Accounting

We all have written a diary and somewhat know its format. Here, we’ll look at how “My Diary” turns into “Business Diary”.

Every transaction has a dual nature which is recorded through the use of two tags: Debit and Credit.

Accounting Equation helps us make entries in journal. In here, we discuss how this equation might have been derived.

The origins of debit and credit are very humble – they started of as mere tags. Read more…

Here, we’ll set the premises to test whether the accounting equation i.e., Assets= Equity + Liabilities holds true.

Now, we’ll undertake the test and try to observe whether Assets = Equity+ Liabilities holds true for each transaction?

The accounting system, at the time it was created, did NOT include Subtraction (Negative Numbers); a very basic concept of math.

To resolve the issue of recording subtraction through debit and credit, Luca employed a very modern technique: Uno Reverse!

Now, let’s look at debits & credits for Income & Expense and put an end to debit & credit.

It is here where we finally make our entry into practical accounting and create entries in our business diary.