Update on Double Entry Accounting (Gravity never sleeps)

The idea of spending our way out of a financial problem caused by too much easy credit reminds me of the beauty of double entry accounting.  This may be new to non accountants and the beauty may take a while to grow on you but with just a little knowledge, it is something that can be appreciated by all.  

Double entry accounting was devised by Italian merchants over 400 years ago to keep up with their business.  Since then there have been features added to keep up with different business concepts.  And along the way, much of it has been automated.  Believe me, this take a lot of the drudgery out of accounting and has been a blessing to those who do it for a living and those who audit it.  

One thing that has stayed constant is that debits equal credits.  If you debit one account, you have to credit one or more other accounts for the same amount.  This comes into play with the flurry of stimulus schemes coming from Washington.  If money GOES somewhere, it has to come FROM somewhere.  The “somewhere” might be some time in the future but it is out there.  This applies even if you don’t write it down.  You can’t just give stuff away.  Basically you must reduce another asset or create a liability, an obligation to pay later.   

This aspect is as certain as the law of gravity.  It’s always there even if you try to ignore it. You can put a rocket under something and send it up into the air.  It looks like it is flying.  But as soon as the rocket runs out of fuel, the object drops like a rock.  You can pretend you have conquered gravity for a while, but sooner or later it will win. 

Remember this:  Gravity never sleeps.  Neither does double entry accounting.   Being in balance doesn’t eliminate all problems but it does keep you going in the right direction.  At least you know where you are.