The Rule of Double-Entry Accounting

The intuitive way of understanding double-entry is as a transfer from one bank account to another, where the amount taken out of one bank account must equal that deposited in the other. This is effectively the "rule" of double entry accounting; if you add something in to one account, you have to subtract it from somewhere else. When this is done regularly and consistently, this results in the identity of accounting: Total of Debits = Total of Credits.

There is another important aspect to double-entry that should also be understood: to get the complete picture, you must also track income and expense. When you deposit your paycheck into your bank account, that money didn't come 'from thin air'. Thus, when you record that bank deposit, you shouldn't fool your accounting system about that thin air. You should record your income in an income account: the money that goes into your bank comes from your income account. Once again, adding in one place subtracts from another. By keeping track of your income and expenses, you can ultimately keep track of your equity: Simply put, after years of earning and spending, what you have left is what you got in, minus the amount you spent.

(At this point, the documentation should discuss in greater detail what happens when you spend money to buy a sofa (except for money lost to taxes and shipping fees, your net worth doesn't change much), and what happens as that sofa wears out (depreciation). Again, these are transfers of money between accounts. What's left over is the equity. Be sure to point out that using doubble-entry against income+expense accounts is the correct way to track the change over time.)

This is discussed in more detail in the Income/Expense chapter.

Insider knowledge: GnuCash treats "Debits" as positive values, and "Credits" as negative values, and so the identity of accounting simplifies to value1 + value2 + value3 + ... = 0 Calling this double-entry bookkeeping is a bit misleading; it would be somewhat more accurate to call it multiple-entry bookkeeping. Unfortunately, there's 700 years of history of use of the term, which sufficiently discourages changing it. (And you thought parts of Unix were crufty and old!)

Insider knowledge: Bank statements are frequently written up from the bank's perspective, which is exactly opposite to yours. For example, when you make a deposit at the bank, you are giving them money which they promise to pay you back someday. To the bank, your money is a debt: it is money that they owe you. Thus, when you receive a statement from them, you may find the columns to be oddly mislabelled: your deposits are marked as 'debits', and withdrawls as 'credits'. This practice is particularly common at older and more staid banks.