Anyone lost at ACCT1501? (2 Viewers)

[redruM]

AIDE = Assets Increase with a Debit, so do Expenses.

 

[sunjet]

Is it just a LAW/RULE or is there a reasoning behind it?

 

[Casmira]

i cant make sense of something unless there's logic or good reasoning behind it, that whole credit/debit thing is bullshit

 

[redslert]

LOL I'll be stuffed trying to explain why increase in Asset is called a debit... feel sorry for the PASS people.

I would think of it as, when you are taking on debt (Liabilities) you are getting Credit, but this will actually be a debt to pay back, so in Assets this is a Debit.

 

[Minai]

Again, another example, just for clarification purposes: Purchase stock $10000 using cash.
You DEBIT on the OE because it's an expense. Asset(cash) gets CREDITED to equal it out.

Hmm, it would be better to say:
DR Inventory (Asset)
CR Cash (Asset)

With regard to the logic behind debits and credits, my advice is to forget why, forget your bank statements etc, and just remember the accounting method. redruM's "AIDE" method is good

 

[Casmira]

so if i have an increase in assets its adebit, now logic i understand is you can increase inventory and thats usually acquired through OWING money too a supplier so i can see it as a debitor

but clarify something for me; if you increase cash (asset) is that purely from bank loan, or if you make money it goes strictly too retained profits?

 

[Casmira]

I thought of it as this

assume all assets are recieved due too owing, whether its cash or inventory; you get a lot of stock ($1000 worth of CD's) and $5000 cash bank loan your debit goes UP

pay off some liabilities, your CREDIT that you OWE to the bank goes DOWN

stupid i know, but what can you do?

 

[sarevok]

When you buy something on credit, your assets go down (money) and your liabilities (the bill) go up? Wait, that doesnt work, if you buy something on credit your assets go up!

why would your cash go down if you buy something on credit?
if you bought something on credit your assets would go up by the amount (recognising your new asset) and your liabilites would go up by the same amount (recognising you owe more credit)
so it's dr assets xxxx
cr liabilites xxxx

then when you pay off the credit when it's due it's
dr liabilites xxxx (i.e. the credit loan)
cr assets xxxx (i.e. the cash)

all you guys need to know is that every debit has to be balanced by a credit. assets increased by a debit, decreased by a credit; liabilities + OE increased by credit, decreased by debit. so the two sides of A = L + OE always stay in balance.

it's really not that difficult...you guys must have a pretty crappy lecturer if you are this confused

 

[Eagles]

For your information....

none of this debit/credit stuff even get a mention in an accountancy firm

 

[M@C D@DDY]

Hmm, it would be better to say:
DR Inventory (Asset)
CR Cash (Asset)

With regard to the logic behind debits and credits, my advice is to forget why, forget your bank statements etc, and just remember the accounting method. redruM's "AIDE" method is good

I absolutely agree with Minai. Everyone must forget the common use of the terminology debit & credit. It will make more sense when you have to reconcile accounts at the end of the financial year. DEBIT always increase in ASSETS, CREDIT always increase in LIABILITIES. Just relate to the formula A=L+OE

 

[Minai]

Exactly - conceptually, who cares - it'll just keep confusing you. Just memorise the method

 

[§eraphim]

Accounting 1A is the easiest HD ever...no thinking required..just remember the equation:

Assets + Expenses = Liabilities + Shareholder's Equity + Revenue
(Debits = Credits)

 

[~ ReNcH ~]

Do AFM1A exams primarily cover these "mathematical" concepts, or do they also include questions relating to the industry itself? So far it's been all maths, but I was under the impression that AFM1A would have more rote memorising than this...

Btw. a question from T&G: if the COGS expense reduces by $147 670 (to zero) and retained earnings reduces $147 670, how would this be recorded in a journal entry? Does it affect assets (cash) at all?

 

[sarevok]

dr rp 147670
cr cogs 147670


no effect on assets

 

[Eagles]

thats a silly question!! why the heck would a reduction in expenses reduce profit?

anyway.. cogs is affected by inventory

normally our entry is
dr cash
cr revenue
dr cogs expense
cr inv
(sell of goods)

then we got

revenue
- expenses
------------------
= gross profit
--------------
- tax (nil)
---------------
= net profit
========

then
Dr net profit???
Cr retained earnings
(close off P & L)

I'm abit hazy on that last entry.. but can anyone explain how is that related to retained earnings?

 

[~ ReNcH ~]

dr rp 147670
cr cogs 147670


no effect on assets

But isn't COGS incorporated into Retained Profit? So if you decrease your expenses, wouldn't retained profit increase rather than decrease?

 

[seremify007]

Wow you guys are so pro... so far I'm finding acct1501 to be my easiest subject since what we've done so far was exactly what I did back in yr9/10 Commerce and yr11/12 Business Studies; but I think my luck is going to run out soon ><

... also, isn't this week the one where Caitlin Ruddock (i think that's her name) takes us intead of Claudia?

 

[redruM]

thats a silly question!! why the heck would a reduction in expenses reduce profit?

anyway.. cogs is affected by inventory

normally our entry is
dr cash
cr revenue
dr cogs expense
cr inv
(sell of goods)

then we got

revenue
- expenses
------------------
= gross profit
--------------
- tax (nil)
---------------
= net profit
========

then
Dr net profit???
Cr retained earnings
(close off P & L)

I'm abit hazy on that last entry.. but can anyone explain how is that related to retained earnings?

I'm not too sure about this, but lets consider a positive number for revenue - expense (ie - the net profit). So, there is greater figure in revenue (which is a credit account). As you close off this credit account, you debit it. And cr retained earnings (which is your OE account, and one that also increases with a cr).

Having said that, I think you close off all revenue accounts and all expense accounts separately to a p/l summary account, rathat than close off net profit. That is the way I've learnt it.

 

[Casmira]

... also, isn't this week the one where Caitlin Ruddock (i think that's her name) takes us intead of Claudia?

THATS AN OUTRAGE, THE FORIEGN MINISTER WILL BE HEARING ABOUT THIS!!

 

[sarevok]

But isn't COGS incorporated into Retained Profit? So if you decrease your expenses, wouldn't retained profit increase rather than decrease?

i thought your question was just about closing off cogs to the rp account

if it's not, that's a weird question to which i don't know the answer =\