In Accounting, have some common terms that you should know first, that is: Debit, Credit, Asset, Dividends , Expense, Liabilities, Equity, and Revenue or you can remember as DC ADE LER
DC ADE LER is one of the basic accounting concepts, from that concept there are many accounting formulas. We implement that concept to our accounting system to build many tools and reports menus in our accounting system, but for the beginners user, we recommend 2 reports menus that you should use. That is income statement and balance sheet.
A. Income Statement
Income statement is your revenue, COGS and expense during the time interval shown in the statement’s heading. This period of time might be a week, a month, five month, or a year.
Revenue is the income generated from normal business operations and includes discounts and deductions for returned merchandise. For example you sell a cup of coffee for $6, so you get revenue for $6.
COGS (Cost of Goods Sold) Cost of goods sold (COGS) refers to the direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labor directly used to create the good. It excludes indirect expenses, such as distribution costs and sales force costs.
Expense is the cost of operations that you incurs to generate revenue. As the popular saying goes, ”it costs money to make money”. Common expenses include payment to suppliers, employee wages, building rent, and equipment depreciation.
From income statement you can see net profit or loss, it is counted by total revenue - COGS - expenses. If your revenue is more than your expenses you will profit, but if your expenses is more than your revenue it means you get loss.
B. Balance Sheet
Balance sheet is a statement of the financial position of a business that lists the assets, liabilities, and equity at a particular point in time. Simply, balance sheet illustrates your business’s net worth. The balance sheet formula is asset = liabilities + equity.
Asset are things that a company owns and are sometimes referred to as the resources of the company. For example: vehicles, cash, supplies, and equipment.
Liabilities are obligations of the company. For example: loan from the bank, tax, accounts payable, wages, ect.
Equity, also known as shareholder’s equity is the difference (or residual) of assets minus liabilities. Equity is also the “Book value” of the corporation.
For more details, the picture below is example for balance sheet page:
Every account involved in a business transaction, you must debit at least one account and credit at least one account. To debit an account means to enter an amount on the left side of the account. To credit an account means to enter an amount on the right side of an account. Simply debit means left and credit means right.
From DC ADE LER table, the left side account which is asset, dividends, and expenses will increased with a debit and decreased with credit. And on the right side account which is liabilities, equity and revenue, will increased with credits and decreased with debit.
Chart of Accounts (COA)
A chart of accounts (COA) is an index of the name of accounts that company has identified and made available for recording transactions in its general ledger. In short, it is an organizational tool that provides a digestible break down of all the financial transactions that company conducted during specific accounting period and break down into subcategory.
The list of each account a company owns is typically shown in the order the account appear in its financial statement. That means that balance sheet accounts, asset, liabilities, equity, are listed first, followed by account in the income statement which is revenues and expenses.
Double Entry Bookkeping
Dealpos accounting is using double entry bookkeping. Double entry bookkeping means that every transaction will involve at least two accounts. Double entry bookkeping it makes easier to prepare accurate financial statement and detect error. To illustrate, here are a few transactions and the two accounts that will be affected.
Debits and Credits are essential to the double entry system. In accounting, a debit refers to an entry on the left side of an account ledger, and credit refers to an entry on the right side of an account ledger. To be in balance, the total of debits and credits for a transaction must be equal. Debits do not always equate to increases and credits do not always equate to decreases.