So, looking at the complete transaction involving both the cash and the stock, the business would apply the source and destination of economic value principle in the following way: I think you need to see the entire transaction to fully understand the flow of economic values. At some time in the future, a second aspect (1) will take place to complete the transaction. Your example only looks at one aspect of the transaction (2), being the movement in the economic value of the stock when a customer places an order to purchase that stock. One is the customer’s cash and the other is the business’ stock. There are two economic values in play when a customer purchases goods (stock) from a business. And so, there are parallel, balanced entries reflecting the NEW value (DR) coming into the entity, giving appropriate CR to the Equity interest of the entity (sales revenue account). But of course will be expected to give up a higher value to the entity for that privilege of the company assembling & packaging that wealth for him/her. The customer receives that value (he bought the goods!). So the CR to stock inventory is the source of the benefit that is given up to the customer. Whereas DR on the other-LEFT side are stored or future benefits. All expenses can be viewed as “current” or consumed benefits. That “right-reason” side interprets DR as a current benefit when it is sold (not a stored benefit) the current benefit is to allow the revenue sale in the first place. The right side of the equation interprets DR as “reasons for spending or consuming or using” wealth/assets. The Inventory Stock (asset–store of value) is relieved/CR, and the reason for that relief is debited, on the other side. So it may be beneficial then, as we try to understand the concept of Debits and Credits, to go back to where it all begun … but first some background. Is it any wonder then, with the passage 500 years, that we may have become a little confused about the original meaning and concepts, particularly with the English language adopting new legal and everyday meanings for these age old words. The concepts were first documented in Latin in the 1400’s and were later translated into English in the 16th century. Now the concept of Debits and Credits is actually more than 500 years old, being used extensively by the Venetian merchants of Italy in the 15th century Renaissance period. Most people don’t find the math of Accounting as difficult as understanding the concepts of accounting, and for many there is no more difficult concept to grasp than that of Debits and Credits. A tutorial to help you understand the bookkeeping/accounting concepts of Debits and Credits
0 kommentar(er)
