Accounting Demystified
Content
ACCOUNTING DE-MYSTIFIED
THE HIDDEN SECRET OF BOOKKEEPING
BY RICHARD A. PRICE
Copyright 1998 by Richard A. Price
All Rights Reserved. No part of this book shall be reproduced or transmitted in any form or by any means, electronic, mechanical, magnetic, photographic including photocopying, recording or by any information storage the author. No patent liability is assumed with respect and retrieval system, without prior written permission of to the use of the information contained herein. Although every precaution has been taken in the preparation of this for errors or omissions. Neither is any liability assumed contain herein. book, the publisher and author assume no responsibility for damanges resulting from the use of the information
Table of Contents
INTRODUCTION .......................................................................................................................1 PART I THE BASICS
1. ACCOUNTING RULES ......................................................................................................3 2. CHECKING ACCOUNTS ...................................................................................................4 3. JOURNALS AND LEDGERS .............................................................................................6
PART II THE DETAILS
1. INVESTING IN THE BUSINESS .......................................................................................7 2. LOANS .................................................................................................................................8 3. PURCHASE OF EQUIPMENT ...........................................................................................9 4. PURCHASE OF SUPPLIES WITH CASH .......................................................................10 5. PURCHASE OF SUPPLIES WITH CREDIT....................................................................11 6. PAYMENT OF A CREDIT PURCHASE ...........................................................................12 7. EXPENSES ........................................................................................................................13 8. SUPPLY EXPENSE ...........................................................................................................14 9. ACCRUED EXPENSE.......................................................................................................15 10. PAYMENT OF AN ACCRUED EXPENSE.......................................................................16 11. DEPRECIATION EXPENSE .............................................................................................17 12. SALE FOR CASH ..............................................................................................................18 13. SALE FOR CREDIT ..........................................................................................................19 14. RECEIVE PAYMENT FOR CREDIT SALE.....................................................................20 15. LOAN PAYMENT .............................................................................................................21 16. INTEREST PAYMENT ......................................................................................................22 17. PERSONAL DRAW ...........................................................................................................23
PART III THE SUMMARY 1. 2. 3. 4. 5. 6.
CHART OF ACCOUNTS ..................................................................................................25 COMPLETED JOURNAL .................................................................................................26 COMPLETED LEDGER ...................................................................................................28 BALANCE SHEET ............................................................................................................34 INCOME STATEMENT ....................................................................................................35 END OF PERIOD ADJUSTMENTS .................................................................................36
CONCLUSION ..........................................................................................................................37
INTRODUCTION
This is a book about accounting theory. It presents a new way of looking at accounting. I do not pretend to know the full depth of accounting. I am not an accountant and as such cannot guarantee everything here is accurate according to accounting protocol. Were I an Accountant I would probably be thrown out of every accounting organization and have my CPA license revoked for presenting such an idea. After all, the current ideas have been in place for millennia. I am, however, a Systems Analyst and as such have more than a marginal knowledge of accounting and bookkeeping principles. This presentation is my analysis of a better way of learning the basic principles of accounting. It is up to others to expand upon this theory, take the ball, and run with it.
PART I: THE BASICS
1. Accounting Rules
A credit is a debit is a credit is a debit. One of the most confusing things about accounting is keeping tract of those darn debits and credits. Let’s see, if an asset account is debited your increase it ... or is that decrease? There is another way of approaching accounting where confusing accounting rules are completely eliminated. You don’t even have to know what a debit or credit is. They were probably invented by accountants to keep accounting complicated and thus give themselves job security. In every financial transaction money moves from one place to another. There is a source of the money or value and a destination. That is the great secret of accounting! With this in mind, there are no confusing accounting rules. If I sell a clock for $50, the source of the $50 is Sales and the destination is my Cash Account, or to put it in other terms, $50 is moved FROM Sales TO Cash. To (debit) Sales From (credit) $50.00 To (debit) $50.00 Cash From (credit)
As you can see, “From” and “To” work just fine in place of “Credit” and “Debit” and we did not have to use any accounting rules. We were not even concerned about which column was increasing and which column was decreasing. It all happened as a matter of course. To be consistent with present accounting procedure, we will use the left or debit column as the “To” column and the right or credit column as the “From” column.
8 Accounting De-Mystified
2. Checking Accounts
This column usage has always been confusing to the layman, as we are used to using the right column as the “To” column to record increases in our checking account, and the left column as the “From” column to record decreases in our checking account. This is the opposite of accounting procedures. Cash To From (Deposit) (Withdrawal) $50.00 Traditional Accounting Checking From To (Withdrawal) (Deposit) $50.00 Checking Account
The reason that this is done is because the bank is recording the deposits and withdrawals from their point of view. You are actually loaning the bank $50 and have a “Credit” on the books of the bank. Your checking account on the books of the bank
Customer Accounts (Withdrawal (Deposit TO FROM customers) customers) $50.00
Part I: The Basics 9
Another way of looking at the utilization of the checking account is to consider it a journal of income and expenses. Income is always recorded on the right side and expenses are always recorded on the left side. Journal of Income and Expenses To From (Expenses) (Income) $50.00
In traditional accounting recording increases on the left side of the Cash Account and decreases on the right side is the correct thing to do for your own books. Nevertheless, in a number of personal computerized accounting systems on the market, increases are recorded on the right side and decreases on the left side, because this is the way people are used to doing it in their own checkbook. Personally, I think that this just adds to the confusion. In this book we will stick to the traditional method.
10 Accounting De-Mystified
3. Journals and Ledgers
In Bookkeeping all transactions are first recorded in the journal. We will record both the source (From) and the destination (To) of the funds. Continuing with the example of our sale Description From Sales To Cash $50.00 Journal To (debit) From (credit) $50.00
We would then post the individual entries into the “Sales” and “Cash accounts in our ledger. Sales From (credit) $50.00 Cash From (credit)
To (debit)
To (debit) $50.00
In many modern computerized systems, only the journal entry is made manually. The posting to the individual ledger accounts is made by the computer automatically. This greatly simplifies the bookkeeping procedure.
