This past weekend’s pre-core course was about accounting, which means I spent Friday night and all day Saturday and all day Sunday journalizing, posting to ledgers, and making statements of income/owner’s equity and so forth. I can feel your jealousy. I’ve never done *any* accounting before, so this was a pretty steep learning curve. When I went to bed on Friday after class, my head was spinning with thoughts of “An increase to an asset account is a debit” and such stuff1. Also, I’m not a very detail-oriented person – I much prefer big picture thinking – so I kept making little errors, like putting things in the wrong column (by accident, as opposed to thinking they actually belonged there) or putting too few zeros. Happily, the prof wanted us to understand the concepts, rather than just being good at the mechanics with no understanding. In the end we had a quiz to test ourselves to see how well we’d learned and I got 85% (even though I didn’t get to the last 3 questions), so that made me feel like I’m doing OK.
Here’s some random things I learned this weekend:
- Debits go on the left side, and credits go on the right side, of a ledger. Whether an increase (or a decrease) is a debit or credit depends on what kind of account you are talking about.
- The double-entry bookkeeping system, which we still use today, was first described in 1494.
- Expense ≠ Cash Out. Expenses don’t happen when you give someone money – they happen when you benefit from the asset (e.g., product or service) associated with that expense.
- Revenue ≠ Cash In. Similarly, you don’t make revenue when the money comes in – you make the revenue when you deliver your product/perform your service.
- I also spent the first half of the first period of Sunday night’s hockey game with my brain racing with thoughts of accounting. I couldn’t seem to get my head in the game for that first 10 minutes, but I could easily have told you that accrual-basis accounting follows the revenue recognition principle. [↩]