Tuesday, September 20, 2011

Survey of Accounting I

Once I found myself in my new information systems major in the business college, I jumped right into the business core classes like accounting and economics. My accounting teacher sounded and acted like Kermit the Frog. He looked kind of like him, too, at least until he started growing a beard. I think that's why he did it. He was also way into snowmobiling. Like way into it. Like calm down, it's just driving around on the snow, not bringing about world peace.

We spent a lot of time in the class filling out T-charts. In double entry accounting, you record every transaction in two places. You either debit or credit the asset or liability columns. When you're done, debits will equal credits. For example, if you buy a car, you would reduce the amount of cash you have (credit) and increase your vehicle/equipment account (debit) by the same amount. If you don't have the cash on hand, then instead of reducing your assets you would increase (credit) your liability account to show that you had to borrow the money to buy the car.

It's kind of weird, because it's more natural to think that if you take money away, you're debiting, and if you're adding money, you're crediting. But remember that if you're decreasing an asset account or increasing a liability account, it's a credit. Your credit card is named that, because it's a liability account. The bigger the credit line the more you can borrow (and probably the less cash you have on hand).

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