Accounting Accounting  Basics Accounting

Let's spend a little time discussing why we need to know
this simple equation and begin to understand how it works.



This is   The  Basic  Accounting  Equation


Assets = Liabilities + Owner's Equity

What a company owns must always equal (=)

what it owes to its creditors

plus (+) what it owes to the owner or owners





The   DEBIT  -  CREDIT   Rule

Each of the accounts in a Ledger will have a Debit Column and a Credit Column. Debits and Credits increase or decrease amounts on a ledger page account without having to use a plus (+) or minus (-) sign.

No matter what - always
DEBIT  on the  LEFT   and   CREDIT  on the  RIGHT.
This basic rule never changes.
_____________________________________________________




  "T" Accounts   
                     Notice in this graphic that DEBIT is on the LEFT and
                    that CREDIT is on the RIGHT in each of the "T" s.  

            Again, always  DEBIT   LEFT   and  CREDIT    RIGHT
 
   


 

  "T" Accounts Expanded                         
Now that we know that we always debit on the left and credit on the right we can begin to discuss how we INCREASE and DECREASE the balances in accounts.  The ( + ) sign means INCREASE and the ( - ) sign means DECREASE.  Note that when you cross over the ( = ) sign you reverse the way accounts increase and decrease.
   
Assets To INCREASE ( + ) the balance in Asset Accounts you DEBIT
To DECREASE ( - ) the balance you CREDIT
 
Liabilities To INCREASE the balance in Liability Accounts you CREDIT
To DECREASE the balance you DEBIT
 
Owner's Equity To INCREASE the balance in Owner's Equity Accounts you CREDIT
To DECREASE the balance you DEBIT
 


 

T's  within  T's









For  Single  Proprietor  and  Partnerships




For   Corporations

 


 

 

 

The next step is to fill in these Ledger pages
using the amounts in the General Journal
and show how Posting to Ledger pages is done.

 

 

Thus



Next we will make a Trial Balance to be sure
that all the different accounts are in balance.

 

Thus

 

 

The concepts learned here will help you understand what's happening
behind the scene when using various accounting software programs.

The   Chart of Accounts   is simply a list of accounts.

For now, accounts in the Chart of Accounts can ultimately
be plugged into the Basic Accounting Equation.


Assets = Liabilities + Owner's Equity


_________________________________________________

  Comments:  

 

hb