Basic accounting entries

As you know, all accounting is based on postings. Despite the fact that at first glance the wiring seems to be something terrible, in fact the accounting entries are just the entire accounting reflection of economic transactions. Have you purchased raw materials, repaid a loan, or provided a customer with a service? All this should be reflected in the accounting department. Even the most insignificant operation should be fixed so that the final document, characterizing the state of affairs at the enterprise, the balance sheet, could be brought together. At the same time, the diversity of economic operations involving the company can be divided into four simple groups and, by analogy, accounting. It is enough for you to understand the logic of these four groups in order to reveal the veil of secrecy over accounting transactions.

The first group is referred to as asset restructuring. Assets - this is what the company owns, for example, cash or production equipment. At the moment when you spend your money on the purchase of equipment, you are just carrying out a restructuring. All typical postings of this group are conducted as a debit of the active account, which you increase (in the balance sheet assets are always considered in the debit) and the credit of the account that you reduce. In our example, the account will be credited, on which cash is taken into account.

Accounting entries of the second group are similar in principle to those previously considered. Only in this case we are dealing not with assets, but with liabilities. The liabilities include debts of the company, as well as its capital, which can be defined as the share of shareholders in the form of investments and profits. Restructuring of liabilities can occur when you extend the maturity of the loan, which means that it is transferred from short-term debt to debt long-term. In this case, it is necessary to credit long-term debt (liabilities in the balance sheet are taken into account in the loan), and, accordingly, debit short-term.

The third group, unlike the examples discussed above, combines accounting entries that link assets with liabilities. In this case, there is an increase in both. A fairly simple example here is the company's taking a loan. In this case, additional funds appear on his account, i.e. The active account is debited, but at the same time the enterprise's debt to creditors grows, which means that the corresponding passive account is credited. According to a similar principle, income is recorded, only capital is credited in this case.

Finally, the fourth group includes typical accounting entries leading to a reduction in both assets and liabilities. As you might have guessed, these kind of postings include debt repayment and expense accounting. In the first case, we credit an account containing information about money, while debiting an account that takes into account our debt. In the case of expenses, we need to debit a special account reflecting the cost of production. It will then be used to calculate the profit.

Having learned all the accounting entries considered above, you can easily understand almost any operation performed by your accountant. The main thing - do not forget the general principle: if something is debited, then something should be credited for the same amount. Remember also that the growth of assets is always reflected in debit, and the growth of liabilities - respectively, by credit. Guided only by such superficial knowledge, you can easily navigate in the basic accounting documents, and therefore, will stay informed about everything that happens at the enterprise, which is so important for making managerial decisions.