Thursday, February 15, 2007

Accounting for Non-Accountants 3

Assets are debit accounts. This means that they are accounts normally at the left side of the accounting equation. To increase, you debit the account. To decrease, you credit it. On the other hand, liabilities and equity are credit accounts. They are normally at the right side of the equation. To increase, you credit them. To decrease, you debit them.

This increase/decrease of account balances is done by the recording of transactions through a journal entry. A journal is considered in accounting as the book of original entry. This is where transactions are first recorded or entered. The entry looks like this:

Cash P250
Accounts Receivable P250
To record payment of
accounts receivable

Entries will then be posted to what is known as the ledger. Using the ledger, the balances of each account may be computed at the end of an accounting period. The balances will then be the basis for the preparation of the business's financial statements. It is these statements which will be audited in order to determine whether it represents fairly the results of operation and financial condition of the business.

That to me is the accounting cycle. If you want to know more about accounting, visit this tutorial site: http://www.dwmbeancounter.com.

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