Posts Tagged balance sheet
Basics of accounting – part 2
Posted by admin in Financial Advice, economy, equity, expenditures, financial growth on August 3rd, 2009
Why do accountants use the double-entry system? Well, we could explain how the system is based logically on the principle of duality, because all activities with any economic significance have two aspects—resources and uses, work and reward, loss and gain. Or we could simply point out that recording every transaction twice dramatically reduces the chance of error. The bottom line is that the system works, although it occasionally seems to defy common sense. Don’t expect to understand it all completely now. Our discussion of the general ledger and subledgers should help make more sense of debits and credits.
The most common structure for financial documents, based on the need to distinguish between debits and credits, is the T account diagram. The left side of the T represents debits and the right side of the T represents credits. In the accounting process, a figure is recorded as a debit (left side) or as a credit (right side) depending on how the transaction affects that particular account.
Basics of accounting – part 1
Posted by admin in communication, financial information, incentive, liability, market demand, ownership, paperwork, understanding finances on August 3rd, 2009
Credits and debits come into play in double-entry or dual-entry accounting, a method by which each transaction is entered twice—once as a credit and once as a debit—on the balance sheet and/or the income statement. That’s how the financial statement stays in balance.
Credits always appear on the right-hand side of T accounts. They represent an increase in items such as business liability, owners’ equity, and revenue accounts, or a decrease in assets.
Debits are always listed on the left-hand side of T accounts. They represent an increase in asset and expense accounts, or a decrease in liabilities.