Understanding the Account

The Account

• An account represents the basic unit of accounting.
• It serves as the accounting instrument through which commercial operations are recorded.
• It reflects all that the company receives and delivers.
• A business requires a group of accounts to adequately record transactions. Accounts are used to classify elements in a financial transaction.

What is the Account?

• It is the place where increases and decreases of each business transaction are recorded in a clear and understandable way.
• Every accounting system needs a specific account for each class of assets, liabilities, equity, revenue, gains, expenses, and losses.

The Account and its Elements

• The account is used to classify the elements that intervene in a financial transaction.
• The simplest form in which the account can be represented is the T-account, the parts are:
  • The name of the account
  • Debit
  • Credit
• The book of accounting that contains each separate account recorded is the Major book.
• Each page of the ledger is referred to as a folio.

Parts of an Account

• Every account consists of two parts
  • The debit side, also called "Debe"
  • The credit side, also called "Haber"

Name of the account

• The name of each account should be clear.
• It must allow users to easily and fully identify the value or concept being recorded.
• It is the generic name with that the group of assets, equity and services that participate in the accounting activity.
• A personal account is given denomination based on the set of accounts that it groups.

Double-Entry System

• It is a method or system of recording transactions that is most widely used in accounting.

Name of the Account

• In spanish "Debe" is on the left and "Haber" is on the right

Charge or Debit

• In spanish, “Cargo o Cargar” means to record an amount on the debit side of the account, which is on the left.
• Debiting represents an increase in assets, expenses, and losses.
• Debiting represents a decrease in liabilities, equity, revenue, and gains.
• It is referred to as "débito" or "debitar."

Credit

• In spanish, “Abono o Abonar” means to record an amount on the credit side of the account, which is on the right.
• Crediting represents a decrease in assets, expenses, and losses.
• Crediting represents an increase in liabilities, equity, revenue, and gains.
• It is referred to as "crédito" or "acreditar."

Account Movement

• Movement refers to the sum of the charges and credits.
• Debtor Movement means the sum of the charges of an account.
• Creditor Movement means the sum of the credits of an account.

Account Balance

• The balance refers to the difference between the debtor and creditor movements.
• There are three types of balance:
  • Debit Balance: when the debit is greater than the credit. DEBIT > CREDIT.
  • Credit Balance: when the credit is greater than the debit. CREDIT > DEBIT.
  • Null Balance: when the debit balance is equal to the credit. DEBIT = CREDIT.
• An account will have a debit balance when the amount of the debtor movement is greater than the amount of the creditor movement.
• Account will also have a credit balance when the account records only charges.
• An account will have a credit balance when the amount of the creditor movement is greater than the amount of the debtor movement.
• Also an account will have a credit balance when the account only has received credits.
• An account is considered settled or closed when the amount of the sum of the debtor movement is equal to the sum of the creditor movement.

Increase of a debit side

• An Asset can be charged/debited when an asset increase.
• A Liabilities can be charges/debited when a Liabilities decrease.
• A Patrimonio can be charges/debited when a Patrimonio decrease.

Increase of a credit side

• An Asset can be credited when an Asset decrease.
• A Liabilities can be credited when a Liabilities increase.
• A Patrimonio can be credited when a Patrimonio increase.

Account Variation

• The five basic accounts vary as follows:
  • Assets Debits, Increases and Credits Decreases
  • Equity Credits, Increases and Debits Decreases
  • Liabilities Credits, Increases and Debits Decreases
  • Revenue Credits, Increases and Debits Decreases
  • Expenses or Costs Debits, Increases and Credits Decreases

Journals and Accounting Entries

• Increases in an account are always recorded on one side, and decreases on the other.
• Debtor Account: sum of the debits greater than the sum of the credits.
• Creditor Account: sum of the credits greater than the of the debits.
• Types of Accounts: Assets, Liabilities, Equity, Result or Revenue counts (Revenue, gains, Expenses and Costs).

Debits vs Credits by account type

• Assets accounts begin with a debit, increase in the debit side and decrease in the credit side and its balance is Debtor
• Liabilities accounts start with credit, increase by credit and decrease by debit and it's balance is Credit
• Equity accounts start with credit, increase by credit and decrease by debit and it's balance is Credit
• Expenses accounts begin with a debit, increase in the debit side and decrease in the credit side and its balance is Debtor
• Revenue accounts start with credit, increase by credit and decrease by debit and it's balance is Credit

Commercial Transaction

• The commercial transaction is the exchange of goods and services with economic value, measured in monetary units and supported by a document, which allows it to be recorded in accounting books.

To Settle or Account

• To settle or account is considered to be synonymous.
• To settle is related to the entry.
• It is referred to each of the operations that are recorded like: a purchase, a sale, an expense, an income.
• To account means to record in accounting terms.
• Both terms can be used to indicate the act of transporting commercial operations to the accounting books.

What is an accounting entry?

• A Journal entry is the record that is made of an economic event in the company.
• The journal entry is carried out using two columns, one called debit or "debe" and another called credit or "haber".
• In them, the increase or decrease of the accounts affected in a transaction or economic event is registered, according to the nature of the account.

Entries

• Simple Entry: when only two accounts are affected corresponding to a debit and a credit.
• Compound Entry: when more than two accounts are affected in the record.
• There can be one debtor account and two or more creditor accounts, or two or more debtor accounts and one creditor account.

The Double Entry

• The Double Entry system consists of producing at least one charge to an account and one credit to another in each accounting event.
• The sum of charges and credits made must be equal.
• The resources that exist in a company are the result of the application of resources that had a defined source.

Double Entry Rule

• Lucas Paccioli discovered the Double Entry in 1949 when recording the inputs and outputs of his assets.
• Paccioli used to trade with other people.
• Paccioli stated that, "There is no Debtor without a Creditor, nor a Creditor without a Debtor".
• Double registration is identified for each commercial or merchandise operation, for control purposes.
• Each transaction is registered with at least: a debit and a credit.
• The total of debits must be equal to the total of credits.

Rules for Applying the Double Entry

• For every debit there is a credit and vice versa.
  • A remittance to the bank for $100.00, there is a debit of $100.00 to the bank, and a credit of $100.00.
• Every debit can correspond to multiple credits.
  • A merchandise sale for $100.00 corresponds to a debit for the box of $113.00 a credit of $100.00 to Sales and a credit of $13.00 to IVA debito.
• Several charges can correspond to a credit.
  • Buying merchandise for $200.00 paid in cash corresponds to a charge for purchases of $200.00 a charge to fiscal credit IVA of 26 and a credit of 226 to cash.
• Several charges can correspond to several credits.
  • Buying merchandise $ 300.00, 50% was credited, and the remaining was paid with cash. corresponds to a $300 charge for purchases, a $39 charge to fiscal credit IVA , a credited of $169.5 to providers and a credited of $169.5 to cash.