PART II: THE DETAILS
1. Investing in the Business
We are going to set up a business called WIDGET GRAPHICS. One thing that every business needs is money. There are two sources of money, your own and somebody else’s. There are, in turn, two ways that you can use money from someone else; either sell them a share in the business or borrow it from them. All shares in a business, your own and every body else’s, is known as Capital. If we were to start a new business with a $10,000 cash investment, we would record the $10,000 “From” a source called Capital and “To” our Cash Account. Journal To (debit)
Description From Capital To Cash
From (credit) $10,000.00
$10,000.00
Capital To From (debit) (credit) $10,000.00
To (debit) $10,000.00
Cash From (credit)
12 Accounting De-Mystified
2. Loans
When our own funds and those of our co-investors are insufficient, the business needs to borrow money from someone else. This is a profitable thing to do providing our profits are higher than the interest paid on the loan. We decide that we need to borrow an additional $15,000 in order to set up our business. The money comes “From” an account called Loans Payable and goes “To” our friend, the Cash Account Journal To (debit)
Description From Loans Payable To Cash
From (credit) $15,000.00
$15,000.00
Loans Payable To From (debit) (credit) $15,000.00
To (debit) $15,000.00
Cash From (credit)
Part II: The Details 13
3. Purchase of Equipment
One of the first things that most businesses need to do before they commence operations is purchase some equipment. We decide to purchase a computer system worth $6,000. The money is withdrawn “From” our Cash Account and the purchase goes “To” Equipment. Journal To (debit)
Description From Cash To Equipment
From (credit) $6,000.00
$6,000.00
To (debit)
Cash From (credit) $6,000.00
Equipment To From (debit) (credit) $6,000.00
14 Accounting De-Mystified
4. Purchase of Supplies with Cash
We also need some supplies. We purchase $1,000 worth of paper and ink for our computer using cash. Journal To (debit)
Description From Cash To Supplies
From (credit) $1,000.00
$1,000.00
To (debit)
Cash From (credit) $1,000.00
To (debit) $1,000.00
Supplies From (credit)
Part II: The Details 15
5. Purchase of Supplies with Credit
It is a common practice for businesses to purchase supplies on credit and then pay for them when billed, usually in 30 days. We decide to purchase an additional $1,100 worth of paper. The account we are borrowing “From” is called Accounts Payable. The destination of the value is going “To” our Supplies Account. Journal To (debit)
Description From Accounts Payable To Supplies
From (credit) $1,100.00
$1,100.00
Accounts Payable To From (debit) (credit) $1,100.00
To (debit) $1,100.00
Supplies From (credit)
16 Accounting De-Mystified
6. Payment of a Credit Purchase
Later when we pay the bill, the money of course comes “From” Cash and goes “To” Accounts Payable. We decide to pay half of the outstanding amount owing. Description From Cash To Accounts Payable $550.00 Journal To (debit) From (credit) $550,00
To (debit)
Cash From (credit) $550.00
Accounts Payable To From (debit) (credit) $550.00
Part II: The Details 17
7. Expenses
The items we have been purchasing thus far, equipment and supplies, are items that retain their value. Such items are called Assets. When we spend money for something that is consumed right away, it is called an expense. We pay $500 for Utility charges. The money goes “To” an expense account called Utility Expense. Journal To (debit)
Description From Cash To Utility Expense
From (credit) $500.00
$500.00
To (debit)
Cash From (credit) $500.00
Utility Expense To From (debit) (credit) $500.00
18 Accounting De-Mystified
8. Supply Expense
Expenses also occur as we use up our supplies. This is the effect on our accounts if we use up $200 of our paper supplies. Journal To (debit)
Description From Supplies To Paper Expense
From (credit) $200.00
$200.00
Supplies To From (debit) (credit) $200.00
Paper Expense To From (debit) (credit) $200.00
Part II: The Details 19
9. Accrued Expense
Sometimes a business needs to charge an expense to a period of time before the money is actually paid out. This is called an Accrued Expense. It is treated as if the future expense is a loan. The “From” account is called Accrued Expense and the “To” account is the expense. This type of accounting is frequently done for items like taxes when it is desirable to charge, say, this year’s portion to this year, while the taxes are not actually payable until next year. It may also be done for items like insurance or labor expenses where the accounting periods overlap. The property taxes due next April for our business is $3,000. We want to charge $1,500 of that expense to this year. Description From Accrued Taxes To Tax Expense $1,500.00 Journal To (debit) From (credit) $1,500.00
Accrued Taxes To From (debit) (credit) $1,500.00
Tax Expense To From (debit) (credit) $1,500.00
20 Accounting De-Mystified
10. Payment of an Accrued Expense
Later, when we actually pay the taxes, we will move the money “From” Cash “To” Accrued Taxes. Journal To (debit)
Description From Cash To Accrued Taxes
From (credit) $1,500.00
$1,500.00
To (debit)
Cash From (credit) $1,500.00
Accrued Taxes To From (debit) (credit) $1,500.00
Part II: The Details 21
11. Depreciation Expense
Another form of expense is known as Depreciation. When we purchased our computer equipment, it was an Asset. As the equipment is used, it becomes less valuable. This lessened amount of the equipment’s value is Depreciation Expense. It needs to be charged as an expense so that we can eventually replace the item. Depreciations are allowed according to the tax code. For our purposes here we will use an even percentage over three years. For our $6,000 computer, this would amount to $2,000. The account that we are moving the value “From” is Equipment. The value goes “To” Depreciation Expense. Journal To (debit)
