Recording Business Transactions: Accounts, Debits, and Credits

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Book: Accounting, Ninth Edition
Authors: Charles T. Horngren, Walter T. Harrison Jr., and M. Suzanne Oliver
ISBN-13: 978-0-13-256905-7
Source section: Chapter 2, part 1 of 3: Recording Business Transactions

The Short Version

Chapter 2 is where the book stops talking about statements and starts showing the machinery underneath them.

What Happens Here

The chapter introduces accounts for assets, liabilities, equity, revenue, expenses, and withdrawals. Instead of tracking everything in one giant equation, accounting gives each item its own little home.

Then come debits and credits. This is the part that scares people, mostly because the words do not mean increase and decrease by themselves. Their meaning depends on the account type. Assets and expenses normally increase with debits. Liabilities, equity, and revenue normally increase with credits.

The T-account is the training wheel. It is plain and a little ugly, but it shows the left side and right side logic clearly.

My Take

I think debits and credits are less hard than they are unfamiliar. They are grammar. Once you stop trying to make debit mean good and credit mean bad, the system gets calmer.

What To Keep

• Every account has a normal balance.
• Double-entry means every transaction affects at least two accounts.
• Debits go left. Credits go right. The account type tells you what that means.

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