Wednesday 29 April 2015

Lesson #8 - The 5 Accounting Elements That You MUST Know - A Summary

Now that you've been introduced to the 5 Accounting Elements, let's do a quick summary: -

We can see above that ASSETS and EXPENSES behave in the same manner as they are both DEBIT in "nature".

On the other hand, LIABILITIES, REVENUE and EQUITY behave in the same manner as they are all CREDIT in "nature".

Imagine a tree. If it grows, it increases in size. If it increases in size, it's following the flow of nature. If the tree shrinks, it decreases in size. If it decreases in size, it's going against the flow of nature.

It's soooooo preeeeetttttyyyy...

If we use Green to mean Increase and Red to mean Decrease, the DEBITS and CREDITS will be determined by whether they follow the "nature" of the Element, or they go against the "nature" of the Element.

For example, we know that ASSETS are DEBIT in nature. So, if an ASSET Increases, then it follows it's nature, so it gets DEBITED. On the other hand, if an ASSET Decreases, then it goes against it's nature, so it gets CREDITED.

Try running through this same logic for all 5 Elements and see if you can get the concept drilled into your brain.

Is your mind blown yet?


Good!!!

You are now ready to move on to the next section...

But before that, here's another cheesy song!

"Didn't I (Blow Your Mind This Time)" by New Kids On The Block.


Enjoy!!!

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