Comment by noisy_boy

Actually it is clear as long as you remember that main point you made: debit and credit just means left and right.

We are all spoiled by thinking of debit/credit as equal to decrease/increase respectively because that how we interpret our bank accounts. That understanding totally collides with formal accounting where debit/credit DON'T mean decrease/increase respectively. I think this is the root cause of all confusion about double-entry accounting. I may be wrong about this, happy to be corrected but that is the bit my brain grinds against when trying to make sense of things.

E.g. I replaced all instance of debit with "Left" and credit with "Right" in your example:

    1. Merchant takes out a loan for $5,000 and receives $5,000 in cash. • Assets (Cash) increase by $5,000 (Left). • Liabilities (Loan Payable) increase by $5,000 (Right). • Equity remains unchanged.

    2. Merchant buys inventory for $1,000 cash. • Assets (Cash) decrease by $1,000 (Right). • Assets (Inventory) increase by $1,000 (Left). • Total assets remain unchanged, and liabilities and equity are unaffected.

    3. Merchant sells all inventory for $1,500 cash. • Assets (Cash) increase by $1,500 (Left). • Assets (Inventory) decrease by $1,000 (Right) (recording cost of goods sold). • Equity (Retained Earnings) increases by $500 (Right), representing the profit ($1,500 sales - $1,000 cost).

    4. Customer1 deposits $500 in cash for future delivery of goods. • Assets (Cash) increase by $500 (Left). • Liabilities (Unearned Revenue) increase by $500 (Right). • Equity remains unchanged.

    5. Customer1 transfers half of the future delivery of goods to Customer2. • No changes to assets, liabilities, or equity occur at this point. The merchant’s obligation to deliver goods (reflected as Unearned Revenue) is still $500 but now split between two customers (Customer1 and Customer2). Internal tracking of this obligation may be updated, but the total financial liability remains the same.

I find this much more easier to reason with.