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Debits, credits and why some numbers are negative

Every transaction changes two accounts by the same amount. This is called double entry.

Written by Misha Cajic

Why is everything recorded twice?

Every transaction changes two accounts by the same amount. This is called double entry.

A freight supplier sends a $1,000 invoice:

Account

Change

Freight outwards (expense)

Up $1,000: you used a service

Trade creditors (liability)

Up $1,000: you owe the supplier

A month later you pay it:

Account

Change

Trade creditors (liability)

Down $1,000: you no longer owe it

Cash at bank (asset)

Down $1,000: the money left

The purchase happened once, in Freight outwards. The other three entries record owing it and paying for it.

What are debits and credits?

They are the names of the two sides of every entry. They do not mean good or bad.

Account type

Grows with a

Usually shows in an export as

Asset, Expense

Debit

Positive

Liability, Equity, Revenue

Credit

Negative

So in a typical export, an expense account is full of positive numbers, and a negative number in it means something reduced the cost.

Why are some numbers in an expense account negative?

Negative line

What it is

Count it?

Credit note

The supplier reduced or refunded an invoice

Yes. It corrects a purchase you counted.

Accrual reversal

Undoes last month's estimate

No. Leave it out with the estimate it reverses.

Reclassification

Moves a cost to another account

Depreciation, in an asset account

Spreads a past purchase over time

No

Why does including both sides cancel out?

If you include Freight outwards and Trade creditors, Avarni reads +$1,000 and −$1,000. The purchase disappears. Include the account where the purchase is recorded, not the account that records owing or paying for it.

This is why cash, bank and creditor accounts are excluded.

Why does my Capital goods total show a negative number?

An asset account can hold both new purchases and depreciation. Depreciation entries are credits, so they reduce the total. If depreciation is large enough, the total turns negative. Leave the depreciation out with a classification rule, and count only the purchases.

What this means in Avarni

  • Avarni needs one amount per row. If your finance system exports separate debit and credit columns, ask your finance team for one signed amount column, with credits as negative numbers.

  • Keep credit notes in. They make your spend correct.

  • Leave out accrual reversals together with the accruals they reverse. Use a classification rule. See Build classification rules and set their order.

  • A category with a negative or unexpectedly small total usually holds something other than purchases.

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