Understanding Accounting Made Easy: My Journey to Clarity

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Understanding Accounting Made Easy: My Journey to Clarity

Hey everyone! 🌟

I recently dove into the world of accounting, and let me tell you, it felt overwhelming at first. But with persistence and a practical approach, I finally gained clarity, and I want to share what I’ve learned so it might help others too!

The Problem

I couldn’t understand why the messages from my bank (like "Your account is credited with ₹5,000") seemed opposite when writing journal entries. It felt confusing to figure out which accounts to debit or credit.

Bank Message vs. Accounting Entry

Yes, this was a huge "aha!" moment for me. Here’s the explanation:

  1. When you receive money (message: "Your account is credited"):

    • Bank's perspective: They have credited your account because they owe you more now.
    • Your accounting entry (opposite):
      • Debit: Bank Account (because your money increases).
      • Credit: Sender or Income (because someone gave you money).

  2. When you pay money (message: "Your account is debited"):

    • Bank's perspective: They have debited your account because they owe you less now.
    • Your accounting entry (opposite):
      • Debit: Expense or Receiver’s Account (because you're paying).
      • Credit: Bank Account (because your money decreases).

Why the Opposite?

This happens because:

  • The bank’s message shows the transaction from their perspective.
  • Your accounting entry reflects it from your perspective.

Quick Tip

  • When you see "credited" in the message → You debit your account in your records.
  • When you see "debited" in the message → You credit your account in your records.

Examples I Learned

Here are some practical examples that made things clear:

  1. If you pay an employee ₹12,000 from your bank account:

    Account Dr/Cr Amount (₹)
    Employee Account Debit 12,000
    Bank Account Credit 12,000

  2. If a customer pays you ₹25,000 via bank transfer:

    Account Dr/Cr Amount (₹)
    Bank Account Debit 25,000
    Customer Account Credit 25,000

  3. If you buy furniture for ₹5,000 in cash:

    Account Dr/Cr Amount (₹)
    Furniture Account Debit 5,000
    Cash Account Credit 5,000

  4. If you pay ₹5,000 for office expenses from your bank account:

    Account Dr/Cr Amount (₹)
    Office Expense Debit 5,000
    Bank Account Credit 5,000

What I Learned About Accounting

  1. Double-Entry Bookkeeping ensures every transaction has two sides: a debit and a credit.
  2. Types of Accounts Matter:
    • Real Account: Debit what comes in, Credit what goes out.
    • Personal Account: Debit the receiver, Credit the giver.
    • Nominal Account: Debit all expenses/losses, Credit all incomes/gains.
  3. Journal entries follow this system and help maintain balance in the books.

Paying It Forward

To anyone struggling with accounting basics, remember:

  • It’s okay to feel lost at first.
  • Use practical examples (like bank messages) to relate concepts to real life.
  • Stick with it, and you’ll get there!

If you have any questions about journal entries or accounting concepts, feel free to ask in the comments. Let’s learn together! 😊

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