Essential Accounting Principles and T-Account Mechanics

Fundamentals of Accounting Terminology

Basic Account Movements (Debit and Credit)

The following rules govern increases and decreases in accounts, using the Spanish terms Debe (Must/Debit) and Haber (Credit):

• Active accounts and decreases = Haber (Credit)
• Active accounts and increases = Debe (Must/Debit)
• Passive accounts and increases = Haber (Credit)
• Credit = LXC

Capital Calculation and Movement

Capital must be added together. Add the credit amount, and the outcome of the two is subtracted. Capital always goes to the home business at the end (to be less the result of having).

T-Account Mechanics

In the T-accounts, amounts should be added together and separately recorded (Debe and Haber), then subtract the result from the outcome.

• Active T-Accounts: The balance is the subtraction between the debit and credit of the assets, then added and shown.
• Passive T-Accounts: Amounts are added, and all should be separately recorded before subtracting the liabilities shown in the T-account.
• Losses and profits are shown in the balance sheet.

Key Accounting Definitions

Debit (Must)

The left side (Izquierdo) of the account.

Credit (Haber)

The right side of the account.

Assets

Assets and rights of a company.

Liabilities

Debts and obligations of a company.

Debe (Must)

Account name; left side.

Haber

Account name; right side.

Cargo (Charge)

Annotation that takes place to be paid (Debit notation).

Abono (Payment/Credit)

Notation that takes place (Credit notation).

Debit Sum

The sum of the charges.

Credit Sum

Sum of fertilizers (Credits).

Seat (Entry)

Technical scoring in different settlements; performing an accounting entry.

Understanding Account Types and Documentation

Account Definition

An account is an accounting term that represents a set of elements with similar functions within the company and may have variations over time. It is a systematic grouping of charges and payments relating to the same person or business that are recorded under an appropriate heading or title.

Passive Accounts (Liabilities)

Examples of passive accounts are: Lyrics To Pay, Suppliers, Creditors, Capital, and Profits.

Active Accounts (Assets)

Examples of active accounts are: Fund (Cash), Bank, Merchandise, Raw Materials, Furniture, Machinery, and Letters Receivable.

Chart of Accounts

This is a document prepared when initiating activities, outlining the accounts governing the accounting process.

Accounts Manual

A detailed description of the concept that each account represents. It serves as a working reference for the accounting process.

Accounting Terminology and Purpose

Accounts are used to centralize accounting and total movements of the same nature. Later, at the end of the year, they are used for drawing up balance sheets. They provide timely and orderly information whenever needed, such as when making an inventory, and facilitate control over certain operations.

T-Accounts: Debit and Credit Balances

In a T-account:

• If the amount of Debe (Debit) is greater than that of Haber (Credit), the account has a Debtor Balance.
• When the sum of the Credit is greater, it is a Credit Balance.
• An account balance will occur when the Credit is equal to the Debit, meaning the two sums are equal.

T-Account Rules for Assets and Liabilities

Asset T-Accounts (Active Accounts)

An annotation in the Debe (Must) means an increase or entry into the account. A notation in the Haber (Credit) means a decrease or output in the account.

Liability T-Accounts (Passive Accounts)

An annotation performed on the Debe (Left Side) means a decrease in the account. A notation on the Haber (Right Side) indicates an increase in the account.