This is accounting to learn Basic accounting in five minutes. I’m going to go as quickly as I can as I want to do this in five minutes. But I don’t want to go so quickly that it’s not beneficial to you. I love the thing to mention is this is Basic accounting.
Here we do Basic accounting in five minutes, Basic accounting consists of debit and credit. It’s all Basic accounting, it creates debits or credits or records the financial transactions of a business using debits and credits. Debit and credit are always equivalent. So if you have 1,000 pounds worth of debit entries, you will need 1,000 pounds worth of credit entries or $ 1,000 or euro or whatever the currency is.
Debit & Credit in Basic Accounting
Debit entries consist of assets and expenses. Credit entries consist of liabilities and sales. Assets are things you own things like equipment, property, stock, things that you own. Liabilities are things that you owe that should say, oh not own liabilities are things that you owe things like loans money you owe to people, acid examples, bank accounts.
they’re in a positive balance. If they’re in a negative balance, then it’s a liability. So the cash in the bank account is something that you own. So a bank account is asset equipment is an asset that is money that people owe to you cash that you own debtors, vehicles, that’s vehicles that you own, not vehicles that you have a lease contract with. They are vehicles that you own liability examples of bank accounts are in a negative balance, like in an overdraft, that is cash that you owe to the bank loans. A loan is something that you owe creditors, that’s cash owed to suppliers. That is something that you owe.
These are liability examples expense examples, power rates, wages, rent fuel. For example, if you have a payment for rent, which is 500 pounds, what’s the debit? And what’s the credit? Well, expenses are debit entries, think of the debit think of the credit, debits are assets and expenses. credits are sales and liabilities, expenses are debit entries.
Basic Accounting Examples
So the 500 pounds for the expense of rent will be a debit entry, it needs a corresponding credit of the same amount. So 500 pounds. If the cash is coming out of the bank account to pay for this rent, then we would credit the bank account. So debit expense, credit the bank account.
Another way to look at this is that the bank account is an asset account. To bring the value of an asset account down you need to credit it, think about it an asset account is debit, you debit an asset account to increase its value. Credit will bring the value down so making cash comes out of the bank account or recording cash out the bank account. So that’s a credit entry.
Debit expense, credit bank example two here we go. A sale of a product if you’re selling something while our sales they are credits, we sold something for 200 pounds, sales are credits, credit sales 200 pounds, you would credit sales account 200 pounds, if the money goes into the bank account, you need the corresponding debit. So debit bank account 200 pounds, if they paid in cash, you would debit the cash account 200 pounds you are increasing the value of the asset which is a debit and sales are credits, credit debit 200 200 balances.
Here we go. Example three bank loan of 10,000 pounds $10,000 10,000 euros, 1 million yen. It doesn’t matter. a bank loan of 10,000 loans are liabilities. They are things that you owe you owe the bank 10 grand credit the bank loan account 10 grand that’s money That we, oh, it’s a liability it’s a credit. So we receive a bank loan, we record 10,000 as a credit, debit 10,000 pounds into the bank account if the money is going into the bank account, which it likely is debit bank account 10,000 up.
So here we go. We are increasing the value of the asset which is a debit, liabilities, or credit, we have 10,000 10,000 or we’re nearly reaching six minutes already an example for the purchase of office equipment, or office computer Sorry, I’m going so quick now that I can’t even read anymore.
So the purchase of an office computer 1000 pound or that’s an asset are debit, debit, credit, debit, asset expenses, credit sales, liability, debit computer equipment, 1000 pounds, 1000, Euro, 1000, Euro $1,000, whatever credit the bank account, if we paid from the bank account, 1000 pound, we have our debit, we have our credit, easy. All of these accounts will have running balances.
Look back at the examples. We have a rent account, we have a bank account, we have an asset account, we have all of these accounts. All these accounts will build up running balances as we post these transactions. The list of these accounts and their balances is called the chart of accounts.
We use this information or the accounts and the totals in the accounts to create a profit and loss statement and a balance sheet. The profit and loss statement tells you how much profit a business has made or how much of a loss a business has made.
We get the totals from the sales accounts, we get the totals from the expense accounts, we did duck the expense totals from the sales totals. That gives us a profit or loss, hopefully, a profit and a big Nice one. Balance Sheet, the totals of the assets we get the totals of the liabilities, we put them on a sheet, it gives us a figure. That figure tells us the financial position of the business or it’s used to analyze the strength of the business.