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Accounting for beginners

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RandomInvestor said:
Hey guys I got another question so I am currently learning accounting basics and something doesn't make sense it says "
When a company receives cash, the Cash account is debited.

When the company pays cash, the Cash account is credited.
"

But then it says

"
A debit is an accounting entry that either increases an asset or expense account,
or decreases a liability or equity account. It is positioned to the left in an accounting entry.
A credit is an accounting entry that either increases a liability or equity account, or decreases an asset or expense account."

Then I am doing a quiz and it says "Generally when an expense is involved in a transaction, an expense will be" debited or credited? The answer is debited but how? Shouldn't it be credited since an expense is money going out you are paying for something?
Click to expand...

Double entry accounting.

Say you have to pay the electricity bill that is $100. The journal entries would be...

CR Cash at Bank $100
DR Electricity expense $100

So you've reduced the asset account (cash) by crediting it, and you've increased the expense account (electricity) by debiting it.
 
McLovin said:
Double entry accounting.

Say you have to pay the electricity bill that is $100. The journal entries would be...

CR Cash at Bank $100
DR Electricity expense $100

So you've reduced the asset account (cash) by crediting it, and you've increased the expense account (electricity) by debiting it.
Click to expand...
A bit confusing I might need to read over it a couple times.
 
Alright guys I think I FINALLY understand debits and credits please tell me this explanation is right lol.

Ok so cash accounts and liability accounts are opposites right? What I mean by that is a asset account to increase you debit it and to decrease it you credit it. But liabilities are opposite to decrease it you debit it and to increase it you credit it.

Makes sense for the asset account but for liabilities is the the reason that you debit liabilities (decrease) if for example a loan is been paid off and credit if the loan is getting bigger?
 
I forgot to add, or am I over complicating and simply debit to decrease liability and credit to increase? If so why is it opposite? . For asset and liability accounts the meanings are just being swapped right?
 
RandomInvestor said:
I forgot to add, or am I over complicating and simply debit to decrease liability and credit to increase? If so why is it opposite? . For asset and liability accounts the meanings are just being swapped right?
Click to expand...

Read Accounting for Managers (i.e accounting for idiots, and investors) instead of proper accounting for accountants and book-keepers (the smart people) :)

Try to figure it out using an example and follow the money. Easier than figuring out what is meant by debit/credit stuff. I had, still have, the same problem :xyxthumbs
 
luutzu said:
Read Accounting for Managers (i.e accounting for idiots, and investors) instead of proper accounting for accountants and book-keepers (the smart people) :)

Try to figure it out using an example and follow the money. Easier than figuring out what is meant by debit/credit stuff. I had, still have, the same problem :xyxthumbs
Click to expand...

Oh ok but not the answer I'm looking for.
 
pixel said:
But it's the only practical suggestion.
You seem to demand a quick transfer of the result of many years of study, without your putting up an effort. But nothing short of a brain transplant would get you that.
... or something like the Nuremberg Funnel: https://en.wikipedia.org/wiki/Nuremberg_Funnel

View attachment 69838
Click to expand...

You implying that I don't make an effort? Now that's insulting to me. I'm sorry but me spending ALL day for over a week to try figure it out seems like a pretty good effort to me. And it doesn't take "Many years of studies" to understand the difference between debits and credits so I have no idea what you're talking about.
 
RandomInvestor said:
You implying that I don't make an effort? Now that's insulting to me. I'm sorry but me spending ALL day for over a week to try figure it out seems like a pretty good effort to me. And it doesn't take "Many years of studies" to understand the difference between debits and credits so I have no idea what you're talking about.
Click to expand...

Also I believe my question was fairly simple for someone that understands accounting.
 
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Hey guys so I have a question I am looking at some stuff and it says "Revenues increase stockholders' equity " I don't see why this is what does revenues have to do with stock holders equity?
 
What do you think it means?

What is revenue? What is equity?

How could revenue flow through to equity?

See if you can join the dots!
 
RandomInvestor said:
Hey guys so I have a question I am looking at some stuff and it says "Revenues increase stockholders' equity " I don't see why this is what does revenues have to do with stock holders equity?
Click to expand...

Revenue don't directly increase stockholders' equity, but it is true that, generally, increaes in revenue will increase equity.

That is, the more revenues the company make, the more money that comes in. And if the company is profitable and the extra revenue further contributes to that net profit (after tax etc.)... then net profit, usually, are paid out in dividend and retained.

The net profit that's retained are labelled retained earnings in the balance sheet, under Equity. This retained earning increases Equity.
 
galumay said:
What do you think it means?

What is revenue? What is equity?

How could revenue flow through to equity?

See if you can join the dots!
Click to expand...


Ok Galumay so Revenue is the amount of money that a company actually receives during a specific period. And equity is well... it has a few different meanings lol. Which definition are we referring to in this context?
It does sorta make sense to me that it increases retained earnings but not equity.
 
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RandomInvestor said:
Ok Galumay so Revenue is the amount of money that a company actually receives during a specific period. And equity is well... it has a few different meanings lol. Which definition are we referring to in this context?
It does sorta make sense to me that it increases retained earnings but not equity.
Click to expand...

Revenue is what the company sold during the year. They expect this to come in "soon", within the year etc., but it could be some time away, or never coming in. So it's not what the "...company actually receives" in the literal sense.

Hence, cash flows from operating activities provide a better guide to the company's earnings in a given year. OF course there's a bunch of other ifs and buts...
 
luutzu said:
Revenue is what the company sold during the year. They expect this to come in "soon", within the year etc., but it could be some time away, or never coming in. So it's not what the "...company actually receives" in the literal sense.

Hence, cash flows from operating activities provide a better guide to the company's earnings in a given year. OF course there's a bunch of other ifs and buts...
Click to expand...
But what about the relation to the equity?
 
RandomInvestor said:
Sorry lol didn't mean to :p Didn't realize you hated it. I think the idea of Skaffold is great just data accuracy is the only concern.
Click to expand...

I'm agnostic about it :D

I just think that mine is much more superior software, even if it's a bit rough around the edges.
 
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