Description From Equipment
From (credit) $2,000.00
To Depreciation Expense
$2,000.00
Equipment To From (debit) (credit) $2,000.00
Depreciation Expense To From (debit) (credit) $2,000.00
22 Accounting De-Mystified
12. Sale for Cash
The purpose of a business is to make money for its owners. This requires that there be a source of income such as Sales. If we make a $7,000 Sale for Cash, the money comes “From” Sales and goes “To” Cash. Journal To (debit)
Description From Sales To Cash
From (credit) $7,000.00
$7,000.00
To (debit)
Sales From (credit) $7,000.00
To (debit) $7,000.00
Cash From (credit)
Part II: The Details 23
13. Sale for Credit
If we agree that the purchaser will pay us in thirty days, the destination instead of Cash will be to another asset called Accounts Receivable. We make another Sale for $7,600, this time on credit. Journal To (debit)
Description From Sales To Accounts Receivable
From (credit) $7,600.00
$7,600.00
To (debit)
Sales From (credit) $7,600.00
Accounts Receivable To From (debit) (credit) $7,600.00
24 Accounting De-Mystified
14. Receive Payment for Credit Sale
When the purchaser actually gives us the cash, we will take the money “From” Accounts Receivable and move it “To” Cash. This example illustrate the recording of a $5,000 payment. Journal To (debit)
Description
From (credit) $5,000.00
From Accounts Receivable To Cash $5,000.00
Accounts Receivable To From (debit) (credit) $5,000.00
To (debit) $5,000.00
Cash From (credit)
Part II: The Details 25
15. Loan Payment
When we borrowed the $15,000 to help set up our business, we agreed to pay it off in five years. That would be $3,000 per year. This payment would come “From” Cash “To” Loans Payable. Journal To (debit)
Description From Cash To Loans Payable
From (credit) $3,000.00
$3,000.00
To (debit)
Cash From (credit) $3,000.00
Loans Payable To From (debit) (credit) $3,000.00
26 Accounting De-Mystified
16. Interest Payment
We also agreed to pay interest of seven per-cent on the loan balance for each year. For the first year this would be seven per-cent of $15,000 or $1,050. We take the money “From” Cash and charge it “To” Interest Expense. This is sent to the bank along with our $3,000 payment. Journal To (debit)
Description From Cash To Interest Expense
From (credit) $1,050.00
$1,050.00
Cash To From (debit) (credit) $1,050.00
Interest Expense To From (debit) (credit) $1,050.00
Part II: The Details 27
17. Personal Draw
There would be no point in running a business if we did not utilize the profits for our personal use. To withdraw profits for personal use, the money comes “From” our old friend, the Cash Account, and goes “To” an account called Personal Draw. For a large company dividends to the stockholders would be made instead of a personal draw. If we decide to withdraw $2,000 from the business, the entry would look something like the following. Journal To (debit)
Description From Cash To Personal Draw
From (credit) $2,000.00
$2,000.00
Cash To From (debit) (credit) $2,000.00
Personal Draw To From (debit) (credit) $2,000.00
PART III: THE SUMMARY
1. The Chart of Accounts
It is often advantageous to assign a number to each of our Ledger Accounts. In this way we will be able to order the accounts in a manner other than alphabetical. In our case we are going to list the accounts in order of Assets, Liabilities and Net Worth which is a common practice. We have selected the number range of 100 for Assets, 200 for Liabilities, and 300 for Net Worth. The name and number of the accounts are as follows: Asset Accounts 100 Cash 110 Accounts Receivable 120 Supplies 130 Equipment Liability Accounts 200 Loans Payable 210 Accounts Payable 220 Accrued Taxes Net Worth Accounts 300 Capital 310 Personal Draw 320 Sales 330 Utility Expense 340 Paper Expense 350 Interest Expense 360 Depreciation Expense 370 Tax Expense
30 Accounting De-Mystified
2. Completed Journal
The following is a completed Journal for all of the transactions in this example. Date Item Description 1 2 3 4 5 John Jones Initial Investment Valley Bank Business Loan Oneida Computers Computer System Account From 300-Capital To 100-Cash From 200-Loans Payable To 100-Cash From 100-Cash To 120-Equipment To (debit) 10,000.00 15,000.00 6,000.00 1,000.00 From (credit) 10,000.00 15,000.00 6,000.00 1,000.00 1,100.00 1,100.00 550.00 550.00
Stern Business Forms From 100-Cash Purchase Paper To 120-Supplies Stern Business Forms From 210-Accounts Paper on Credit Payable To 120-Supplies Stern Business Forms From 100-Cash Pay for Paper To 210-Accounts Payable Municipal Utilities Pay for Utilities Use of Paper Prorate Taxes Pay Accrued Taxes* (Payment to be made in next period) From 100-Cash To 330-Utility Expense From 120-Supplies To 340-Paper Expense From 220-Accrued-Taxes 370-Tax Expense To
6
7 8 9 10
500.00 200.00 1,500.00
500.00 200.00 1,500.00
Part III: The Summary 31
Date Item Description 11 Depreciation Expense Northwest Realty Sale for Cash Charlie’s Market Sale on Credit Charlie’s Market Receive Payment Valley Bank Loan Payment Valley Bank Interest Payment John Jones Personal Draw Account From 130-Equipment To 360-Depreciation Expense From 320-Sales To 100-Cash From 320-Sales To 100-Accounts Receivable From 100-Accounts Receivable To 100-Cash From 100-Cash To 200-Loans Payable From 100-Cash To 350-Interest Expense From 100-Cash To 310-Personal Draw To (debit) 2,000.00 From (credit) 2,000.00
12
7,000.00 7,600.00
7,000.00 7,600.00
13
14
5,000.00 5,000.00 3,000.00 1,050.00 2,000.00 3,000.00 1,050.00 2,000.00
15 16 17
* You will note that we did not include the payment of the accrued expense in this list, since the payment of an accrued expense always occurs in a subsequent period.
