% Plain Text Accounting FAQ See also the [[Cookbook]], [[index#docs|Docs]], and [[index#faqs|app-specific FAQs]]. If you don't see what you need, ask for it in the [[index#news-discussion|chat]], or [add it yourself](https://github.com/plaintextaccounting/plaintextaccounting/blob/master/src/FAQ.md). ## Getting started ### What's Plain Text Accounting ? See [[What is Plain Text Accounting ?]]. ### Which PTA app should I choose ? Here are some (mostly old) [comparisons](https://plaintextaccounting.org#comparisons) Check out the projects' stats, and perhaps their chat rooms / mail lists. Developer opinions are hard to find, but here are a few: SM on why hledger over Ledger (2019): https://news.ycombinator.com/item?id=20022346 SM (2022): We all have opinions - ask for them in chat or search the reddit / mail lists / web. Circa 2022 I hope it's fair to say, without my bias showing: - Ledger, hledger and Beancount are the big three apps, with many users. - The other apps are less used, though some may be quite capable. - Ledger is the oldest and best known, with many features and long-standing quirks. - hledger is a cleaned-up version of Ledger, the most actively maintained, and the most user-friendly. - Beancount has the most features for investing and trading, and the most support (and need) for customisation, via Python. - Ledger and hledger have flexible file formats and parse forgivingly by default, with optional strictness. Beancount has a more restricted file format and always parses strictly. - It's generally relatively easy to migrate data from one to another, eg using [data conversion tools](https://plaintextaccounting.org#data-importconversion) like ledger2beancount and beancount2ledger. SM on new user experience (2023): https://fosstodon.org/@simonmic/110120922501551538 ### How should I organise files ? See [[Organising files]]. ### How big is your ledger/journal file ? For individual accounting, somewhere between 500-1500 transactions and 100-400 Kb of journal file per year seems typical. - https://www.reddit.com/r/plaintextaccounting/comments/ay8ec0/limits_on_ledger_cli_file_size/ (2019) - https://www.reddit.com/r/plaintextaccounting/comments/dbjizl/how_big_is_your_ledgerjournal_file/ (2019) ### How should I choose account names ? See [[Choosing accounts]]. ## Accounting ### What are the three top level accounts ? In english, they are **Assets** (things you own), **Liabilities** (things you owe), **Equity** (your/owners' investment or stake or "overall wealth"). ### What are the five top level accounts ? In practice, two more top level accounts are used, making five. In english: **Assets**, **Liabilities**, **Equity**, **Revenues** (or **Income**), **Expenses**. Sometimes abbreviated to single letters; hledger uses **A**, **L**, **E**, **R**, **X**. Revenues and Expenses are essentially inflows and outflows during some period; technically they are changes in Equity, reported separately for clarity. Businesses usually merge Revenues and Expenses into their Equity balance at the end of each accounting period. - [hledger: Accounting Basics](https://hledger.org/accounting.html#debits-and-credits) ### What is the accounting equation ? It is a simple formula that always holds true when bookkeeping is correct. You'll see it written in different ways, eg: Equity = Assets - Liabilities Assets + Liabilities + Equity = 0 (using PTA's sign convention) Equity = Assets - Liabilities Assets = Liabilities + Equity + Revenue − Expenses - [Wikipedia](https://en.wikipedia.org/wiki/Accounting_equation) - [Investopedia](https://www.investopedia.com/terms/a/accounting-equation.asp) ### In english, should I call it Revenue or Income ? "Revenue" is more often used in business, and more precise; it implies "gross income", ie total proceeds before taxes and certain costs, whereas "Income" implies "net income", ie profit after taxes and costs. Eg the report showing profit is called "Income Statement" in the US. "Income" is very commonly used in personal finance and more familiar to non-accountants. So, use the one you prefer. ### What is Equity really ? Equity is more abstract than the other top level accounts, can be described in different ways, and takes a bit longer to feel intuitive. It is best understood with repeated exposure. Two useful rules of thumb: - Equity represents "ownership" in business or "wealth" in personal finance. - If something doesn't belong to the other four top level accounts, it's equity. When multiple owners/investors have contributed funding to set up a business, each of them owns a portion of the business, which is tracked as equity. And if the business is dissolved, they would each have their share returned to them (ideally). In personal accounting, your finances are "the business" and you are the only investor. When you start tracking your finances, whatever wealth you have accumulated up to this point is your initial "contribution to the business", ie your equity, which funds your starting balances. Practically speaking, in personal accounting you'll never use equity except - when setting up starting balances in a new file - when converting between currencies (optional, if you want to be [really correct](https://hledger.org/dev/hledger.html#equity-conversion-postings)) ### Where are debits and credits ? Many plain text accounting tools use **signed numbers** in place of the traditional terms **debit** and **credit**. Of course the debits and credits are still there. But with this convention, when you see a positive amount being posted in an account, it is a debit (inflow), and when you see a negative amount posted, it is a credit (outflow). (Or possibly a contra-credit or contra-debit respectively. "Contra" means "opposite to the normal direction".) (Be warned of the usual pitfall that banks and businesses use "debit" and "credit" from their point of view, ie reversed, when communicating with customers.) Here's a mnemonic, if you need one: ``` debit | credit to | from in | out plus | minus left | right short words | longer words ``` Newcomers to accounting find signed numbers much more intuitive and easier to learn than debit/credit terminology, partly because they have less historical and didactic baggage. (Some experienced accountants find otherwise.) - [Hacker News: Double-entry bookkeeping as a directed graph](https://news.ycombinator.com/item?id=39988993) ### Why do some balances look negative ? Because of the [signed number convention](#where-are-debits-and-credits), many PTA apps and examples show Equity, Liability, and Revenue account balances as negative numbers. You can get used to reading these signed-number reports in a day or two. Just remember: when equity increases (more wealth!) or liability increases (more debt!) or revenue increases (more income!), their balance is shown as a larger negative number (more negative). Some PTA tools allow flipping the minus signs, or showing debit and credit terminology instead of signed numbers. - [hledger FAQ: Why are my revenue (income), liability, and equity balances negative ?](https://hledger.org/faq.html#why-are-my-revenue-income-liability-and-equity-balances-negative-) - [reddit: Is there any plain text accounting software which uses standard debits and credits?](https://www.reddit.com/r/plaintextaccounting/comments/18sbmsx/is_there_any_plain_text_accounting_software_which/) ### Which kind of account are loans ? If you are the lender, in your ledger it's an asset. Eg assets:loans:PERSON or assets:receivable:BORROWER. If you are the borrower, in your ledger it's a liability. Eg liabilities:debts:PERSON or liabilities:payable:LENDER. If the loan is terminated without being fully repaid, eg by being forgiven, in your ledger the remaining amount becomes an expense (if you are the lender) or revenue (if you are the borrower). - [[Borrowing and Lending]]