Financial_training_DAX2009(7)

1. Basic concepts

for these ingredients and the Super Market account to record the liabilities for the Super Market vendor.

The purchase operation has the following transactions:

The Super Market total amount is increased. Since Super Market belongs to the Liabilities accounts, the amount is recorded in the Credit part (Account amount = Credit – Debit). The other explanation – since the liabilities are increased, it is bad for the company, so the amount is recorded to the Credit part. The Cheese and other ingredients accounts are also increased. Since they belong to the Assets accounts, the amount is recorded to the Debit part (Account amount = Debit – Credit). The other explanation – since the assets are increased, it is good for the company, so the amount is recorded to the Debit part. The circle is increased and will look as follows:

Figure 1.3 Company balances after second purchase

Note that all accounts in the circle contain the total amount, for the assets it is Debit – Credit, for the liabilities and owner’s equity, it is Credit – Debit.

The circle is increased because someone has lent the money to our company. In this case, it is the Super Market. In the first transaction, the circle is increased, because Taras lends (invests) money to the company. Note that for the company doesn’t care who lends the money the Vendor or the Owner, this money is company liabilities.

Let’s check the accounting equation: