Philosophy of Accounting

By

Anthony J. Fejfar, B.A., J.D., Esq., Coif

©Copyright 2010 by Anthony J. Fejfar

Some accounting classes seem to limit themselves to mere bookkeeping. A good

accounting class, however, includes a section on Philosophy of Accounting. To begin

with, we see that accounting systems are dual entry accounting systems. Thus, for each

entry or transaction which is logged into the accounting system, two entries are required,

one entry is a Debit and the other entry is a Credit. Put another way, in every accounting

system, for every Credit there must be a Debit, and for every Debit there must be a

Credit. In other words, to some degree, a Credit and a Debit in an accounting system are

relative concepts. In one account, a Debit entry could mean your account balance is

increasing, while in another account a Debit entry might mean that your account balance

is decreasing. The same is true with Credit entries.

Now, in accounting there are certain traditions which are typically followed,

but would not have to be. For example, the general rule for corporate accounting is that

the Corporate Capital Account is a Credit account, while the Corporate Cash account is a

Debit Account. Consider the following:

 Starting Position

Corporate Capital Credit Account Corporate Cash Debit Account

Credit Debit

$100 $100

The above means that the Corporation has $100 on account some place.

Now, let us say that we are adding an additional $100 in cash to the Corporate

Capital Account. This would be noted as follows, in the Corporate accounting system:

Corporate Capital Credit Account Corporate Cash Debit Account

Date Credit Debit

Starting $100 $100

A $200 deposit needs to be entered

10/01/1999 $200 credit entry $200 debit entry

Balance $300 $300

Now, let is consider a withdrawl of $50 in relation to the above accounts:

Corporate Capital Credit Account Corporate Cash Debit Account

Date Credit Debit

Starting $100 $100

10/01/1999 $200 credit entry $200 debit entry

Balance $300 $300

10/10/1999 $50 debit entry $50 credit entry

Balance $250 $250

Thus, you can see that in some instance a credit entry will increase the account balance,

and in other instances it decrease the account balance, and vice versa.

Please also consider that in a Banking Accounting System, Cash on Deposit is

traditionally a Debit account, while a customer Savings or Checking account is a Credit

account.