Jericca Sunga III-Honesty Ms.

Remedios Dela Cruz

Financial statements consist of a Balance Sheet and Profit & Loss Statement. These two reports act as a “container”
for all your business transactions. Each transaction is recorded according to a set of rules called “The Accounting
Model”.

The Accounting Model is made up of three very simple parts:

Led ger Pa ge
The first part is a ledger page with a line drawn down the middle (like a big T) automatically creating a left and right
side of the dividing line. However, in accounting language the word “debit” is used instead of “left” and the word
“credit” is used instead of “right”. The trick here is to not make this anymore complicated than it really is. Don’t try to
use the words debit and credit to mean increase or decrease like you see on your bank statement. You can do this
later when you fully understand how to work with these terms.

Sections
The second part is that there are five of these ledger T’s that relate to the five sections found in a set of financial
statements. They are: 1) Assets; 2) Liabilities; 3) Equity; 4) Revenue; 5) Expense. The first three relate to the Balance
Sheet and last two relate to the Profit & Loss Statement.

Records
The third part is a rule that states: Any transaction that pertains to a section (Assets, Liabilities, etc.) that results in an
increase or decrease has to be recorded on either the left or right side of the ledger page. Review the following
example of a completed accounting model to see what I am talking about:

Debit 1. All Asset Accounts Credit

Increase Decrease

Debit 2. All Liability Accounts Credit

Decrease Increase

Debit 3. All Equity Accounts Credit

Decrease Increase

Debit 4. All Revenue Accounts Credit

Decrease Increase

Debit 5. All Expense Accounts Credit

 Increase Decrease

Aira Jean Cunanan III-Honesty Ms. Remedios Dela Cruz

Financial statements consist of a Balance Sheet and Profit & Loss Statement. These two reports act as a
“container” for all your business transactions. Each transaction is recorded according to a set of rules
called “The Accounting Model”.

The Accounting Model is made up of three very simple parts:

Ledger Page
The first part is a ledger page with a line drawn down the middle (like a big T) automatically creating a
left and right side of the dividing line. However, in accounting language the word “debit” is used instead
of “left” and the word “credit” is used instead of “right”. The trick here is to not make this anymore
complicated than it really is. Don’t try to use the words debit and credit to mean increase or decrease like
you see on your bank statement. You can do this later when you fully understand how to work with these
terms.

Sections
The second part is that there are five of these ledger T’s that relate to the five sections found in a set of
financial statements. They are: 1) Assets; 2) Liabilities; 3) Equity; 4) Revenue; 5) Expense. The first three
relate to the Balance Sheet and last two relate to the Profit & Loss Statement.

Records
The third part is a rule that states: Any transaction that pertains to a section (Assets, Liabilities, etc.) that
results in an increase or decrease has to be recorded on either the left or right side of the ledger page.
Review the following example of a completed accounting model to see what I am talking about:

Debit 1. All Asset Accounts Credit

Increase Decrease

Debit 2. All Liability Accounts Credit

Decrease Increase

Debit 3. All Equity Accounts Credit

Decrease Increase

Debit 4. All Revenue Accounts Credit

 Decrease Increase

Debit 5. All Expense Accounts Credit

Increase Decrease

Heaven Nicole Mercado III-Honesty Ms. Remedios Dela

Cruz

Financial statements consist of a Balance Sheet and Profit & Loss Statement.
These two reports act as a “container” for all your business transactions. Each
transaction is recorded according to a set of rules called “The Accounting
Model”.

The Accounting Model is made up of three very simple parts:

Ledger Page
The first part is a ledger page with a line drawn down the middle (like a big T)
automatically creating a left and right side of the dividing line. However, in
accounting language the word “debit” is used instead of “left” and the word
“credit” is used instead of “right”. The trick here is to not make this anymore
complicated than it really is. Don’t try to use the words debit and credit to
mean increase or decrease like you see on your bank statement. You can do
this later when you fully understand how to work with these terms.

Sections
The second part is that there are five of these ledger T’s that relate to the five
sections found in a set of financial statements. They are: 1) Assets; 2)
Liabilities; 3) Equity; 4) Revenue; 5) Expense. The first three relate to the
Balance Sheet and last two relate to the Profit & Loss Statement.

Records
The third part is a rule that states: Any transaction that pertains to a section
(Assets, Liabilities, etc.) that results in an increase or decrease has to be
recorded on either the left or right side of the ledger page. Review the
following example of a completed accounting model to see what I am talking
about:

Debit 1. All Asset Accounts Credit

Increase Decrease
Debit 2. All Liability Accounts Credit
Decrease Increase

Debit 3. All Equity Accounts Credit

Decrease Increase

Debit 4. All Revenue Accounts Credit

Decrease Increase

Debit 5. All Expense Accounts Credit

Increase Decrease