1st
Basic Accounting in 10 minutes.
2nd
BY Yousaf
Certified Practising Accountant
CMA
3rd
Disclaimer: This is very basic accounting. There are other things.
4th
I am not covering here.
Accounting is managing Debits and Credits.
That is all.
Debits equal credit. $1,000 worth of debits means you must have $1,000 worth of credit.
There are only two categories of Debits:
Assets
And Expense
There are only three categories of credits:
Liabilities, Equity, and Revenues.
Now a critic would say…..
Contra-Assets are also credit.
Treasury stock are also Debit.
Blah blah blah
I’ll get to that in a minute.
Assets are things you own.
Liabilities are things you owe.
Equity is your investment in the company.
Revenues are income you earn. Expenses are mostly bills you pay.
An Account is a catalogue number with a description.
For Example:
0100 Petty Cash
Every account will fall into one of the 5 categories I mentioned.
A list of these accounts is called the chart of Accounts.
Now picture if things big chart of accounts listed all the activity in each account under their descriptions, with an ending balance.
0110 Cash 0.00
Deposit 10.00
Withdraw -5.00
Deposit 20.00
25.00
Now when you have all your accounts listed this way you end up with this big book.
20th
Whether electronic or paper, this “book” is called the General Ledger.
21th
Now let us say you want to look at this big General ledger but without all that annoying details.
22th
You want to see the account number, description and ending balance.
23th
This short listing is called the trail balance.
24th
Your trial balance will present the debit in the left column and your credit in the right column.
25th
Each column will have the same total. Why?
Because Debit equal credit.
26th
27th
Remember all that annoying activity in the general ledger? You have to put it in there manually.
28th
And when you do, you are going to keep a separate “Journal” to remember what you did.
29th
Let’s call these little entries in your journal, “Journal Entries”.
30th
Computer systems record Journal entries in the Ledger and Journal at the same time.
31th
Debit entries increase debit balances, and credits decrease them.
32th
Credit entries increase credit balances, and debit decrease them.
33th
We’re going to make a journal entry. Lets buy a truck for $10,000 cash.
34th
35th
Oh no, we got the electric bill and it’s $40.
36th
37th
37th
Hey, we better pay that electric bill before they shut it off.
38th
39th
We just painted a house for John and he’s gonna pay us $350 next month.
40th
41th
That weasel Joe Blow only paid us for half the paint job!
42th
43th
Are you starting to see the logic?
44th
Did you notice how I increased and decreased accounts?
45th
Remember the 5 categories of accounts? Let’s put them in two groups.
46th
Assets, Liabilities and Equity are “Balance Sheet” accounts.
47th
Revenue and expenses are “Income Statement” accounts.
48th
Okay Lets fast forward to the end of the year.
Basic Accounting in 10 minutes.
2nd
BY Yousaf
Certified Practising Accountant
CMA
3rd
Disclaimer: This is very basic accounting. There are other things.
4th
I am not covering here.
Accounting is managing Debits and Credits.
That is all.
Debits equal credit. $1,000 worth of debits means you must have $1,000 worth of credit.
There are only two categories of Debits:
Assets
And Expense
There are only three categories of credits:
Liabilities, Equity, and Revenues.
Now a critic would say…..
Contra-Assets are also credit.
Treasury stock are also Debit.
Blah blah blah
I’ll get to that in a minute.
Assets are things you own.
Liabilities are things you owe.
Equity is your investment in the company.
Revenues are income you earn. Expenses are mostly bills you pay.
An Account is a catalogue number with a description.
For Example:
0100 Petty Cash
Every account will fall into one of the 5 categories I mentioned.
A list of these accounts is called the chart of Accounts.
Now picture if things big chart of accounts listed all the activity in each account under their descriptions, with an ending balance.
0110 Cash 0.00
Deposit 10.00
Withdraw -5.00
Deposit 20.00
25.00
Now when you have all your accounts listed this way you end up with this big book.
20th
Whether electronic or paper, this “book” is called the General Ledger.
21th
Now let us say you want to look at this big General ledger but without all that annoying details.
22th
You want to see the account number, description and ending balance.
23th
This short listing is called the trail balance.
24th
Your trial balance will present the debit in the left column and your credit in the right column.
25th
Each column will have the same total. Why?
Because Debit equal credit.
26th
27th
Remember all that annoying activity in the general ledger? You have to put it in there manually.
28th
And when you do, you are going to keep a separate “Journal” to remember what you did.
29th
Let’s call these little entries in your journal, “Journal Entries”.
30th
Computer systems record Journal entries in the Ledger and Journal at the same time.
31th
Debit entries increase debit balances, and credits decrease them.
32th
Credit entries increase credit balances, and debit decrease them.
33th
We’re going to make a journal entry. Lets buy a truck for $10,000 cash.
34th
35th
Oh no, we got the electric bill and it’s $40.
36th
37th
37th
Hey, we better pay that electric bill before they shut it off.
38th
39th
We just painted a house for John and he’s gonna pay us $350 next month.
40th
41th
That weasel Joe Blow only paid us for half the paint job!
42th
43th
Are you starting to see the logic?
44th
Did you notice how I increased and decreased accounts?
45th
Remember the 5 categories of accounts? Let’s put them in two groups.
46th
Assets, Liabilities and Equity are “Balance Sheet” accounts.
47th
Revenue and expenses are “Income Statement” accounts.
48th
Okay Lets fast forward to the end of the year.
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Learning