Basics of Transaction
This section describes the basic principles of Double-entry accounting.
Transactions are structured according to the classic accounting equation: "Debit (Soll) and Credit (Haben).". This means that ever transaction has a debit account and a credit account, as well as the amount of money.
Accounts are T-Accounts. T-Accounts consists of a debit and a credit side. Debit on the left and credit on the right. The meaning of these sides depend on whether they are active or passive accounts. One can create account for everything that contains value for modelling somebodies financial situation.
Assets represent what a company owns or has in its possession. The debit side of these accounts represents what the account "has" and if the debit part of a transaction is a active accounts, the over all amount of this account gets increased. If a active account is on the credit side of a transaction, the amount of this account gets decreased.
It represents the things that a company owes to other people or businesses and what money was spend on. The credit side of these accounts the worth of this account. If the debit part of a transaction is a passive account, the amount gets decreased and the other way around if the the accounts is on the credit side of a transaction.
Following example displays 3 accounts. Bank and machinery are active accounts while loan is a passive account. This gets indicated by the side where the opening balance is. There are three transactions happening:
- #2 represents that machinery with the value of 300€ are bought with money from the bank. (active to active)
- #3 represents that a loan gets taken and the money is transferred to the bank. (passive to active)
- #3 represents that machinery gets sold for 150€ (active to active)
