basics-of-accounting-information-processing

A common misunderstanding about credits many people

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Unformatted text preview: n the store’s books as an asset account (specifically, an account receivable from you). Thus, the store is reducing its accounts receivable asset account (with a credit) when it agrees to “credit your account.” On the other hand, some may assume that a credit always increases an account. This incorrect notion may originate with common banking terminology. Assume that Matthew made a deposit to his account at Monalo Bank. Monalo’s balance sheet would include an obligation (“liability”) to Matthew or the amount of money on deposit. This liability would be credited each time Matthew adds to his account. Thus, Matthew is told that his account is being “credited” when he makes a deposit. Download free eBooks at bookboon.com 32 Basics of Accounting & Information Processing The Journal 7. The Journal Most everyone is intimidated by new concepts and terminology (like debits, credits, journals, etc.). But, learning can be made quite simple by relating new concepts to preexisting notions that are already well understood. So, think: what do you know about a journal (not an accounting journal, just any journal)? It’s just a log book, right? A place where you can record a history of transactions and events - usually in date (chronological) order. But, you knew that. Likewise, an accounting journal is just a log book that contains a chronological listing of a company’s transactions and events. However, rather than including a detailed narrative description of a company’s transactions and events, the journal lists the items by a “form of shorthand notation.” Specifically, the notation indicates the accounts involved, and whether each is debited or credited. Remember what was said at the beginning of the chapter: “The system must be sufficient to fuel the preparation of the financial statements, and be capable of maintaining retrievable documentation for each and every transaction. In other words, some transaction logging process must be in place.” The journal satisfies the need for this logging process! e Graduate Programme for Engineers and Geoscientists I joined MITAS because I wanted real responsibili Please click the advert Maersk.com/Mitas Real work Internationa al International opportunities ree wor o ree work placements Month 16 was I was a construction supervisor in the North Sea advising and helping foremen he solve problems s Download free eBooks at bookboon.com 33 Basics of Accounting & Information Processing The Journal The general journal is sometimes called the book of original entry. This means that source documents are reviewed and interpreted as to the accounts involved. Then, they are documented in the journal via their debit/credit format. As such the general journal becomes a log book of the recordable transactions and events. The journal is not sufficient, by itself, to prepare financial statements. That objective is fulfilled by subsequent steps. But, maintaining the journal is the point of beginning towa...
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