Learning Accounting (question)

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orange2334
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Learning Accounting (question)

Post by orange2334 » Mon Aug 26, 2019 6:39 am

Good morning all- I'm learning Accounting from a newer textbook that I like. One idea I can't wrap my head around is in the beginning when classifying transactions, Sales and Expense transactions fall under Owner's Equity. Then when the text introduces Chart of Accounts, it has a section Owners Equity but doesn't put Sales/ Expenses in it. Even though they aren't listed as OE in the Chart of Accounts, they are still considered as such, correct?


Sorry if this is in the wrong forum. Thank you in advance!

Thrift Shop
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Re: Learning Accounting (question)

Post by Thrift Shop » Mon Aug 26, 2019 7:02 am

There may be a better forum somewhere on accounting questions, but there are a few accountants in this board that can help

Sales and Expenses are Income Statement items, whereas Owners Equity is part of the Balance Sheet. Owners Equity basically represents Assets minus Liabilities.

Pacman
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Re: Learning Accounting (question)

Post by Pacman » Mon Aug 26, 2019 7:09 am

You probably want to post in the reddit/accounting subreddit for these types of questions. Sales and expenses are originally booked to the Income Statement. However the activity in the Income Statement gets included within Owners Equity in the account called Retained Earnings. This is why Retained Earnings is Equal to: Beginning Retained Earnings + Net Income (from Income Statement & includes sales/expense activity) - Dividends = Ending Retained Earnings.

bondsr4me
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Re: Learning Accounting (question)

Post by bondsr4me » Mon Aug 26, 2019 7:09 am

Sales/Expenses will eventually end up in "Owners Equity" as "Profit or Loss" when the books are closed.

Maybe that is what your textbook is referring to.

DarkHelmetII
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Re: Learning Accounting (question)

Post by DarkHelmetII » Mon Aug 26, 2019 7:12 am

I used this wiki page https://en.wikipedia.org/wiki/Debits_and_credits to help me get up to speed on a technical accounting project at work.

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orange2334
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Re: Learning Accounting (question)

Post by orange2334 » Mon Aug 26, 2019 7:15 am

Very good. Thank you to all for the helpful feedback!

Gill
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Re: Learning Accounting (question)

Post by Gill » Mon Aug 26, 2019 7:36 am

bondsr4me wrote:
Mon Aug 26, 2019 7:09 am
Sales/Expenses will eventually end up in "Owners Equity" as "Profit or Loss" when the books are closed.

Maybe that is what your textbook is referring to.
Correct. Revenue increases owner's equity and expense decreases it.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

Valuethinker
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Re: Learning Accounting (question)

Post by Valuethinker » Mon Aug 26, 2019 10:23 am

Gill wrote:
Mon Aug 26, 2019 7:36 am
bondsr4me wrote:
Mon Aug 26, 2019 7:09 am
Sales/Expenses will eventually end up in "Owners Equity" as "Profit or Loss" when the books are closed.

Maybe that is what your textbook is referring to.
Correct. Revenue increases owner's equity and expense decreases it.
Gill
I think you mean profits increase it and losses decrease it?

I would not assume revenues increase it without measuring profits. Ditto cost and decrease.

(I am pretty sure there is in fact such a thing as negative revenue, there certainly are write backs on cost).

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dm200
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Re: Learning Accounting (question)

Post by dm200 » Mon Aug 26, 2019 10:31 am

orange2334 wrote:
Mon Aug 26, 2019 6:39 am
Good morning all- I'm learning Accounting from a newer textbook that I like. One idea I can't wrap my head around is in the beginning when classifying transactions, Sales and Expense transactions fall under Owner's Equity. Then when the text introduces Chart of Accounts, it has a section Owners Equity but doesn't put Sales/ Expenses in it. Even though they aren't listed as OE in the Chart of Accounts, they are still considered as such, correct?

Sorry if this is in the wrong forum. Thank you in advance!
I learned accounting mostly on my own in a "niche" industry. Frankly, for the aspects of accounting I deal with and have dealt with - I believe I know close to as much as some folks with a lot of accounting courses.

