The usefulness and power of double-entry bookkeeping is testified to by its survival since at least the 15th century and its continuing wide-spread use. Viewing double-entry book- keeping this way leaves me believing that we still do not thoroughly understand why it is a powerful organizing device. I am so used to thinking of assets and the claims on them, equities and liabilities, as a way of organizing thoughts about companies that it is hard to conceive of alternatives."
Jensen, M., "Organizational Theory and Methodology," The Accounting Review, Vol. LVIII, No. 2, April 1983 p. 330.
This section, Basics of Accounting, contains materials for learning the basics of accounting. The basics of accounting are those concepts and methods that are generally applicable to all types of double-entry accounting systems. Important concepts include financial value, assets, liabilities, revenues, and expenses.
Double-entry accounting has proven itself to be an efficient way to record financial data. The basic perspective encouraged by double-entry accounting, specifically the recording of why things happened as well as what happened, is a very useful approach for all the participants in and designers of financial transactions, not just for accountants.
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Important Note about the Approach
Learning accounting involves starting with simple transactions and gradually layering in complexity. The idea is to use simple transactions to:
- Introduce basic concepts, such as assets, liabilities and net income
- Build a set of tools, such as debit/credit, closing and balancing practices, that are used in addressing more complicated situations; and,
- Develop an awareness of the restrictions of the tools, e.g. balance sheets must balance so equity is really determined by our valuations of assets and liabilities. I.e., equity is not an independently defined concept.
This is a challenging agenda, but even more so when analyses of special cases are presented with insufficient warning that they are not generally applicable. We aim not to do this, primarily by describing the general case first and presenting special cases as such.
This can create frustration at times, but frustration is better than confusion, or worse, false confidence.