USA Expenses are increased on the left (Assets)?

[jmeisejr]

I've been reading lessons at a website I found called Accounting-basics-for-students because I'm in need of at least a very basic understanding of Accounting in order to effectively rebuild our businesses inventory database (one step of many more to follow), and I have hit a brick wall. This is the section that completely stumps me.

h t t p :// w w w. accounting-basics-for-students.c o m/define-expenses.html

(please remove spaces to follow the link or google accounting-basics-for-students and navigate to the Basic Transactions, Define Expenses. I sincerely apologize for 'forcing' this link but it's imperative to my question, as it is100% based on this lesson and the example given. Thank you for understanding.)

The thing that's confusing me is the increase on the left (Assets) side and the green arrow with a +$4,000 on the Assets side. Everything would make perfect sense if it wasn't for that. the $4,000 dollars comes directly out of the bank (part of equity) to pay the assistant, and so the $4,000 dollars also has to come out of the Assets because Assets = equity + liability and the liability hasn't changed at all, it's still $5,000, so the now $26,000 in equity + $5,000 in liability = $31,000 in Assets. Which is exactly the end result that makes sense and is even shown. But the green arrow, use of the phrase 'increases on the left' and the +$4,000 on the Assets side is throwing me off big time, and I can't make any sense of it.

Can anyone fill me in on what I'm missing here? I followed everything up until that point without any problems what-so-ever but hit a brick wall on this :\

Thank you very much!

 

[kirby]

Will send you private message on this

 

[jmeisejr]

You have no idea how happy I am to hear that from an expert! To be honest, everything was making perfect sense up until that point. At that point I started scratching my head and I'm glad to hear that it was with good reason!

if I may ask you another question, what do you think of

accountingcoach dot com ?

I found that one and started on it's basics, but I haven't gotten into it very far at all yet.

Thank you again so much!

(btw, I apologize for responding here...but I am unable to send a PM until I have 15 posts -.- I understand why, but that doesn't change the fact that it's frustrating >.< Just glad it's 10 and 15 posts for links and PMs and not 100 and 150 )

 

[jmeisejr]

I had a thought in regards to the confusion of that accounting basics for students website; I learned that assets = equity + liability there, is that at least correct, or should I just throw that out the window?

Thank you!

 

[Triest123]

I had a thought in regards to the confusion of that accounting basics for students website; I learned that assets = equity + liability there, is that at least correct, or should I just throw that out the window?

Thank you!

the green arrow with a +$4,000 is the expense (which is charged to the Profit & Loss A/C)
It is a profit and loss item and would not be shown on the Balance Sheet.

Dr Expenses $4,000 => Profit and Loss A/C
Cr Cash $4,000 => Balance Sheet
Being expenses paid by cash

Since the increase in "expenses" would decrease the profit of the company,
in turn the owner equity will also decrease.

 

[jmeisejr]

the green arrow with a +$4,000 is the expense (which is charged to the Profit & Loss A/C)
It is a profit and loss item and would not be shown on the Balance Sheet.

Dr Expenses $4,000 => Profit and Loss A/C
Cr Cash $4,000 => Balance Sheet
Being expenses paid by cash

Since the increase in "expenses" would decrease the profit of the company,
in turn the owner equity will also decrease.

while I didn't follow that 100%, it was enough to realize that the site I was following was actually confusing and/or misleading. Accounting Coach seems to be a much better structured set of lessons. It started off by explaining the Income statement, balance sheet, etc.

Much appreciated to you both! I'll be back here for sure as I continue through those lessons.

 

[chinweike]

Hi Jmeisejr,
Think of it this way; the account that receives value is debited while the account that gives value is credited.

This was how I learnt it way back in time. This still remains the same. Now, the term

Debit in accounting means to increase the quantity of the item in question while Credit means to decrease the item in question.

For example, when you make sales, you gave out something of value, hence sales account is credited, when you purchase an item, you receive value, hence, you debit purchase account.

This is to support what Triest123 said.

This example might sound so simple and elementary but, trust that you can never go wrong following the principle there.

 

[jmeisejr]

Sweet, this is all starting to make sense now accountingcoach has been a much better site. It has basic accounting lessons, and links to in depth lessons for a particular subject. I've opted to click on the more in depth lessons before I continue the basic accounting lesson. I'll be back here frequently for sure, and one day maybe even answering questions.

Thanks again!