In this video we begin to look at the chart of accounts a little more closely and review what we covered last video, such as the diffetent types of accounts:
I also introduce T accounts, which is basically a visual representation of a particular account. Accounting is a system of debits and credits. on the T account, debits are on the left, while credits are on the right. Depending on the type of account, a debit may increase or decrease that acoount. Likewise, the same holds true for credits.
With debits, think of D.E.A.L:
Generally, dividends, expenses, assets, and losses are increased with a debit and decreased with a credit
With Credits, think of G.I.R.L.S:
Generally, gains, income, revenue, losses, and stockholders-member equity will increase with a credit and decrease with a debit
Also, consider contra accounts which operate “contrary” to their main account counterparts. Examples are “allowance for bad debts” as a contra to accounts receivable and “discounts” as a contra to income-revenue
In our next video we will use T accounts to record transactions and begin to see how they shape our financial statements.