Talk:Accountancy/Introduction to Accountancy

Global context needed. Only U.S. is mentioned (at least in lead paragraph). --Dpr 19:38, 9 April 2007 (UTC)

Unconfusing debits and credits
Like many people, I find the assignment of debits and credits very confusing. After thinking hard, I think I have a good way to explain it. If someone else agrees that this is good, please move it into the main text in a suitable place:

Many people find the ways accountants use "debit" and "credit" very confusing; they seem to be used exactly backward from what makes sense. Shouldn't an asset be a credit? Why are assets tracked as debits? There is actually a simple logic to them, based on a few fundamental rules:
 * 1) The accountant never creates or destroys any money.  This is inherent in the double-entry system.  Money is shuffled between accounts, but debits and credits are always in exact balance.
 * 2) And so, the entire business never creates or destroys any money.  The final "catch-all" account where profits and losses end up is owner's equity.  Any assets in excess of liabilities are owner's equity.
 * 3) The terms "credit" and "debit" are used with the intuitive meaning of "credit is good and debit is bad" from the point of view of the owner.  Profits are recorded as a credit to owner's equity.  This is because accountants are fundamentally reporting to the owners about the state of the business.
 * 4) But because credits and debits always balance, the only way to credit an equity account is to debit another account.  So to non-equity accounts, debits are "good" and credits are "bad".

The point to remember is that from the point of view of the accountant, owner's equity is just another kind of liability. If the business were to be liquidated tomorrow, all of the debit accounts would be collected (e.g. assets sold), and the credit accounts (creditors) paid. From the owner's point of view, equity is the "good" kind of credit account and liabilities are the "bad" kind, but as far as the accountant is concerned, they're both creditors to be paid.

So the terminology makes sense from the owner's point of view, but from the point of view of the business, it seems backward because it is backward.

The rest of the confusion is based on people's aversion to negative numbers. Rather than just declare that credits are positive and debits are negative (or vice-versa), and that all accounts must add up to zero, accounts are divided into "normally credit" accounts and "normally debit" accounts, whose values are both recorded using positive numbers. This saves writing a lot of minus signs, but you have to know to negate the right accounts before adding them together.

71.41.210.146 10:14, 19 May 2007 (UTC)
 * Debit = left
 * Credit = right
 * Thats is it! --196.210.200.81 (talk) 15:28, 12 August 2009 (UTC)

balance sheet
how about complimenting the presentation with asbalance sheet analysis from a bNK nd consumer and or industrial corporations that are somewhat complicated. especially those which have items like pother income and other terms that require explanation.