🟨 Key Ideas:
- The ledger has every account and the balances for each one.
- The chart of accounts lists all accounts and gives each a unique number.
Imagine you're running a giant library of buckets (accounts).
The ledger is like your library catalog, where each book (account) has a current page count (balance).
The chart of accounts is your library map, showing what shelf each book is on (its number/category).
💡 Why it matters: As your company grows, it handles more types of transactions—so it needs more buckets to track different flows of money.
A T-account is a visual tool used to represent how transactions affect accounts.
- Left side: Debit
- Right side: Credit
Think of the T-account like a see-saw.
Every time something goes up on one side, it must be balanced on the other side.
Example: You buy a car (increase Asset), but pay cash (decrease another Asset), or take a loan (increase Liability).
🔄 Rule of Thumb (based on account type):
| Account Type |
↑ Increase with |
↓ Decrease with |
| Asset |
Debit |
Credit |
| Liability |
Credit |
Debit |
| Equity |
Credit |
Debit |
| Revenue |
Credit |
Debit |
| Expense |
Debit |
Credit |
Mnemonic: DEALER
Dividends, Expenses, Assets → Debits increase
Liabilities, Equity, Revenue → Credits increase
Assets = Liabilities + Equity
Assets = Liabilities + Capital + Revenues – Expenses – Dividends
This expanded version shows how equity changes over time:
- Equity increases with Capital contributions and Revenue
- Equity decreases with Expenses and Dividends
An account balance shows the net result of increases and decreases.
Think of it like a bank statement. You start with a balance, then track every deposit (debit or credit depending on account type) and every withdrawal.