32 Accounting De-Mystified
3. Completed Ledger
Now we will list all of the accounts in the ledger. We will place them in Asset, Liability and Net Worth Order. An Asset is any property owned by the business or owed to it. You will note that “To” entries in an asset account increases the asset’s balance, while “From” entries decrease an asset’s balance. Asset Accounts Date Item Description 1 2 3 4 6 7 12 14 100-Cash To (debit) 10,000.00 15,000.00 From (credit) Balance 10,000.00 25,000.00 6,000.00 19,000.00 1,000.00 18,000.00 550.00 500.00 7,000.00 5,000.00 17,450.00 16,950.00 23,950.00 28,950.00
John Jones From 300-Capital - Initial Investment Valley Bank - Business Loan From 200-Loans Payable Oneida Computers To 130-Equipment - Computer System Stern Business Forms To 120 Supplies - Purchase Paper Stern Business Forms - Pay for Paper To 210-Accounts Payable Municipal Utilities - Pay for Utilities To 330-Utility Expense Northwest Realty From 320-Sales - Sale for Cash Charlie’s Market - Cash for Sale From 110-Accounts Receivable
Part III: The Summary 33
Asset Accounts (continued) Date Item Description 15 16 17 100-Cash (continued) To (debit) From (credit) 3,000.00 Balance 25,950.00
Valley Bank - Loan Payment To 200-Loans Payable Valley Bank - Interest Payment To 350-Interest Expense John Jones To 310-Personal Draw 110-Accounts Receivable To (debit) 7,600.00
1,050.00 24,900.00 2,000.00 22,900.00
Date Item Description 13 14 Charlie’s Market From 320-Sales
From (credit)
Balance 7,600.00
Charlie’s Market To 100-Cash - Receive cash for sale
5,000.00
2,600.00
34 Accounting De-Mystified
Asset Accounts (continued) Date Item Description 4 5 8 120-Supplies To (debit) 1,000.00 1,100.00 200.00 From (credit) Balance 1,000.00 2,100.00 1,900.00
Stern Business Forms From 100-Cash - Purchase Paper Stern Business Forms - Purchase Paper From 210-Accounts Payable Use of Paper To 340-Paper Expense 130-Equpment
Date Item Description 3 11
To (debit) 6,000.00
From (credit)
Balance 6,000.00
Oneida Computers From 100-Cash - Computer System Expense Depreciation’ To 360-Depreciation Expense
2,000.00
4,000.00
Part III: The Summary 35
A liability is an amount owed to someone else. “From” entries increase the amount owed while “To” entries decrease the amount owed. Liability Accounts Date Item Description 2 15 200-Loans Payable To (debit) From (credit) Balance
Valley Bank To 100-Cash - Business Loan Valley Bank From 100-Cash - For Loan Payment 3,000.00
15,000.00 15,000.00 12,000.00
Date Item Description 5 6
210-Accounts Payable To (debit)
From (credit)
Balance
Stern Business Forms To 120-Supplies - Paper on Credit Stern Business Forms From 100-Cash - Pay for Paper 550.00
1,100.00 1,100.00 550.00
Date Item Description 9
220-Accrued Taxes To (debit)
From (credit) 1,500.00
Balance 1,500.00
Prorate Taxes for Year To 370-Tax Expense
36 Accounting De-Mystified
Net Worth is what is left over when Liabilities are subtracted from Assets. Net Worth is also the total of the Capital, Personal Draw, Sales and Expense Accounts. “From” entries increase the balances in the Capital and Sales Accounts while “To” entries increase the balances in the Personal Draw and Expense Accounts. Overall “From” entries increase Net Worth and “To” entries decrease Net Worth. Net Worth Accounts Date Item Description 1 300-Capital To (debit) From (credit) Balance
John Jones To 100-Cash - Initial Investment 310-Personal Draw To (debit) 2,000.00
10,000.00 10,000,00
Date Item Description 17
From (credit)
Balance 2,000.00
John Jones From 100-Cash - Personal Draw 320-Sales
Date Item Description 12 13
To (debit)
From (credit) 7,000.00
Balance 7,000.00
Northwest Realty To 100-Cash - Sale for Cash Charlie’s Market - Sale for Credit To 110-Accounts Receivable
7,600.00 14,600.00
Part III: The Summary 37
Net Worth Accounts (Continued) Date Item Description 7 330-Utility Expense To (debit) 500.00 From (credit) Balance 500.00
Municipal Utilities From 100-Cash - Pay for Utilities
Date Item Description 8 Use of Paper From 120-Supplies
340-Paper Expense To (debit) 200.00 350-Interest Expense To (debit) 1,050.00
From (credit)
Balance 200.00
Date Item Description 16
From (credit)
Balance 1,050.00
Valley Bank From 100-Cash - Interest Payment
Date Item Description 11
360-Depreciation Expense To (debit) 2,000.00 370-Tax Expense
From (credit)
Balance 2,000.00
Depreciation Expense From 130-Equipment
Date Item Description 9
To (debit) 1,500.00
From (credit)
Balance 1,500.00
Prorate Taxes for Year From 220-Accrued Taxes
38 Accounting De-Mystified
4. Balance Sheet
The Balance Sheet is a recap of the Ledger Accounts. It gives the total of Assets, the total of Liabilities and the total of Net Worth. The Assets always equals the Liabilities plus the Net Worth. The Balance Sheet is useful in determining what the business owns, moneys owed, and the value of the business to the owners. To Assets (debit) 100-Cash 110-Accounts Receivable 120-Supplies 130-Equipment Total Assets Liabilities 200-Loans Payable 210-Accounts Payable 220-Accrued Taxes Total Liabilities Net Worth 300-Capital 310-Personal Draw 320-Sales 330-Utility Expense 340-Paper Expense 350-Interest Expense 360-Depreciation Expense 370-Tax Expense $22,900.00 2,600.00 1,900.00 4,000.00 $31,400.00 $12,000.00 550.00 1,500.00 $14,050.00 $2,000.00 500.00 200.00 1,050.00 2,000.00 1,500.00 $7,250.00 Total Net Worth Total Liabilities + Net Worth $10,000.00 14,600.00 From (credit)
$24,600.00 -------------17,350.00 ======== $31,400.00
Part III: The Summary 39
5. Income Statement
The other common useful summary information for a business is the income or profit and loss statement. It tells what a business has earned or lost during the current operating period. Basically, Income is Sales and other earnings less the Expenses of operating the business. Income 320-Sales Total Income Expenses 330-Utility Expense 340-Paper Expense 350-Interest Expense 360-Depreciation Expense 370-Tax Expense Total Liabilities Net Income (Sales less Expenses) To (debit) From (credit) $14,600.00 $14,600.00 $ 500.00 200.00 1,050.00 2,000.00 1,500.00 $ 9,350.00
$ 5,250.00
40 Accounting De-Mystified
6. End of Period Adjustments
Assets and Liabilities carry over from one period to another, but Sales, Expenses and Personal Draw are measurements of the current period only. To start the next period, these items are rolled over into the Capital Account which remains the only Net Worth Account for the start of the next period Net Worth (End of this period) 300-Capital 310-Personal Draw 320-Sales 330-Utility Expense 340-Paper Expense 350-Interest Expense 360-Depreciation Expense 370-Tax Expense Total Net Worth Net Worth (Start of next period) 330-Capital Total Net Worth To (debit) $ 2,000.00 500.00 200.00 1,050.00 2,000.00 1,500.00 7,250.00 From (credit) $10,000.00 14,600.00
24,600.00 ------------$17,350.00 $17,350.00 ------------$17,350.00
CONCLUSION
The reason that I wrote this book is that through my study of accounting and the keeping of my own books, I discovered that when an entry was recorded on the right or credit side of an account, it was describing that account as a source of funds; and when an entry was recorded on the left or debit side of an account, it was describing that account as a destination of funds. I have never seen this written in any book on accounting or bookkeeping, but it has certainly helped in my mind to keep my debits and credits straight. Whenever I hear the word Credit, I think of “From”. When I hear the word Debit, I think of “To”. Well, there you have it. Accounting for the New Age. Traditional accountants may not like the ideas that we have been discussing, but as they say, “it works for me”. I hope that it works for you too! For additional information, please contact the author at [email protected]
THE HIDDEN SECRET OF BOOKKEEPING
BY RICHARD A. PRICE
Copyright 1998 by Richard A. Price
All Rights Reserved. No part of this book shall be reproduced or transmitted in any form or by any means, electronic, mechanical, magnetic, photographic including photocopying, recording or by any information storage the author. No patent liability is assumed with respect and retrieval system, without prior written permission of to the use of the information contained herein. Although every precaution has been taken in the preparation of this for errors or omissions. Neither is any liability assumed contain herein. book, the publisher and author assume no responsibility for damanges resulting from the use of the information
