Accounting heads are to the accounting, what the periodic table is to chemistry. Similarly to every other subject accounting is also divided into different accounting heads, or classes. These accounting Heads help accountants in identifying the kinds of business transactions. And treatment of these business transactions into accounting records, or financial statements. These Fundamentals accounting heads are building blocks of accounting as a subject. Every Financial business transaction can be classified into these accounting heads. Accounting heads are divided into Five fundamental classes, and the treatment of each class into debit and credit is discussed below.
An asset is any resource that can be ‘Owned’ or ‘controlled’ by a business entity to generate economic benefits(Profits).
As defined above, any resource owned or controlled by a business that generates profits is called an asset. In accounting, assets are classified into two major categories: Tangible assets & Intangible assets. Tangible and intangible assets are further divided into sub-classes known as: Current assets, & Non-Current assets. Current assets include:
- Bank balance
- Prepaid expenses
- Debtors/ Account receivable.
- Advance payments, etc.
Non-Current/ Fixed assets Include:
- Long-term investments
- Right of use, etc.
When assets are increased it is recorded in the Debit balance of accounting records. Moreover, when an asset decreases it is recorded in the credit balance of accounting records.
Increased expenses are recorded in the Debit balance of accounting records and vice versa.
When a business earns some revenue. This revenue is recorded in the credit balance of accounting records and when a business bears some losses, then these losses are recorded in the Debit balance of accounting records.
When a business raises finances through loans or any other credit facility. These loans are recorded in the credit balance of accounting records. However, when these loans are repaid then they are recorded in the Debit balance of accounting records.
Owner’s/ Partner’s/ Shareholder’s Equity:
When equity/ capital is increased through business activities or by investments. This increase is recorded in the credit balance of accounting records. However, when capital decreases, then this is recorded in the debit balance of accounting records.