Texanbybirth
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Re: Learning Accounting (question)

Post by Texanbybirth » Mon Aug 26, 2019 12:52 pm

dm200 wrote:
Mon Aug 26, 2019 10:31 am
orange2334 wrote:
Mon Aug 26, 2019 6:39 am
Good morning all- I'm learning Accounting from a newer textbook that I like. One idea I can't wrap my head around is in the beginning when classifying transactions, Sales and Expense transactions fall under Owner's Equity. Then when the text introduces Chart of Accounts, it has a section Owners Equity but doesn't put Sales/ Expenses in it. Even though they aren't listed as OE in the Chart of Accounts, they are still considered as such, correct?

Sorry if this is in the wrong forum. Thank you in advance!
I learned accounting mostly on my own in a "niche" industry. Frankly, for the aspects of accounting I deal with and have dealt with - I believe I know close to as much as some folks with a lot of accounting courses.
Don't you know CPA stands for "Can't Pass Again"? :wink:
Old Tom Bombadil is a merry fellow, | Bright blue his jacket is, and his boots are yellow. | None has ever caught him yet, for Tom, he is the master: | His songs are stronger songs, and his feet are faster.

JBTX
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Re: Learning Accounting (question)

Post by JBTX » Tue Aug 27, 2019 9:27 am

Think of it as your business. Owners equity is what you put into it. It is what the business owes you. The net income the business earns from the income statement (sales- expenses) increases your owners equity.

When I took my first accounting class decades ago, I struggled a bit at the beginning of the first class using the "substitution" method. I visited my dad, a career accountant, and he taught me using T accounts. It was more visual and easy to understand.

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Phineas J. Whoopee
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Re: Learning Accounting (question)

Post by Phineas J. Whoopee » Tue Aug 27, 2019 7:36 pm

Valuethinker wrote:
Mon Aug 26, 2019 10:23 am
Gill wrote:
Mon Aug 26, 2019 7:36 am
bondsr4me wrote:
Mon Aug 26, 2019 7:09 am
Sales/Expenses will eventually end up in "Owners Equity" as "Profit or Loss" when the books are closed.

Maybe that is what your textbook is referring to.
Correct. Revenue increases owner's equity and expense decreases it.
Gill
I think you mean profits increase it and losses decrease it?

I would not assume revenues increase it without measuring profits. Ditto cost and decrease.

(I am pretty sure there is in fact such a thing as negative revenue, there certainly are write backs on cost).
I think Gill means what Gill wrote. Revenue is money that comes in, on the cash flow statement. When it's time that winds up on the balance sheet, and increases owner's equity (shareholders' equity I'm more used to saying but the numbers work out the same).

Expenses are money that goes out, on the cash flow statement. When it's time that winds up on the balance sheet, and decreases owner's equity.

The difference between the two, over the measured period, is earnings, which can indeed be negative.

The important concept is the difference between the cash flow statement, which covers an interval of time, and the balance sheet, which shows a snapshot in time.

Accounting is not always intuitive. I am not an accountant. Over the years I've looked in to and learned the concepts I needed to understand what I was seeing. A lot of that came shortly before and during the time I had my business. I don't hold even so much as an associate's degree in bookkeeping, but I'm certain about the oversimplified part I just wrote.

No doubt a CPA will come along and correct what I'm certain about.

PJW

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dm200
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Re: Learning Accounting (question)

Post by dm200 » Wed Aug 28, 2019 9:33 am

The other important concept is the difference between "Cash Accounting" and "Accrual Accounting".

For some reason, many folks have great difficulty with this.

mrc
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Re: Learning Accounting (question)

Post by mrc » Wed Aug 28, 2019 9:38 am

I sometimes wonder how others cannot appreciate software engineering in particular, system administration, and computers in general. Then I read about cash accounting vs accrual accounting, balance sheet vs owners equity ... and I get it. Thankful we can choose our vocations.
Macs are for those who don’t want to know why their computer works | Linux is for those who do | DOS is for those who want to know why their computer doesn’t work | Windows is for those who don’t

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dm200
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Re: Learning Accounting (question)

Post by dm200 » Wed Aug 28, 2019 9:40 am

mrc wrote:
Wed Aug 28, 2019 9:38 am
I sometimes wonder how others cannot appreciate software engineering in particular, system administration, and computers in general. Then I read about cash accounting vs accrual accounting, balance sheet vs owners equity ... and I get it. Thankful we can choose our vocations.
Yes..

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