The accounting model outlines the basic rules for debit and credit entries for the five main accounts: 1) Assets are debited to increase and credited to decrease. 2) Liabilities are credited to increase and debited to decrease. 3) Equity is debited to decrease and credited to increase. 4) Revenue is credited to increase and debited to decrease. 5) Expenses are debited to increase and credited to decrease. It uses a T-account format with debit on the left and credit on the right to record transactions that increase or decrease the different accounts.

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 Decrease
The Accounting Model is the key that unlocks the mystery of double-entry
accounting. 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, in
accounting 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 T's that relate to the five
sections 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 Sheet
and 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 be
recorded on either the left or right side of the ledger page.
Copyright © 2008 John W. Day http://www.reallifeaccounting.com