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As a hobby project I'm writing a fairly simple open-source accounting package. It's aimed at individuals so you could argue I shouldn't bother with the more full-on accounting principles (like double-entry, for example) but I want to. Partly as a thought experiment and partly because the user might want to use it to run a little business (or might be a contractor rather than employee).

I've got over the common confusion of in what circumstances debit and credit increase or decrease the balance of an account, but I'm trying to decide what category the user's personal account would be. I think it'd be either Asset or Asset (Equity) but since the meaning of debit and credit are different for each I need help deciding.

Many thanks in advance.

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What do you mean by a 'personal' account? A bank account? –  thepassiveinvestor Dec 30 '12 at 23:13
    
Yes exactly. I'd call it my "current" account. I think in the US it'd be called a "checking account"? It's basically where my salary is paid to and bills paid from. –  Neil Barnwell Dec 30 '12 at 23:34
    
@Neil why do you assume there's only one? Bank account, in general, is an asset, exactly as cash is. –  littleadv Dec 31 '12 at 5:43
    
I don't assume there's only one - I genuinely only have one. Most people have their main "current" account that salary is paid into and bills go out of, then maybe one or two (probably underused) savings accounts, maybe an ISA, then maybe a mortgage, credit card(s) and loan(s). I just wanted to check that the "current" account was the Asset type (therefore debits are increases) rather than Equity (where a debit would be a decrease, as I'd thought all my life until this last week when I started researching properly). –  Neil Barnwell Dec 31 '12 at 9:23
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A current account should be treated as an Asset, so a debit will increase the balance and a credit will decrease it.

Asset (Equity), when referring to personal finances, is only really used to create an opening balance. When a company is first created, people invest cash in return for equity - the equity becomes a liability for the company and the invested cash becomes an Asset. When a person decides to keep double entry accounts, they don't (generally) start from birth - they have some existing balances that need to be accounted for. The same concept of opening equity is used to resolve this.

Everything in a double entry system has to come from somewhere, so Asset (Equity) accounts are used (pretty much exclusively) for this purpose in a personal accounting system. This is why the Asset (Equity) account is the opposite way around to an Asset account, you credit the Asset (Equity) with an opening balance and debit the Asset (e.g. current) account. This allows you to start with a Trial Balance of zero.

Beyond initial balances, pretty much all things that you "own" are Assets - be that a house, a car, a bank account, an ISA etc. Having only a single current account may be a nice simplification to start off with, but I would be wary of treating any particular account as 'special'. Many people have multiple current accounts, multiple sources of income, multiple currencies etc.

The common confusion with the words "Debit" and "Credit" come from what people see on their bank statements, one would expect that when they "credit" their bank account the balance will increase. This is merely a question of perspective - every transaction has two sides. Banks, being rather self-centred, will generally produce statements from the Bank's perspective, not the customer's. When you deposit money in a bank account, you are loaning money to the bank; hence on the bank's balance sheet your current account is a liability and a credit will increase the balance. In personal accounting, you are modelling the world from your own perspective (which is the opposite of the Bank's) and so your bank account is an Asset which will increase with a Debit.

For further detail you could take a look at this Wikipedia article

You may or may not be aware of other existing open source personal accounting software, such as GnuCash. Even if this does not meet your own needs, the documentation does a very good job of explaining many of these concepts in simple terms.

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An excellent and comprehensive answer, many thanks. I had read the wikipedia article you suggested but was still unclear on the use of the Equity account. Now it is clear to me that my everyday "current" account is an asset, so I'm happy. Many thanks. –  Neil Barnwell Dec 31 '12 at 14:16
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