Accountants and finance people are awesome, but we can forget that not everyone lives and breathes this stuff like we do. With that in mind I have, hopefully, explained some of the basic accounting terminology you will come across as a business owner in easy to understand language. I have tried to not get into some of the more technical terms and aspects of accounting like EBIT and tax stuff, I focused on the day-to-day accounting that we all use.
Before we begin though… What in the world are Debits and Credits?
OK when I took my very first accounting class I had a wicked hard time with this. Basically, I was just too literal a person and couldn’t get past what I thought these 2 words meant. To make it easier for you, just think of them as headers to the columns, they could literally be anything you want as long as you follow the rules of what is added or subtracted to an account. They can be Coke & Pepsi, Tom & Jerry, Captain America & Iron Man, you get the idea.
If you use software such as QuickBooks, you should not need to use Debits and Credits very often, but it is always good to know just in case. I am including a grid that shows how each type of account is affected using Debits & Credits. If you take nothing else away from this or any other accounting post, print the picture/grid or write it on a post-it and stick it where you can easily see it. If you ever need to do a Journal entry, this will save your life!
OK, onto the nitty gritty….