Crucial Tips for Understanding Accounting Principles
Accounting proves an instrumental subject for students as it has practical application in almost everything you do and will do, in school and post-school. Therefore, it becomes crucial to understand the typical accounting terms used to decipher principles entailed in this discipline. So are you faced with a tough accounting assignment and lack ideas on how to approach it?
Sometimes, instructors dish out assignments that you have not covered in class yet, which can become a challenge. You may wonder and ask yourself questions like "how will I do my accounting homework?" however, you do not need to hit the panic button yet, as, in such instances, you can try and get help from your teacher, parents, siblings, or teaching assistant.
Accounting, like any other subject, has its theories, concepts, and terminologies. To properly understand these principles requires adopting the best study strategies such as the use of flashcards, getting organized, and keeping time, among other approaches. However, in this article, the focus lies on the accounting principles you must understand to hack accounting.
Accounting features credits and debits heavily as the primary part that accounting systems hinge on. What all this entails includes methods deployed in recording business transactions besides keeping track of liabilities and assets. In accounting, anything possessing monetary value gets recorded as credit or debit based on the type of transaction. While credit and debit concepts might appear foreign, a typical and average person still uses these principles to run their daily activities. Credits ad debits get abbreviated as CR and DR, respectively, in accounting. So what are these principles, and what do they entail?
- Debit rules. Here, any debit increases the assets while reducing the liabilities of an entity’s equity. For instance, if a firm purchases a vehicle, the company increases its assets as debit into the company’s vehicle account. However, if the firm used a loan facility to buy the automobile and subsequently pays the loan, such a payment decreases the notes payable and liability account.
- Credit rules. Here, the credit decreases the assets and increases the liabilities and the owner's equity. For instance, using the same example of a vehicle, the liability, and notes payable, and liability account will increase in proportion to the loan facility of the car. If the company, for instance, used cash in paying for the loan, the assets account will decrease.
- Using credits and debits. It becomes essential to note that you have to list debits first when doing entries. The same applies in double-entry accounting, as debits get entered first. Additionally, the debit account gets listed first on the initial line as the amount gets stationed on the register's left side. The credit account gets listed after the debit account on the subsequent (second) line and indented with the amount credited recorded on the register’s right side.
- Balance. It is also critical to remember that there has to exist a credit entry for every debit entry.
It becomes crucial for any student to understand these four key principles in accounting to build on them and deal with more complex accounting concepts.