Accounting belongs to the a prioriclass of knowledge. Falling into the same
group as geometry, it is primarily an exercise in logic. Accounting is the system
used to record the financial transactions of an accounting entitywhich could be a
company, a partnership, a family, or a person. Accounting records the prices of
things involved in financial transactions at the time they were incurred.
Accounting divides all financial transactions into two general categories:
ASSET and LIABILITY. Assets are owned by the entity; Liabilities are owed to
others by the entity. Liabilities include one special category called EQUITY,
which is owed to the owners of the entity. EQUITY includes two categories,
INCOME and EXPENSE. INCOME is money coming into the entity; EXPENSE is
money paid out by the entity.
Accounting requires the financial operations of the entityto be
appropriately categorized, and the value of each transaction to be entered twice,
once as a Debit (Dr) and once again as a Credit (Cr). Debits and Credits carry a
charge, positive and negative, respectively, so every transaction will have a sum of
zero. The categories into which an entity'sfinancial affairs have been divided are
called Accounts, the Ledgers of which, being a set of figures to be added, are
tots. So we see that accounting is totting up tots, something which can be done
by every tot. So let’s leave no child behind!
The matrix below, illustrates what charge to assign to values entered into
the accounting categories. Debits carry a plus sign; Credits carry a minus sign.
ASSET categories are increased by a Debit and decreased by a Credit.
LIABILITY categories (except EXPENSE) are increased by a Credit and
decreased by a Debit. EXPENSE categories are charged the same way as ASSET
categories; so, when an EXPENSE account is increased, as it is when you buy
something, it is Debited. If this seems backward—as it usually does to most
people—that is because we are used to seeing statements prepared by others,
such as our banks; in which case, the deposit to your bank account is a LIABILITY
as far as the bank is concerned—because the deposit is yourmoney, owed by the
