The document provides a basic overview of accounting principles focusing on debits and credits, categorizing accounts into five main types: assets, liabilities, equity, revenue, and expenses. It explains essential concepts such as the general ledger, trial balance, journal entries, and the distinction between balance sheet and income statement accounts. Additionally, it covers contra-assets, prepaid assets, and accrued expenses, concluding with the fundamental equation that debits equal credits.

1. Basic Accounting
in 10 minutes
Accounting PLus

2. BY Yousaf
Certified Practising Accountant (CPA)

3. Disclaimer: This is very basic accounting.
There are other things.
I am not covering here.

4. is managing
Debits and Credits.
That is all.

5. Debits = Credit
$5,000 worth of debits means
You must have
$5,000 worth of credit.

6. There are only
two categories of Debits:
1) Assets 2) Expense

7. There are only “three
categories” of credits:
Liabilities,
Equity,
and Revenues.

8. Now a critic would say…..
Contra-Assets are also Credit.
Treasury stock are also Debit.

9. Blah blah blah
I’ll get to that in a minute.

10. Assets are things you own.
Liabilities are things you owe.
Equity is your investment in the company.

11. Revenues are income you earn.
Expenses are mostly bills you pay.

12. An Account is a “Catalogue Number”
with a description.
For Example:
101 Cash

13. Every account will fall into
one of the “5 Categories”:
Assets
Expenses
Liabilities
Equity
Revenues

14. A list of these accounts
is called the “chart of Accounts”.

15. Now picture if things big “chart of accounts”
listed all the activity in each account under
their descriptions, with an ending balance.

16. 101 Cash 0.00
Deposit 5,00
Withdraw -1,00
Ending 400

17. Now when you have all your accounts
listed this way you end up with this big book.

18. Whether electronic or paper, this “book”
is called the General Ledger.

19. Now let us say you want to look at
this big General ledger but without
all that annoying details.

20. You want to see the account number,
description and ending balance.

21. This short listing is called the “Trail Balance”.

22. Your Trial Balance will present the
debit in the left column and
your credit in the right column.

23. Each column will have the same total. Why?
Because Debit equal Credit.
Debit = Credit

24. Trail Balance

25. Remember all that annoying activity
in the General Ledger?
You have to put it in there manually.

26. And when you do, you are going to
keep a separate “Journal” to
remember.
what you did

27. Let’s call these little entries
in your journal, “Journal Entries”.

28. Computer systems record Journal entries
in the Ledger and Journal
at the same time.

29. Debit entries increase debit balances,
and Credits decrease them.

30. Credit entries increase credit balances,
and Debit decrease them.

31. We’re going to make a journal entry.
Lets buy a Equipment for $50,000 cash

32. Journal Entry 1
Debit Credit
140Equipment $ 50,000
101 Cash $ 50,000

33. Oh no, we got the
internet bill and it’s $50

34. Journal Entry 2
Debit Credit
405Utilities $ 50
201 Account Payable $ 50

35. Hey, we better pay that electric bill
before they shut it off.

36. Journal Entry 3
Debit Credit
201Account Payable $ 50
101 Cash $ 50

37. We just painted a house for John
and he’s gonna pay us
$400 next month.

38. Journal Entry 4
Debit Credit
102Account Receivable $ 400
301 Revenue $ 400

39. Oh, No, John only paid us for
half the paint job!

40. Journal Entry 5
Debit Credit
101Cash $ 200
403 Bad Debt Expense $ 200
102 Accounts Receivable $ 400

41. Are you starting to see the logic?

42. Did you notice how I increased
and decreased accounts?

43. Remember the “5 Categories” of accounts?
Let’s put them in two groups.

44. Assets, Liabilities and Equity are
“Balance Sheet” accounts.

45. Revenue and expenses are
“Income Statement” accounts.

46. Okay Lets fast forward to the
end of the year.

47. Lets make an “Income statement” from
the income statement account.

48. Income Statement
Revenue $ 15,000
Expenses:
Salaries $ 300
Utilities $ 200
Bad Debt $ 200
Total Expenses $ 700
Net Income $ 14,300

