Accounting is made up of a double-entry system. Whenever a transaction occurs, a bookkeeper records it by placing the amounts as equal debits and credits to various accounts. Organizations keep track of their revenues, expenditures and other financial information by separating these amounts into accounts. Accounts are normally divided into five main categories. Each category contains specific rules on the treatment of debits and credits. All transactions are posted into a company's general ledger. This ledger is a book that contains columns to track the date, the type of transaction, the amount and the accounts affected by the transactions. One main principle to remember is that debits are always on the left side of the journal and credits are on the right.
Accounts
The five main categories of accounts are assets, liabilities, owner's equity, revenues and expenses. Assets are accounts that keep track of things an organization owns of value. Some examples are cash, supplies, equipment and accounts receivable. Liabilities are accounts that track amounts a company owes, such as mortgage payable, accounts payable and notes payable. Owner's equity accounts track the amounts that owner's invest in the business, and are typically listed as capital accounts and drawing accounts. Revenues track amounts that a company earns and expenses are accounts that track all of a company's expenditures.