and convert your company’s books for tax authorities and outside auditors who are not familiar with your system.
Same with music notation. Same with Java language. Same with every other piece of human knowledge.
It should be tangibly 10x—100x better than what's already out there for people to switch. If you make something marginally better (and by default anything unknown is much worse than what everybody knows already), nobody will bother.
> which makes a very simple concept vastly more confusing than it needs to be.
Agreed. The concepts are all very simple. You can throw away all of the domain-specific terminology and reason about accounting theory with nothing but positive and negative numbers.
The utility of the confusing terminology and age old accounting frameworks isn't obvious unless you are a practitioner living "in it". It's not until you face the complexities of real world transactions (an accountant booking closing entries for a F500 company or something) that the strange left/right debit/credit way of thinking is very valuable.
Sorry, I don't buy it. By the time you get to the point where you're doing the accounting for an F500 company you have been thoroughly indoctrinated into the conventional way of doing things. That doesn't mean that the conventional way isn't deeply flawed. It's kind of like the use of British units in the USA rather than metric. You have 350 million people who are thoroughly comfortable with miles and feet and inches and gallons and whatnot, but that doesn't mean that metric isn't objectively superior.
Assets | Liabilities + Equity
Accounts classified as assets are debit accounts (left side), and accounts classified as liabilities or equity are credit accounts (right side).
The theory discussed everywhere in this thread is sound. You really don't need to use terminology like debit/credit for accounting.
What the discussion misses is the application of this framework. It is useful for a human to be able to visualize a complex transaction and work through missing pieces with the hints this framework provides. I'm missing something on the left? Oh yeah, I missed the deferred revenue debit.