49. Now let’s take the balance sheet accounts
and make a “Balance sheet”.

50. Balance Sheet
Assets
Cash $ 1,000
Accounts Receivable $ 5,000
Property & Equipment $ 70,000
Total $ 76,000
Liabilities
Accounts Payable $ 5,000
Long Term Debt $ 3,000
Equity
Retained Earnings $ 7,000
Paid-in-Capital $ 61,000
Total $ 76,000

51. Notice how it “Balance?”
The top equals the bottom.
Why?

52. Say it with me…….
Debits equal credits
Debits = Credits

53. Assets = Liabilities + Equity

54. But wait, If debits equal credits,
how can a balance sheet balance
with revenues and expenses?

55. At year end, we flushed the
income statement accounts
into retained earnings.

56. On January 1, all your
“ Income statement accounts”
will have “zero balances”.

57. All of your balance sheet accounts
will remain the same, except
for retained earnings.

58. Congratulations! You have the basic.
But there’s more.

59. Lets talk about Contra-Asset accounts.
There are two you should know.

60. These asset account have credit balances!
They are negative.

61. The first one is called
“Allowance for doubtful Accounts”

62. The balance represents
the accounts Receivable
that you won’t get.

63. Remember John and
How He stiffed us for $200?

64. Assets
Cash $ 10,000
Accounts Receivable $ 5,000
Allowance for Doubtful Accounts $ (200) $ 4,800
Property & Equipment $ 70,000
Total $ 84,800

65. Here is the Journal Entry
that establishes the Allowance.

66. Journal Entry 6
Debit Credit
420 Bad Debt Expense $ 200
120
Allowance for Doubtful
Accounts $ 200

67. The second contra- asset account is
called “Accumulated Depreciation”

68. Here is what that looks like
amongst the other assets:

69. Assets
Cash $ 10,000
Accounts Receivable $ 5,000
Allowance for Doubtful Accounts $ (200) $ 4,800
Property & Equipment $ 70,000
Accumulated Depreciation $ (10,000) $ 60,000
Total $ 74,800

70. Ok I’ll Show where I got
the $10,000 from.

71. Remember that Equipment
we bought for $50,000?
It’s only gonna last five years.

72. So logic would dictate that it
loses $10,000
in value per year.

73. This is called Straight-line depreciation.

74. Lets book our depreciation expense
for year one.

75. Journal Entry 7
Debit Credit
450 Depreciation Expense $ 10,000
140 Accumulated Depreciation $ 10,000

76. Remember I mentioned Treasury stock?
It is an equity account with a debit balance.

77. Just keep that in mind.
You may see it someday

78. Lets talk about Prepaid Assets.

79. The insurance bill came.
$12,000 for the entire year.
It’s due all at once.

80. That is $1000 per month expense,
but it’s due now!

81. Let’s take this month’s expense
and pre-pay that bad boy.

82. Journal Entry 8
Debit Credit
460 Insurance Expense $ 1,000
130 Prepaid Insurance $ 11,000
101 Cash $ 12,000

83. And finally, lets talk about
Accrued Expenses which are liabilities.

84. I’m gonna throw some craziness at you,
lets see if you like this.

85. Lets say it’s month-end
or year-end and you
wanna close the books.

86. Your employees have worked
for two weeks but
they don’t get paid until next month.

87. If you had lets say a $5,000 payroll,
your journal entry may look like this:

88. Journal Entry 9
Debit Credit
450 Payroll-Salaries Expense $ 5,000
451 FICA Expense $ 383
452 FUTA/SUTA Expense $ 125
270 Accrued Payroll $ 5,508

89. You made it.

90. I hope you enjoyed
this presentation.

91. Debits equal credit!!