I’ve managed to get some quite time today so i’ve tried to knuckle down to gets some of this unit completed. I have come up with a few key concepts that again i am going to put up in my blog so anyone including myself can go back to, to refresh there mind.
Three things to memorise;
- Increase in an asset is a debit
- Assets + Expenses = Equity + Revenue + Liabilities
- LH Side are debits; RH Side are credits
- Income Statement: Exclusive GST
- Balance Sheet: Exclusive GST
- Cashflow Statement: Inclusive GST
Accounting is a language it is used to communicate financial position and it does this through a balance sheet. It also communicates financial performance and it does this using an income statement.
The revenue belongs to the business. The business is responsible for the expenses.
Revenue: Income which arises in the course of ordinary activities of an entity. Expenses: Cost of services or economic benefits consumed or lost or liabilities incurred during the period in the generation of revenue.
Revenue is an increase in equity Expenses are an decrease in equity
The only other things that affect equity are investments by the owner and withdrawals (for personal use) by the owner.
Equity =Investment by the owner- drawings by the owner + revenue – expense
Assets have a debit nature Liabilities have a credit nature Equity has a credit nature
An increase in an asset is a debit A decrease in an asset is a credit An increase in a liability is a credit A decrease in a liability is a debit An increase in equity is a credit A decrease in equity is a debit
A ledger is a book that contains ACCOUNTS. One for every account that is affected by trasactions during the accounting period. Whwre effect of transactions is recorded three basic parts, title, place for recording increases, place for recording decreases.
In the ledger an account is established for each type of;
Asset Liability Equity Income Expense
When writing a ledger there are 4 steps to the cycle;
1. Recognise and record transactions 2.Journalise transactions 3. Post to ledger accounts 4. Prepare trail balance
Thanks for reading guys i will talk to you again soon when i get a chance.