Wise Accounts Blog

Remember the mnemonic phrase: "Accountants are credited for being afraid of negative amounts."

Accountants have confused the daylight out of most of us with their obscure ways of counting somebody else's monies.

The profession is rooted in depths of tradition dating back to the Renaissance. After the Dark Ages, science, arts and commerce blossomed. Christopher Columbus stumbled upon the American continent; Leonardo Da Vinci painted the Mona Lisa and the merchants of Venice invented the double entry accounting ledger in expectation of great returns for sailing boats to The New World.

Debit and credit is a vernacular that only makes sense once you consider the double entry system. Remember in those days there were no calculators - maybe just an abacus (Did you learn how to use one of these at school? What about a slide ruler?)

It just happened that to double check (mind the pun) their books the merchants of Venice had the practice of recording and adding transactions twice. Once on the page of the account where the money originated from and a second time on the page of the account where the money was assigned to. So five gold coins of one lira each left my velvet purse and five liras was the cost of the cargo shipped overseas and paid to the producer.

The beauty of such a system was that all pages in the book had to total to zero. If not you had to hunt for the mistake. If you did this exercise each evening at close of business - the error had to be in today's transactions. A relief if the book had over 200 pages to cater for a whole year of trading.

But wait a minute how can a bunch of numbers all add up to zero? That's the magic of it of course. Some figures are positive and some are negative. But the trick was to call the positive numbers debits and the negative ones credits!

So for the book to be balanced some pages had to have a positive total and others a negative total. So far so good.. Introducing the concept of an account. Don't think of a bank account right now, please. An account might be money earned for lifting some cargo from the pier onto the boat. That's your income account. It has a negative total (a credit balance). The second entry in the book is positive - coins accumulate in your purse. But you might have been paid in kind (a pig and two chicken worth half a lira). Then the page titled "pantry" might read two entries: one pig a quarter of a lira and two chicken a quarter of a lira also for a positive total - a debit balance.

So people go for a bookkeeping course to complicate an otherwise quite simple and efficient system which can be done by hand or on a computer. By hand you have to understand what you are doing - on a computer you just fill-in the form but never get to understand the underlying principle unless you stumble on an article like this.

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