Deep dive into accounts

As you see in the previous chapter, we have shown you why income is negative and all available accounts. We found visualizing the concept of each account with the same pile-hole diagram helpful for readers to understand them better. Therefore, here, we visualize them one by one.

Assets

The assets account is the most straightforward one. The balance number is usually positive. The assets account represents the things with any value you currently have, which could be tangible or intangible. They could be cash in your wallet, gold bars buried in your backyard, or Tesla stock you purchased. Taking the previous example, we took some money from income, so we have some cash assets.

Assets is usually positive because it's something you have.

Examples:

Account	Description
Assets:Cash	Cash
Assets:US:Banks:Chase:Checking	Chase checking bank account
Assets:US:Banks:Chase:Saving	Chase saving bank account
Assets:AccountReceivable	Money other people should pay you
Assets:Investment:Stock	Purchased stock for investment

Income

As we explained previously, an income account is something you take out of this world—think of it like digging a hole in the ground. Therefore, the balance is usually negative. The source of income can be varied. Common ones could be your job salary, capital gain, rent income, or anything else you've earned or received. For money taken out from income, it usually goes into assets. As we've seen multiple times in the previous diagram:

Income is usually negative because it's like digging a hole in the ground.

Examples:

Account	Description
Income:Windfall	Unexpected income
Income:Salary	Salary income from employment
Income:Rent	Rent collected from tenant
Income:Sales	Income from product sales
Income:Investment:Dividend	Dividend from stock you hold

Expenses

We've seen expense accounts in the previous examples but haven't looked closely at them. The balance of expense accounts is usually positive. Here's how you can think about it. The money will exist even after you spend it. You transfer it to another owner in exchange for goods, services, or as a gift. The new owner has the money, and it's still there, but you have no claim to it. That is precisely why we have another set of accounts, which is what expenses are for. For example, if you have 60 USD in cash, then you spend 15 USD on food delivery on DoorDash. You can write a transaction like this:

2024-07-31 * "Order food delivery on DoorDash"
    Assets:Cash         -15.00 USD
    Expenses:Food        15.00 USD

If we visualize the difference before and after the transaction, it will look like this:

Expenses is usually positive because it's something still exists but you no longer possess.

Please note that. In the above illustration, we omit where the assets come from since we only want to focus on transferring money from assets to expenses. Otherwise, the pile and hole will be even out.

Examples:

Account	Description
Expenses:Food	Expenses for food
Expenses:Travel	Expenses for travel
Expenses:Salary	Expenses for employee salary
Expenses:Office:Software	Expenses for office software
Expenses:Office:Hardware	Expenses for office hardware

Liabilities

Liabilities are similar to income. Usually, the balance of the account would be negative. As mentioned before, income is something you take from this world, so it's like digging a hole in the ground. Likewise, liabilities are the money you take from other people or organizations. It's also a hole in the ground, but the major difference is that whatever you take out from income, you own them. However, liabilities are something you borrow from others, so you need to pay them back one day. One of the most common liabilities could be credit card balances. When you make a purchase with your credit card, the money comes from the card-issuing bank. Essentially, they extend a loan to you, and you must pay it back in time. Otherwise, there will be interest. For example, when you buy a burrito from Chipotle with your credit card, you can write a Beancount transaction like this:

2024-07-31 * "Burrito From Chipotle for Dinner"
    Liabilities:US:CreditCards:ChaseSapphireReserve         -7.98 USD
    Expenses:Food                                            7.98 USD

With the pile-hole diagram, you can see that the money we dug out from the ground went straight into the pile of expenses:

Liabilities is usually negative because it's like digging a hole in the ground and you need to pay it back one day.

Interestingly, when using a credit card for a purchase, the money goes straight to someone else's pocket in exchange for goods or services, i.e., expenses. But there are many cases where you receive the funds from a loan, so in that case, the money goes into your assets instead of expenses. For example, say you are running out of cash in hand, and you took a personal loan of USD 1,000 before your paycheck arrived. In that case, we can write a transaction like this:

2024-07-31 * "Take a personal loan"
    Liabilities:US:WellsFargo:PersonalLoan         -1,000.00 USD
    Assets:Cash                                     1,000.00 USD

With that, your diagram would look like this:

Sometimes, you take out a loan and you got the cash so that it will go into your assets instead of expenses account.

You need to pay back the loan one day, and usually, the loan comes with interest you need to pay. After taking out the loan, you may realize you don't need that much. To reduce the interest down the road, you decided to pay USD 200 back to it. Here goes the transaction:

2024-07-31 * "Take a personal loan"
    Assets:Cash                                     -200.00 USD
    Liabilities:US:WellsFargo:PersonalLoan           200.00 USD

And here goes the diagram:

Paying back a loan with cash is basically moving moeny from your assets back into liabilities.

It could be a bad idea unless you can get a better deal. Otherwise, sometimes, people have no choice but to take out a new loan to repay the old loan that's about to be due. In that case, you can write a transaction like this:

2024-07-31 * "Take a personal loan"
    Liabilities:US:Chase:PersonalLoan                -500.00 USD
    Liabilities:US:WellsFargo:PersonalLoan            500.00 USD

And the diagram looks like this

Taking out a loan to pay another loan is basically transfer balance between liabilities accounts.

Examples:

Account	Description
Liabilities:US:Chase:PersonalLoan	Personal loan from Chase
Liabilities:US:CreditCard:ChaseSapphireReserve	Credit card balance for Chase Sapphire Reserve
Liabilities:US:AmericanExpress:Platinum	Credit card balance for AMEX Platinum
Liabilities:MoneyOweJohneDoe	Money I owe John Doe

Equity

Now you see all the accounts and what they are for. The final, most interesting, and harder-to-understand one could be equity. If the above accounts don't seem like a good fit, equity is usually the one. In most cases, the balance of equity is negative. The most widely used equity account is Equity:OpeningBalances.

Think about it: When you start bookkeeping, you probably already have many bank accounts with money in them and some cash in your pocket. It's impossible to track where every single penny came from all the way back when you were born, and you probably don't care if the 20-dollar bill in your pocket is coming from a slot machine in Las Vegas or you just pick it up on the sidewalk. In that case, we just need a source to balance our assets or other accounts. With that in mind, we can use the Equity:OpeningBalances account. Say you have a Wells Fargo checking account with 800 USD in it. You can write a transaction like this:

2024-07-31 * "Open account balance"
    Equity:OpeningBalances                          -800.00 USD
    Assets:US:WellsFargo:Checking                    800.00 USD

Equity is usually negative and it's mostly for balancing accounts for adjustments.

Examples:

Account	Description
Equity:OpeningBalances	Balances source for opening an account