Having worked in the field of accounting for over twenty-years, I have found that many people tend to shy away from memorizing the “Accounting Model”. See my article titled, “The Accounting Model – Accounting’s Rosetta Stone” in the articles section of this blog. The Accounting Model is the formula for how debits and credits work. You can click on this link to review the model and print it out if you like:
http://www.reallifeaccounting.com/accounting_model.asp
Learning how debits and credits work is the most critical part of accounting knowledge to grasp if you truly want to know the function of accounting. Why then, do so many people shy away from taking the fifteen minutes it takes to memorize the formula? Perhaps it “seems” complicated at first glance. Or, perhaps the value of being able to conceptualize the formula in the mind is not apparent.
Does your work require knowledge of accounting? If so, have you memorized the Accounting Model? If not, why? I would like to prove to you that it is a relatively simple thing to do, and that the benefit far outweighs the cost. Give it a try and use the comments section below this text to ask questions or provide any kind of feedback you would like.
John Day
2 Comments
Bookkeeping question. I have sales invoices each month and my monthly bank statement showing my monthly deposits. I carry no A/R’s. I am on a cash basis. Do I debit suspense and credit sales. Debit Checking account and credit suspense account? Or do I create an account receivable showing the ins and outs? Sometimes I might have a credit or debit difference? How do I handle the differences? Is there another way to handle this?
Gary: If I were you I would go ahead and create an accounts receivable account. Sometimes you have a few sales that you don’t get paid for immediately. When you do get paid you debit cash and credit A/R. At the end of the year you will have to back those remaining A/Rs out of sales to do your tax return. Since you don’t have many that should be pretty easy.
If you have a debit balance in A/R it means you haven’t been paid yet so you handle it as I described above. If you have a credit balance that would mean a customer has pre-paid. But that should wash out when you record the sale. Debit A/R and credit Sales.
John
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