If this is your first accounting class, I
want to give you three things, three things to memorize that should
make things easier. First retained earnings at the beginning
plus net income minus dividends gives us retained earnings at the end. Secondly
expenses are debits, expense are debits, expense are debits. And third, the
depreciation expense is recorded with the journal entry: Debit depreciation
expense, Credit accumulated depreciation. It may help you to have some context to
memorize these things. So retained earnings simply means earnings that have
been retained by the company (money they’ve made) that they haven’t paid out
to their shareholders in the form of dividends. Expenses are debits, Expenses are debits, Expenses are debits is an easy way to remember the rules for journal
entries. We record financial transactions with journal entries – debits and credits.
And expenses, like rent expense, like insurance expense are recorded with
debits. And finally depreciation expense is the way we spread out the cost of
long term assets. So if I buy an ink cartridge, I’m gonna expense it right
away because I’m gonna use it up that very month. But if I spend thirty million
dollars to buy a building that’s gonna last for 30 years
I shouldn’t recognize that 30 million dollars expense in that first year.
Instead I’m going to spread it out with a million dollars worth of annual depreciation
for the next 30 years. So three things, three things, three things to memorize.
First retained earnings in the beginning plus net income minus dividends gives us
retained earnings at the end. Second expenses are debits, expenses are debits. Expenses are debits. And
third, the journal entry for depreciation expense is debit depreciation expense and
credit accumulated depreciation. Just memorize those things and life will be
much easier. Thanks.