Work-Standard Accounting Practices: Fundamentals of Double-Entry Account Bookkeeping (Pt. II of III)

Accountants familiar with Double-Entry Account Bookkeeping record the everyday transactions and activities of their assigned economic organization in a “Chart of Account (CoA).” In the financial ledger of an economic organization affiliated with Production for Profit and Production for Utility, the CoA serves as a physical document tracking the Quantities of Kapital and Schuld that the economic organization receives or spends. Every conceivable economic activity is affiliated with an account.  

Recall earlier the variables of Double-Entry Account Bookkeeping mentioned in Part I: Asset, Liability, Equity, Revenue, and Expense. The CoA should contain an “Asset Account,” a “Liability Account,” an “Equity Account,” a “Revenue Account,” and an “Expense Account.” Two additional Accounts, the “Gains Account” and the “Loss Account,” are also included in the CoA.

  • The Asset Account lists the Quantity of Kapital that is currently owned by an economic organization.
  • The Liability Account contains the Quantity of Schuld accumulated by the economic organization.
  • The Equity Account is a recognition of the ownership equity related to the economic organization with regard to Production for Profit and Production for Utility. If the economic organization operates on Production for Profit (Read: “Private Sector”), the CoA will document this Account as Equity. Alternatively, if the economic organization operates on Production for Utility (Read: “Public Sector”), the CoA will list the Net Assets in this Account.       
  • The Revenue Account is the inflowing Quantity of Kapital that it receives from other economic organizations, Private Citizens, Civil Society, or Parliament.
  • The Expense Account is the outflowing Quantity of Schuld that it receives from conducting its economic activities and rendering goods or services to other economic organizations, Private Citizens, Civil Society, or Parliament.  
  • The Gain Account denotes any Kapital beyond what an economic organization currently has in its Asset Account and the Kapital that it earns from its economic activities in the Revenue Account. Rents, Interest, Dividends, Royalties, and other sources of Kapital are covered here.
  • Conversely, the Loss Account denotes any Schuld beyond what an economic organization already has in its Liability Account and the Schuld that it receives from its economic activities in the Expense Account.   

When accountants need to provide a periodic check of an economic organization’s finances, they would compile its “Balance Sheet” from the Assets as sum of Liabilities and Equities. All transactions from every economic activity will usually be formatted as the following:

Account Number – Account Title – Balance: Debit (Dr) / Credit (Cr)

Accounts for specific transactions are listed under a designated “Account Number” and appropriate “Account Title.” A brief description of the Account may also be provided as well if necessary. Most CoAs in Production for Profit as well as Production for Utility will include a list containing the categories of all sources of Kapital and Schuld and the predetermined numerical codes for each.   

Note that certain Accounts will describe any increases as “Debit (Dr)” or any decreases as “Credit (Cr)” and vice versa. The best way that I have found when determining which ones are Debits and which ones are Credits is to employ the acronyms “DEAL” for Debit and “CLIP” for Credit.

  • Debits are for DEALs (Drawings, Expenses, Assets, and Losses).
  • Credits are for CLIPs (Capital, Liabilities, Incomes or Revenues, and Profits).  

Basically, any increases to Drawings, Expenses, Assets, and Losses are recorded as Debits. The decreases are to be documented as Credits.

Increases to Capital, Liabilities, Revenues and Gains are to be recorded as Credits. Any decreases will be denoted as Credits.

Of course, what I had just described is the financial data for just one economic organization. An average Market/Mixed Economy will have thousands and thousands of economic organizations with their own Charts of Accounts. A compilation of their Charts of Accounts can then be assembled to provide only a sizeable portion of a particular Liberal Capitalist nation’s “System of National Accounts (SNA).” The SNA is essentially a larger scale version of the methodology discussed here.

A Liberal Capitalist nation’s SNA should provide enough information for accountants, economists, and political scientists to determine its entire Quantity of Kapital and Quantity of Schuld in terms of “Production,” “Income,” and “Expenditure.” All three are employed to discover that country’s “GDP (Gross Domestic Product)” and “Gross National Income (GNI).”  

Categories: Work-Standard Accounting Practices

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