Accounting Entries and Account Types

• When an operation is recorded, it must be written twice in separate books.

Accounting Books

• A required "Diario" (or "Daily") lists operations as journal entries
• A "Mayor" (or "Ledger") book is not required.
• For instance, take this journal entry: To buy a machine costing €600, paid in cash.

Journal entry example

• Debit: Import account
• Credit: Amount account
• Credit: Machinery (213) €600, Debit: Cash (570) €600.

Account Types

• The accounts used are classified into types: Assets, Liabilities, Equity, Expenses, and Income
• Assets are what "we own", what is owed or due, or rights to collect.
• Liabilities are what "we owe" or obligations to pay.
• Equity signifies the difference between Assets and Liabilities
• Expenses represent consumption of goods or services, decreasing equity.
• Income represents the delivery of goods or services, increasing equity.

Initial Situations

• Both Increases and decreases in Assets, are debited and credited (respectively) to the Asset side
• The debiting and crediting for Liabilities are the opposite of assets, and can be added to the Liability side
• Equity increases and decreases are like liabilities concerning debits and credits, posted to the Equity side
• Increase in Expenses are posted to the Debit side, and decreases posted to the Credit side
• Income increases are posted to the Credit side, and decreases posted to the Debit side

Basic Assets

• Basic assets fall under "Fixed Assets" which are property, plant, and equipment, which are long-term assets
  • Land and Natural Resources (210)
  • Buildings (211)
  • Machinery (213)
  • Furniture (216)
  • Equipment for information processes (217)
  • Software (206)
  • Transportation (218)
• Basic assets can also be "Receivables" from customers
  • Customers accounts (430)
  • Customers as Receivables accounts (431)
  • Debtors, accounts receivable (440)
• Another type of basic asset is "Merchandise Inventory", goods for sale in the short term
  • Merchandise (300)
  • Raw Materials (310)
  • Other Supplies (328)
• Cash and Other Liquid Assets refer to:
  • Cash on hand (570)
  • Bank accounts (572).

Basic Liabilities

• Basic liabilities can be debts, such as long term debts

  • Medium-and long-term debts to credit entities. (170)
  • Suppliers of fixed assets in the long term. (173)
  • Effects payable in the long term. (175)
  • Deposits received long term. (180)

• Liabilities as short-term debts.

  • Short-term liabilities to credit entities. (520)
  • Fixed asset providers in the short term. (523)
  • Effects of paying in the sort term. (525)
  • Received deposits in the short term. (560)

• Liabilities can also be from trade payables

  • Suppliers (400)
  • Suppliers, commercial effects to pay (401)
  • Creditors for services (410).

Basic Equity

• Basic Equity includes:
  • Share capital (100)
  • Reserves (11_)
  • Profit or loss for the year (129).

Expenses

• Expenses are typically from group 6 expense accounts, such as
  • Purchases of goods (600)
  • Purchases of raw materials (601)
• Outside services, another type of expense, includes:
  • Rentals (621)
  • Repair and maintenance (622)
  • Independent contractors (623)
  • Transportation (624)
  • Insurance (625)
  • Banking (626)
  • Advertising (627)
  • Utilities (628)
  • Other services (629).

Income

• Income usually belongs to group 7 accounts.
• Revenue from the sale of goods (700).
• Revenue from the provision of services (701).
• Or miscellaneous income such as income by commission (755) or income for services (759)

Technical Aspects of Accounts

• An account is a tool that represents and measures each element
• The left side of the account is called "Debit," the right side is called "Credit."
• A debit note is any posting to the Debit side of an account
• A credit note is any posting to the Credit side of an account
• The balance refers to the difference between the Debit and Credit sides of an account.

Type of Balance

• Debit Balance exists if Debit > Credit
• Credit Balance exists if Debit < Credit
• Zero Balance exists if Debit = Credit
• To liquidate, make the calculations needed to obtain the balance
• To settle, put the balance on the opposite side.

Journal Entries

• Debit (left side) records increases in assets, expenses, and dividends
• Credit (right side) records increases in liabilities, owner's equity, and revenues.

Account sides

• The sides of accounts can be found in Cargo and Abono
• Once what a cargo and an abono is understood, what accounts can be put on each side of an entry can be understood.

Financing Operations

• There are three ways to finance any operation:
  • Cash Basis, you can use:
    • The cash account if the money is physical cash (570)
    • The bank account if cash is through an online payment (572)
  • Credit Basis, meaning an arrangement to defer payments
  • Letter or effect of credit, which is similar to credit, but delays the payment.