Fully understanding the double entry system in bookkeeping?

2017-08-03 10:11 pm
I'm sorry if I said I fully understand the system, but I don't know how debits and credits and assets and liabilities are connected really? When you have a ledger account and are using debits and credits how does the assets and liabilities get involved?

回答 (5)

2017-08-04 12:21 am
✔ 最佳答案
A good example of the concept of double-entry bookkeeping is what happens when you buy a house. For this example assume there's no change in the fair market value of the house.

The accounting equation is: Assets minus Liabilities equals Owner's Equity (also called 'capital')

If you understand the concept of equity in a home, you understand the concept of double-entry bookkeeping.

You take out a $200,000 mortgage to buy a $200,000 house. You have no equity (asset $200,000 house minus $200,000 liability).

A few years later you've paid $10,000 in principal. Now your Owner's Equity is $10,000. (asset $200,000 minus liability of $190,000 = $$10,000).

That's exactly how double-entry bookkeeping and balance sheets work. On the purchase you would debit the asset account (home) and have a matching credit of $200,000 (mortgage).

For all purposes, a debit simply means "Left Column," and a credit means "Right Column." Certain ledger accounts usually have a debit balance, and others have a credit balance, but there are exceptions.

A balance sheet is a snapshot in time showing assets, liabilities, and owners equity. You'll see a balance sheet labeled as something like, "Balance Sheet as of December 31, 2016."

An income statement is a view of the financial activity over a period of time. You'll see a label like, "Income Statement for the period January 1, 2016 through December 31, 2016."

At the end of the year the income (or loss) is posted to your owner's equity account.
2017-08-04 12:32 am
There are two areas of finance in your life - what you earn and what you own. Income and expenses are what you earn and assets and liabilities are what you own. Every time something happens there is a double entry. Pay a bill and your bank account is reduced while your liabilities are reduced at the same time.
2017-08-04 4:51 pm
The extended accounting equation is.
Assets + Expenses + Drawings = Liabilities + Capital + Revenue

Debit means on the left hand side of the equation, credit means on the right side of the equation
2017-08-04 12:05 am
Assets are things you own and have a debit balance. Liabilities are things you owe and are credit balances. Equity is the difference between the two and can be either a debit or a credit.
2017-08-03 10:22 pm
For tax purposes, everything you own or did in the business must be open for audit. For instance, say you own a restaurant. Everything related to the building you own or rent must be listed, from the actual building property, the rent or mortgage or tax payments, the electricity costs, and all of the tables, chairs, pots and pans for cooking, dishes, silverware, tablecloths and decorations must be listed as assets, so that when the business taxes are due, the value of ALL of that is already estimated for the "estimated tax" , so that number is reviewed and valued for the tax preparer to estimate how much business tax is due on the business at the end of the year. The liabilities are things like health insurance to your employees, fire and water damage insurance to the building, and emergency funds for building repair such as broken windows, damaged ovens or stoves, or coverage for car accidents in your parking lot! All of these are also included in your estimated tax at the end of the year , so that if there is a sudden change, a building change or insurance claim, those changes are noted and included on the end of year business tax. Having those numbers in the books, even if they don't change much, make a difference when it comes time to pay taxes on the business.


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