Accounting 101

Here simulates a simplified accounting process for running a company.

Firstly, there are two types of transactions, balanced sheet / profit and loss. The balanced sheet (BS) is for measuring the companies asset and liability to show how much the company is worth. The profit and loss (P&L) is about revenue and expense to show if the company is making money or not.

The term debit (Dr) and credit (CR) is the reverse of what a person dealing with the bank. When a person dealing with the bank, it's from the bank's view, crediting or debiting your account from the bank's view. When dealing with accounting for your own company, it's from your view, crediting is giving money away (crediting your client and bank), and debiting is the receiving money (debiting your client/bank).


Debit $100 at Bank (Receive $100 in company's bank account). The Debit comes with + positive sign.

Credit the loan account $100 (owes $100 in debt now). The credit comes with -negative sign. So in the ledger value, it shows -$100.

Those are balanced sheet transactions because they only reflect your asset (cash in this case) and liability (loan in this case)

Note this is called double entry accounting, so all credits + all debits add up to zero

This is a profit and loss transaction.

Debit $80 fuel expense. This is $80 into the fuel expense account.

Credit $80 bank account. This is $80 out of the bank account.

Debit $300 bank account. Receive $300 payment. This is a BS transaction.

Credit $300 revenue. Give money to the revenue account. This is P&L transaction.

My understanding is it receives money in bank account, then has money to credit the revenue account.

Debit $20 loan account. Replay $20 loan.

Debit $2 interest. This is P&L.

Credit $22 at bank. Credit someone else with the $22.

Above are the ledger transactions.

The orange (BS) transactions go to the Balanced Sheet report. So the "Cash at Bank" ledger account has a net of +100 -80 + 300 - 22 = 298. The "Loan" ledger account has -100 + 20 = (80)

The blue (P&L) transactions go to the Profit and Loss report. SO the "Revenue" account has -300. The "Fuel Expense" account has 80 + 2 = 82. It needs to add a negative sign to show the net profit in the right sign, so -300 becomes 300 profit, and 82 expense become -82 in profit. They add up to 218 net profit.

The 218 net profit, if moved to the balanced sheet as e.g. current year's profit. It makes the credit column 80 + 218 = 298, which matches exactly the debit column's 298.  

In actual ledger, the Cash at Bank for example, will be given a GL_Account, something like 1000019. Ang GL Account may have a further category, e.g general asset, so as to do reporting.