Double-Entry Bookkeeping, Debits & Credits

[Rod Engelsman]

Rich Shepard wrote:
>   With the forebearance of those of you who know, I'll provide this
> explanation and quick reference to DB/CR so it will be in the archives. NB:
> IANAA; that is, I am not an accountant. But, I've had two excellent ones in
> the dozen years I've run my business.
> 
> Double-Entry vs. Single-Entry
> -----------------------------
> 
>   When you maintain maintain a paper register in your checkbook you have 
> two
> options. Use a single line for each deposit, check, or debit card/atm
> transaction or use two lines where you write a description of the
> transaction on the second line.
> 
>   If you use a single line for each transaction you have the equivalent of
> single-entry bookkeeping. The date, payee/source and amount is recorded, 
> but
> that's all the information you have. You cannot tell the purpose of the 
> check
> from that information. At least, not well.
> 
>   If you use two lines for each transaction you have the equivalent of
> double-entry bookkeeping. You might record the deposit as "salary," 
> "refund,"
> or "miscellaneous." Checks could be annotated as for "medical expenses,"
> "home repair," "telephone bill," or whatever is appropriate.
> 
>   The latter is just what you do with double-entry software such as 
> gnucash.
> You are required to explain, describe, or otherwise account for each
> transaction using your chart of accounts. If you think about this for a
> moment or three it will make a lot of sense.
> 
>   Want to know how much you spent at the supermarkets last year? Pull up an
> account report for Expenses:Groceries (if that's what you call it), and 
> there
> it is. What were your medical expenses that might be deductable on your
> federal income tax return? Again, an account report will tell you right 
> away.
> Alternatively, how much did you spend at Joe's Greasy Spoon Gourmet
> Restaurant? A transaction report for that payee will give you the answer.
> 
>   It ain't just for accountants any more, it's for us reg'lar folks, too. I
> cannot imagine keeping track of my finances any other way.
> 
> The Accounting Equation and T-Ledger
> ------------------------------------
> 
>   My first accountant clarified my reading of an introductory accounting 
> made
> easy book by helping me to construct my cheat-sheet that hangs right 
> here at
> the desk.
> 
>   The accounting equation is simply:
> 
>                                         Assets        =            
> Liabilities + Capital
>                                     
> ------------+----------------------------
>                         DEBIT     |                CREDIT
>                                       |
> 
>   Notice how the ASCII art looks a bit like a 'T'? Let's apply account
> categories to this layout:
> 
> Asset Accounts:
>                 Beginning Balance            |
>                         and                                |
>                     Increases                        |            Decreases
> 
> Liability & Capital Accounts:
>                                                             |        
> Beginning Balance
>                                                             
> |                and
>                     Decreases                        |            Increases
> 
> Revenue Accounts:
>                     Decreases                        |            Increases
> 
> Expense Accounts:
>                     Increases                        |            Decreases
> 
> 
>   In summary, an INCREASE to an asset or expense account is a DEBIT 
> while an
> INCREASE to a liability, capital, or revenue account is a CREDIT. As a
> non-accountant, I find it handy to keep the above for ready reference.
> 
> Hope this helps,
> 
> Rich
> 

Yawn. And if you're not an anal-retentive accountant*, who gives a 
flying fig?

Just let me see whether I've got less money or more money and where it's 
going.

I mean y'all act like I don't understand the concepts. Trust me, I do. 
I'm a quick study and it's a readily approachable subject. Quickly 
mastered by some of my college friends who couldn't hack the math in 
engineering school and transfered over to the business school.

Frankly, I've taken enough abuse for one day.

Rod