Table of Contents
INTRODUCTION .......................................................................................................................1 PART I THE BASICS
1. ACCOUNTING RULES ......................................................................................................3 2. CHECKING ACCOUNTS ...................................................................................................4 3. JOURNALS AND LEDGERS .............................................................................................6
PART II THE DETAILS
1. INVESTING IN THE BUSINESS .......................................................................................7 2. LOANS .................................................................................................................................8 3. PURCHASE OF EQUIPMENT ...........................................................................................9 4. PURCHASE OF SUPPLIES WITH CASH .......................................................................10 5. PURCHASE OF SUPPLIES WITH CREDIT....................................................................11 6. PAYMENT OF A CREDIT PURCHASE ...........................................................................12 7. EXPENSES ........................................................................................................................13 8. SUPPLY EXPENSE ...........................................................................................................14 9. ACCRUED EXPENSE.......................................................................................................15 10. PAYMENT OF AN ACCRUED EXPENSE.......................................................................16 11. DEPRECIATION EXPENSE .............................................................................................17 12. SALE FOR CASH ..............................................................................................................18 13. SALE FOR CREDIT ..........................................................................................................19 14. RECEIVE PAYMENT FOR CREDIT SALE.....................................................................20 15. LOAN PAYMENT .............................................................................................................21 16. INTEREST PAYMENT ......................................................................................................22 17. PERSONAL DRAW ...........................................................................................................23
PART III THE SUMMARY 1. 2. 3. 4. 5. 6.
CHART OF ACCOUNTS ..................................................................................................25 COMPLETED JOURNAL .................................................................................................26 COMPLETED LEDGER ...................................................................................................28 BALANCE SHEET ............................................................................................................34 INCOME STATEMENT ....................................................................................................35 END OF PERIOD ADJUSTMENTS .................................................................................36
CONCLUSION ..........................................................................................................................37
INTRODUCTION
This is a book about accounting theory. It presents a new way of looking at accounting. I do not pretend to know the full depth of accounting. I am not an accountant and as such cannot guarantee everything here is accurate according to accounting protocol. Were I an Accountant I would probably be thrown out of every accounting organization and have my CPA license revoked for presenting such an idea. After all, the current ideas have been in place for millennia. I am, however, a Systems Analyst and as such have more than a marginal knowledge of accounting and bookkeeping principles. This presentation is my analysis of a better way of learning the basic principles of accounting. It is up to others to expand upon this theory, take the ball, and run with it.
PART I: THE BASICS
1. Accounting Rules
A credit is a debit is a credit is a debit. One of the most confusing things about accounting is keeping tract of those darn debits and credits. Let’s see, if an asset account is debited your increase it ... or is that decrease? There is another way of approaching accounting where confusing accounting rules are completely eliminated. You don’t even have to know what a debit or credit is. They were probably invented by accountants to keep accounting complicated and thus give themselves job security. In every financial transaction money moves from one place to another. There is a source of the money or value and a destination. That is the great secret of accounting! With this in mind, there are no confusing accounting rules. If I sell a clock for $50, the source of the $50 is Sales and the destination is my Cash Account, or to put it in other terms, $50 is moved FROM Sales TO Cash. To (debit) Sales From (credit) $50.00 To (debit) $50.00 Cash From (credit)
As you can see, “From” and “To” work just fine in place of “Credit” and “Debit” and we did not have to use any accounting rules. We were not even concerned about which column was increasing and which column was decreasing. It all happened as a matter of course. To be consistent with present accounting procedure, we will use the left or debit column as the “To” column and the right or credit column as the “From” column.
8 Accounting De-Mystified
2. Checking Accounts
This column usage has always been confusing to the layman, as we are used to using the right column as the “To” column to record increases in our checking account, and the left column as the “From” column to record decreases in our checking account. This is the opposite of accounting procedures. Cash To From (Deposit) (Withdrawal) $50.00 Traditional Accounting Checking From To (Withdrawal) (Deposit) $50.00 Checking Account
The reason that this is done is because the bank is recording the deposits and withdrawals from their point of view. You are actually loaning the bank $50 and have a “Credit” on the books of the bank. Your checking account on the books of the bank
Customer Accounts (Withdrawal (Deposit TO FROM customers) customers) $50.00
Part I: The Basics 9
Another way of looking at the utilization of the checking account is to consider it a journal of income and expenses. Income is always recorded on the right side and expenses are always recorded on the left side. Journal of Income and Expenses To From (Expenses) (Income) $50.00
In traditional accounting recording increases on the left side of the Cash Account and decreases on the right side is the correct thing to do for your own books. Nevertheless, in a number of personal computerized accounting systems on the market, increases are recorded on the right side and decreases on the left side, because this is the way people are used to doing it in their own checkbook. Personally, I think that this just adds to the confusion. In this book we will stick to the traditional method.
10 Accounting De-Mystified
3. Journals and Ledgers
In Bookkeeping all transactions are first recorded in the journal. We will record both the source (From) and the destination (To) of the funds. Continuing with the example of our sale Description From Sales To Cash $50.00 Journal To (debit) From (credit) $50.00
We would then post the individual entries into the “Sales” and “Cash accounts in our ledger. Sales From (credit) $50.00 Cash From (credit)
To (debit)
To (debit) $50.00
In many modern computerized systems, only the journal entry is made manually. The posting to the individual ledger accounts is made by the computer automatically. This greatly simplifies the bookkeeping procedure.
