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Back a step
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Back a step
| Scabernac
Posts: 2,545 Status: Lord Karma: +377 [+1] [-1]   |
Subject: Basic Lessons in Accounting then | |||||
| Or at least enough to know what I was doing. Assets must always equal Liabilities + Equity (commonly shown as A=L+E) Assets = what you have Liabilities = what you still owe from what you have borrowed Equity = what you have put into the enterprise from your own personal resources To increase an Asset you debit the account, while crediting decreases the value of the account. To increase a liability or equity you credit the account, while debiting decreases the value. Easiest method in accounting terms is to break an event up into the separate transactions and debiting/crediting appropriate accounts through journal entries. So that you will have A=L+E at the end of your calculations, the debits and credits must balance out for each individual journal entry. Therefore, what I did was split the event into the three transactions (borrowing money, buying shirt, partial pay back) and recorded the appropriate debits and credits through journal entries for each transaction, before taking the final values for each account and seeing if the meet the A=L+E requirement. It seems difficult, but like most mathematical systems it is one of those deals where once you know it, it just plays out in your head near instantaneously; the previous post was just to explain the thought process after already determining that there is no issue. Think of it like long division, most of the time we do not need to actually write out the full equation, but when doing it for marks or showing people that may not understand, we 'show our work'. You have to show your work in some way throughout accounting because of transparency and dealing with other people's money. I could have done everything faster in one transaction like so: Debit Shirt 97 Debit Cash 1 ---Credit Accounts Payable (Mom) 49 --- Credit Accounts Payable (Dad) 49 but without all the in-between steps this would make even less sense to those unfamiliar with accounting then what I did do; and all account is done for those with limited accounting knowledge (mainly managers for example). When compared to other mathematical systems, accounting is one of the easiest things to learn since not much more difficult then multiplication and absolute basic algebra. |
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