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Accounting model

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  • 1. THE ACCOUNTING MODEL 1. ALL ASSET ACCOUNTS Debit___________________________________________Credit Increase Decrease 2. ALL LIABILITY ACCOUNTS Debit___________________________________________Credit Decrease Increase 3. ALL EQUITY ACCOUNTS Debit___________________________________________Credit Decrease Increase 4. ALL REVENUE ACCOUNTS Debit___________________________________________Credit Decrease Increase 5. ALL EXPENSE ACCOUNTS Debit___________________________________________Credit Increase DecreaseThe Accounting Model is the key that unlocks the mystery of double-entryaccounting. It is made up of three very simple parts:The first part is a ledger page with a line drawn down the middle (like a big T)automatically creating a left and right side of the dividing line. However, inaccounting language the word "debit" is used instead of "left" and the word"credit" is used instead of "right".The second part is that there are five of these ledger Ts that relate to the fivesections found in a set of financial statements. They are: 1) Assets; 2) Liabilities;3) Equity; 4) Revenue; 5) Expense. The first three relate to the Balance Sheetand last two relate to the Profit & Loss Statement.The third part is a rule that states: Any transaction that pertains to a section(Assets, Liabilities, etc.) that results in an increase or decrease has to berecorded on either the left or right side of the ledger page.Copyright © 2008 John W. Day http://www.reallifeaccounting.com

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