PART II: THE DETAILS
1. Investing in the Business
We are going to set up a business called WIDGET GRAPHICS. One thing that every business needs is money. There are two sources of money, your own and somebody else’s. There are, in turn, two ways that you can use money from someone else; either sell them a share in the business or borrow it from them. All shares in a business, your own and every body else’s, is known as Capital. If we were to start a new business with a $10,000 cash investment, we would record the $10,000 “From” a source called Capital and “To” our Cash Account. Journal To (debit)
Description From Capital To Cash
From (credit) $10,000.00
$10,000.00
Capital To From (debit) (credit) $10,000.00
To (debit) $10,000.00
Cash From (credit)
12 Accounting De-Mystified
2. Loans
When our own funds and those of our co-investors are insufficient, the business needs to borrow money from someone else. This is a profitable thing to do providing our profits are higher than the interest paid on the loan. We decide that we need to borrow an additional $15,000 in order to set up our business. The money comes “From” an account called Loans Payable and goes “To” our friend, the Cash Account Journal To (debit)
Description From Loans Payable To Cash
From (credit) $15,000.00
$15,000.00
Loans Payable To From (debit) (credit) $15,000.00
To (debit) $15,000.00
Cash From (credit)
Part II: The Details 13
3. Purchase of Equipment
One of the first things that most businesses need to do before they commence operations is purchase some equipment. We decide to purchase a computer system worth $6,000. The money is withdrawn “From” our Cash Account and the purchase goes “To” Equipment. Journal To (debit)
Description From Cash To Equipment
From (credit) $6,000.00
$6,000.00
To (debit)
Cash From (credit) $6,000.00
Equipment To From (debit) (credit) $6,000.00
14 Accounting De-Mystified
4. Purchase of Supplies with Cash
We also need some supplies. We purchase $1,000 worth of paper and ink for our computer using cash. Journal To (debit)
Description From Cash To Supplies
From (credit) $1,000.00
$1,000.00
To (debit)
Cash From (credit) $1,000.00
To (debit) $1,000.00
Supplies From (credit)
Part II: The Details 15
5. Purchase of Supplies with Credit
It is a common practice for businesses to purchase supplies on credit and then pay for them when billed, usually in 30 days. We decide to purchase an additional $1,100 worth of paper. The account we are borrowing “From” is called Accounts Payable. The destination of the value is going “To” our Supplies Account. Journal To (debit)
Description From Accounts Payable To Supplies
From (credit) $1,100.00
$1,100.00
Accounts Payable To From (debit) (credit) $1,100.00
To (debit) $1,100.00
Supplies From (credit)
16 Accounting De-Mystified
6. Payment of a Credit Purchase
Later when we pay the bill, the money of course comes “From” Cash and goes “To” Accounts Payable. We decide to pay half of the outstanding amount owing. Description From Cash To Accounts Payable $550.00 Journal To (debit) From (credit) $550,00
To (debit)
Cash From (credit) $550.00
Accounts Payable To From (debit) (credit) $550.00
Part II: The Details 17
7. Expenses
The items we have been purchasing thus far, equipment and supplies, are items that retain their value. Such items are called Assets. When we spend money for something that is consumed right away, it is called an expense. We pay $500 for Utility charges. The money goes “To” an expense account called Utility Expense. Journal To (debit)
Description From Cash To Utility Expense
From (credit) $500.00
$500.00
To (debit)
Cash From (credit) $500.00
Utility Expense To From (debit) (credit) $500.00
18 Accounting De-Mystified
8. Supply Expense
Expenses also occur as we use up our supplies. This is the effect on our accounts if we use up $200 of our paper supplies. Journal To (debit)
Description From Supplies To Paper Expense
From (credit) $200.00
$200.00
Supplies To From (debit) (credit) $200.00
Paper Expense To From (debit) (credit) $200.00
Part II: The Details 19
9. Accrued Expense
Sometimes a business needs to charge an expense to a period of time before the money is actually paid out. This is called an Accrued Expense. It is treated as if the future expense is a loan. The “From” account is called Accrued Expense and the “To” account is the expense. This type of accounting is frequently done for items like taxes when it is desirable to charge, say, this year’s portion to this year, while the taxes are not actually payable until next year. It may also be done for items like insurance or labor expenses where the accounting periods overlap. The property taxes due next April for our business is $3,000. We want to charge $1,500 of that expense to this year. Description From Accrued Taxes To Tax Expense $1,500.00 Journal To (debit) From (credit) $1,500.00
Accrued Taxes To From (debit) (credit) $1,500.00
Tax Expense To From (debit) (credit) $1,500.00
20 Accounting De-Mystified
10. Payment of an Accrued Expense
Later, when we actually pay the taxes, we will move the money “From” Cash “To” Accrued Taxes. Journal To (debit)
Description From Cash To Accrued Taxes
From (credit) $1,500.00
$1,500.00
To (debit)
Cash From (credit) $1,500.00
Accrued Taxes To From (debit) (credit) $1,500.00
Part II: The Details 21
11. Depreciation Expense
Another form of expense is known as Depreciation. When we purchased our computer equipment, it was an Asset. As the equipment is used, it becomes less valuable. This lessened amount of the equipment’s value is Depreciation Expense. It needs to be charged as an expense so that we can eventually replace the item. Depreciations are allowed according to the tax code. For our purposes here we will use an even percentage over three years. For our $6,000 computer, this would amount to $2,000. The account that we are moving the value “From” is Equipment. The value goes “To” Depreciation Expense. Journal To (debit)
Description From Equipment
From (credit) $2,000.00
To Depreciation Expense
$2,000.00
Equipment To From (debit) (credit) $2,000.00
Depreciation Expense To From (debit) (credit) $2,000.00
22 Accounting De-Mystified
12. Sale for Cash
The purpose of a business is to make money for its owners. This requires that there be a source of income such as Sales. If we make a $7,000 Sale for Cash, the money comes “From” Sales and goes “To” Cash. Journal To (debit)
Description From Sales To Cash
From (credit) $7,000.00
$7,000.00
To (debit)
Sales From (credit) $7,000.00
To (debit) $7,000.00
Cash From (credit)
Part II: The Details 23
13. Sale for Credit
If we agree that the purchaser will pay us in thirty days, the destination instead of Cash will be to another asset called Accounts Receivable. We make another Sale for $7,600, this time on credit. Journal To (debit)
Description From Sales To Accounts Receivable
From (credit) $7,600.00
$7,600.00
To (debit)
Sales From (credit) $7,600.00
Accounts Receivable To From (debit) (credit) $7,600.00
24 Accounting De-Mystified
14. Receive Payment for Credit Sale
When the purchaser actually gives us the cash, we will take the money “From” Accounts Receivable and move it “To” Cash. This example illustrate the recording of a $5,000 payment. Journal To (debit)
Description
From (credit) $5,000.00
From Accounts Receivable To Cash $5,000.00
Accounts Receivable To From (debit) (credit) $5,000.00
To (debit) $5,000.00
Cash From (credit)
Part II: The Details 25
15. Loan Payment
When we borrowed the $15,000 to help set up our business, we agreed to pay it off in five years. That would be $3,000 per year. This payment would come “From” Cash “To” Loans Payable. Journal To (debit)
Description From Cash To Loans Payable
From (credit) $3,000.00
$3,000.00
To (debit)
Cash From (credit) $3,000.00
Loans Payable To From (debit) (credit) $3,000.00
26 Accounting De-Mystified
16. Interest Payment
We also agreed to pay interest of seven per-cent on the loan balance for each year. For the first year this would be seven per-cent of $15,000 or $1,050. We take the money “From” Cash and charge it “To” Interest Expense. This is sent to the bank along with our $3,000 payment. Journal To (debit)
Description From Cash To Interest Expense
From (credit) $1,050.00
$1,050.00
Cash To From (debit) (credit) $1,050.00
Interest Expense To From (debit) (credit) $1,050.00
Part II: The Details 27
17. Personal Draw
There would be no point in running a business if we did not utilize the profits for our personal use. To withdraw profits for personal use, the money comes “From” our old friend, the Cash Account, and goes “To” an account called Personal Draw. For a large company dividends to the stockholders would be made instead of a personal draw. If we decide to withdraw $2,000 from the business, the entry would look something like the following. Journal To (debit)
Description From Cash To Personal Draw
From (credit) $2,000.00
$2,000.00
Cash To From (debit) (credit) $2,000.00
Personal Draw To From (debit) (credit) $2,000.00
PART III: THE SUMMARY
1. The Chart of Accounts
It is often advantageous to assign a number to each of our Ledger Accounts. In this way we will be able to order the accounts in a manner other than alphabetical. In our case we are going to list the accounts in order of Assets, Liabilities and Net Worth which is a common practice. We have selected the number range of 100 for Assets, 200 for Liabilities, and 300 for Net Worth. The name and number of the accounts are as follows: Asset Accounts 100 Cash 110 Accounts Receivable 120 Supplies 130 Equipment Liability Accounts 200 Loans Payable 210 Accounts Payable 220 Accrued Taxes Net Worth Accounts 300 Capital 310 Personal Draw 320 Sales 330 Utility Expense 340 Paper Expense 350 Interest Expense 360 Depreciation Expense 370 Tax Expense
30 Accounting De-Mystified
2. Completed Journal
The following is a completed Journal for all of the transactions in this example. Date Item Description 1 2 3 4 5 John Jones Initial Investment Valley Bank Business Loan Oneida Computers Computer System Account From 300-Capital To 100-Cash From 200-Loans Payable To 100-Cash From 100-Cash To 120-Equipment To (debit) 10,000.00 15,000.00 6,000.00 1,000.00 From (credit) 10,000.00 15,000.00 6,000.00 1,000.00 1,100.00 1,100.00 550.00 550.00
Stern Business Forms From 100-Cash Purchase Paper To 120-Supplies Stern Business Forms From 210-Accounts Paper on Credit Payable To 120-Supplies Stern Business Forms From 100-Cash Pay for Paper To 210-Accounts Payable Municipal Utilities Pay for Utilities Use of Paper Prorate Taxes Pay Accrued Taxes* (Payment to be made in next period) From 100-Cash To 330-Utility Expense From 120-Supplies To 340-Paper Expense From 220-Accrued-Taxes 370-Tax Expense To
6
7 8 9 10
500.00 200.00 1,500.00
500.00 200.00 1,500.00
Part III: The Summary 31
Date Item Description 11 Depreciation Expense Northwest Realty Sale for Cash Charlie’s Market Sale on Credit Charlie’s Market Receive Payment Valley Bank Loan Payment Valley Bank Interest Payment John Jones Personal Draw Account From 130-Equipment To 360-Depreciation Expense From 320-Sales To 100-Cash From 320-Sales To 100-Accounts Receivable From 100-Accounts Receivable To 100-Cash From 100-Cash To 200-Loans Payable From 100-Cash To 350-Interest Expense From 100-Cash To 310-Personal Draw To (debit) 2,000.00 From (credit) 2,000.00
12
7,000.00 7,600.00
7,000.00 7,600.00
13
14
5,000.00 5,000.00 3,000.00 1,050.00 2,000.00 3,000.00 1,050.00 2,000.00
15 16 17
* You will note that we did not include the payment of the accrued expense in this list, since the payment of an accrued expense always occurs in a subsequent period.
32 Accounting De-Mystified
3. Completed Ledger
Now we will list all of the accounts in the ledger. We will place them in Asset, Liability and Net Worth Order. An Asset is any property owned by the business or owed to it. You will note that “To” entries in an asset account increases the asset’s balance, while “From” entries decrease an asset’s balance. Asset Accounts Date Item Description 1 2 3 4 6 7 12 14 100-Cash To (debit) 10,000.00 15,000.00 From (credit) Balance 10,000.00 25,000.00 6,000.00 19,000.00 1,000.00 18,000.00 550.00 500.00 7,000.00 5,000.00 17,450.00 16,950.00 23,950.00 28,950.00
John Jones From 300-Capital - Initial Investment Valley Bank - Business Loan From 200-Loans Payable Oneida Computers To 130-Equipment - Computer System Stern Business Forms To 120 Supplies - Purchase Paper Stern Business Forms - Pay for Paper To 210-Accounts Payable Municipal Utilities - Pay for Utilities To 330-Utility Expense Northwest Realty From 320-Sales - Sale for Cash Charlie’s Market - Cash for Sale From 110-Accounts Receivable
Part III: The Summary 33
Asset Accounts (continued) Date Item Description 15 16 17 100-Cash (continued) To (debit) From (credit) 3,000.00 Balance 25,950.00
Valley Bank - Loan Payment To 200-Loans Payable Valley Bank - Interest Payment To 350-Interest Expense John Jones To 310-Personal Draw 110-Accounts Receivable To (debit) 7,600.00
1,050.00 24,900.00 2,000.00 22,900.00
Date Item Description 13 14 Charlie’s Market From 320-Sales
From (credit)
Balance 7,600.00
Charlie’s Market To 100-Cash - Receive cash for sale
5,000.00
2,600.00
34 Accounting De-Mystified
Asset Accounts (continued) Date Item Description 4 5 8 120-Supplies To (debit) 1,000.00 1,100.00 200.00 From (credit) Balance 1,000.00 2,100.00 1,900.00
Stern Business Forms From 100-Cash - Purchase Paper Stern Business Forms - Purchase Paper From 210-Accounts Payable Use of Paper To 340-Paper Expense 130-Equpment
Date Item Description 3 11
To (debit) 6,000.00
From (credit)
Balance 6,000.00
Oneida Computers From 100-Cash - Computer System Expense Depreciation’ To 360-Depreciation Expense
2,000.00
4,000.00
Part III: The Summary 35
A liability is an amount owed to someone else. “From” entries increase the amount owed while “To” entries decrease the amount owed. Liability Accounts Date Item Description 2 15 200-Loans Payable To (debit) From (credit) Balance
Valley Bank To 100-Cash - Business Loan Valley Bank From 100-Cash - For Loan Payment 3,000.00
15,000.00 15,000.00 12,000.00
Date Item Description 5 6
210-Accounts Payable To (debit)
From (credit)
Balance
Stern Business Forms To 120-Supplies - Paper on Credit Stern Business Forms From 100-Cash - Pay for Paper 550.00
1,100.00 1,100.00 550.00
Date Item Description 9
220-Accrued Taxes To (debit)
From (credit) 1,500.00
Balance 1,500.00
Prorate Taxes for Year To 370-Tax Expense
36 Accounting De-Mystified
Net Worth is what is left over when Liabilities are subtracted from Assets. Net Worth is also the total of the Capital, Personal Draw, Sales and Expense Accounts. “From” entries increase the balances in the Capital and Sales Accounts while “To” entries increase the balances in the Personal Draw and Expense Accounts. Overall “From” entries increase Net Worth and “To” entries decrease Net Worth. Net Worth Accounts Date Item Description 1 300-Capital To (debit) From (credit) Balance
John Jones To 100-Cash - Initial Investment 310-Personal Draw To (debit) 2,000.00
10,000.00 10,000,00
Date Item Description 17
From (credit)
Balance 2,000.00
John Jones From 100-Cash - Personal Draw 320-Sales
Date Item Description 12 13
To (debit)
From (credit) 7,000.00
Balance 7,000.00
Northwest Realty To 100-Cash - Sale for Cash Charlie’s Market - Sale for Credit To 110-Accounts Receivable
7,600.00 14,600.00
Part III: The Summary 37
Net Worth Accounts (Continued) Date Item Description 7 330-Utility Expense To (debit) 500.00 From (credit) Balance 500.00
Municipal Utilities From 100-Cash - Pay for Utilities
Date Item Description 8 Use of Paper From 120-Supplies
340-Paper Expense To (debit) 200.00 350-Interest Expense To (debit) 1,050.00
From (credit)
Balance 200.00
Date Item Description 16
From (credit)
Balance 1,050.00
Valley Bank From 100-Cash - Interest Payment
Date Item Description 11
360-Depreciation Expense To (debit) 2,000.00 370-Tax Expense
From (credit)
Balance 2,000.00
Depreciation Expense From 130-Equipment
Date Item Description 9
To (debit) 1,500.00
From (credit)
Balance 1,500.00
Prorate Taxes for Year From 220-Accrued Taxes
38 Accounting De-Mystified
4. Balance Sheet
The Balance Sheet is a recap of the Ledger Accounts. It gives the total of Assets, the total of Liabilities and the total of Net Worth. The Assets always equals the Liabilities plus the Net Worth. The Balance Sheet is useful in determining what the business owns, moneys owed, and the value of the business to the owners. To Assets (debit) 100-Cash 110-Accounts Receivable 120-Supplies 130-Equipment Total Assets Liabilities 200-Loans Payable 210-Accounts Payable 220-Accrued Taxes Total Liabilities Net Worth 300-Capital 310-Personal Draw 320-Sales 330-Utility Expense 340-Paper Expense 350-Interest Expense 360-Depreciation Expense 370-Tax Expense $22,900.00 2,600.00 1,900.00 4,000.00 $31,400.00 $12,000.00 550.00 1,500.00 $14,050.00 $2,000.00 500.00 200.00 1,050.00 2,000.00 1,500.00 $7,250.00 Total Net Worth Total Liabilities + Net Worth $10,000.00 14,600.00 From (credit)
$24,600.00 -------------17,350.00 ======== $31,400.00
Part III: The Summary 39
5. Income Statement
The other common useful summary information for a business is the income or profit and loss statement. It tells what a business has earned or lost during the current operating period. Basically, Income is Sales and other earnings less the Expenses of operating the business. Income 320-Sales Total Income Expenses 330-Utility Expense 340-Paper Expense 350-Interest Expense 360-Depreciation Expense 370-Tax Expense Total Liabilities Net Income (Sales less Expenses) To (debit) From (credit) $14,600.00 $14,600.00 $ 500.00 200.00 1,050.00 2,000.00 1,500.00 $ 9,350.00
$ 5,250.00
40 Accounting De-Mystified
6. End of Period Adjustments
Assets and Liabilities carry over from one period to another, but Sales, Expenses and Personal Draw are measurements of the current period only. To start the next period, these items are rolled over into the Capital Account which remains the only Net Worth Account for the start of the next period Net Worth (End of this period) 300-Capital 310-Personal Draw 320-Sales 330-Utility Expense 340-Paper Expense 350-Interest Expense 360-Depreciation Expense 370-Tax Expense Total Net Worth Net Worth (Start of next period) 330-Capital Total Net Worth To (debit) $ 2,000.00 500.00 200.00 1,050.00 2,000.00 1,500.00 7,250.00 From (credit) $10,000.00 14,600.00
24,600.00 ------------$17,350.00 $17,350.00 ------------$17,350.00
CONCLUSION
The reason that I wrote this book is that through my study of accounting and the keeping of my own books, I discovered that when an entry was recorded on the right or credit side of an account, it was describing that account as a source of funds; and when an entry was recorded on the left or debit side of an account, it was describing that account as a destination of funds. I have never seen this written in any book on accounting or bookkeeping, but it has certainly helped in my mind to keep my debits and credits straight. Whenever I hear the word Credit, I think of “From”. When I hear the word Debit, I think of “To”. Well, there you have it. Accounting for the New Age. Traditional accountants may not like the ideas that we have been discussing, but as they say, “it works for me”. I hope that it works for you too! For additional information, please contact the author at [email protected]
