29 Accountancy

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Remembering the Double Entry System with the Story Method

Accountancy can feel like a complex language, especially with its core concept – the double entry system. But fear not! The Story Method can transform this concept into a captivating narrative, making it easier to understand and remember.

The Story Method involves creating a story that connects pieces of information, making them easier to remember in sequence. This method is ideal for understanding the flow and logic behind accounting principles.

1. Craft a Business Adventure:

Imagine yourself as a young entrepreneur opening your first store, “Awesome Accessories.” You’re excited but also confused about how to track your finances.

2. Enter the Double Entry Guide:

Suddenly, a friendly accountant named Doug walks in. Doug explains the double entry system as a story:

• Every transaction has two sides: Imagine a magic mirror in your store. Everything that comes IN (revenue from sales) or goes OUT (expenses for buying products) has a reflection in the mirror (recording the impact on your accounts).
• Debits and Credits: Doug explains that the left side of the mirror is “Debit Town,” where you record increases in assets and expenses (think of DEBIT as putting something IN). The right side is “Credit City,” where you record increases in liabilities and equity (think of CREDIT as something coming from or belonging to the business).
• Balance is Key: The magic mirror must always be balanced – whatever goes into Debit Town must have a corresponding entry in Credit City, and vice versa. This ensures your financial records are accurate.

3. Practice with Transactions:

Doug helps you record your first sale.  Cash (an asset) increases, so you make a debit entry in Debit Town.  The corresponding credit entry goes to Sales Revenue (an equity account) in Credit City, reflecting the income from the sale.

4. Visualize the Story:

Imagine yourself interacting with Doug, the magic mirror, and the transactions happening in Debit Town and Credit City.

5. Expand the Story:

As your business grows, incorporate more complex transactions into the story.  Doug guides you through recording purchases, expenses, and other transactions, all within the framework of the magic mirror and the double entry system.

By using the Story Method, you transform the dry concept of the double entry system into a captivating narrative. This not only makes it easier to remember but also helps you understand the logic and purpose behind this core accounting principle.

Remembering the Accounting Cycle with the Visual Image Method

Accountancy involves a series of steps known as the accounting cycle. While the names might sound technical, the Visual Image Method can transform them into memorable mental pictures, making the entire process easier to understand and recall.

The Visual Image Method involves creating a mental picture to represent a specific concept. This approach leverizes the brain’s natural ability to remember visuals.

1. Picture the Cycle:

Imagine a circular racetrack with distinct sections representing each step of the accounting cycle.

2. Assign Images to Each Section:

• Start (Transactions): Visualize a busy marketplace filled with people buying and selling goods (representing the start of the cycle with various transactions occurring).
• Analyze Transactions: Picture a detective with a magnifying glass carefully examining receipts and invoices (representing analyzing the transactions).
• Journalize: Imagine a giant pen writing down details of each transaction in a large book (representing recording transactions in the journal).
• Post to Ledger: See a postman meticulously delivering individual transaction entries to different accounts in a massive filing cabinet (representing posting entries from the journal to separate ledger accounts).
• Trial Balance: Picture a giant scale with account balances on either side, ensuring they balance perfectly (representing the trial balance that verifies the accuracy of the ledger).
• Adjustments: Imagine a mechanic tinkering with the scale, making slight adjustments to account for any errors or missing information (representing year-end adjustments made to the accounts).
• Financial Statements: See a giant TV screen displaying income statements, balance sheets, and cash flow statements (representing the creation of financial statements based on the adjusted accounts).
• Closing Entries: Picture a janitor cleaning and erasing temporary accounts from the ledger (representing closing temporary accounts at the end of the accounting period).

3. Connect the Images:

Imagine yourself walking around the racetrack, encountering each image in the order they appear.  Visualize the detective analyzing transactions, then the giant pen recording them, and so on.

4. Test Yourself:

Can you recall the image associated with each step of the accounting cycle?  If not, revisit your mental racetrack and solidify the connections.

By using the Visual Image Method, you transform the abstract steps of the accounting cycle into a vivid and memorable visual sequence. This not only helps you remember the order but also provides a framework for understanding how each step connects to the overall accounting process.

Mastering Accountancy Equations with the Substitute Method

Accountancy can involve memorizing complex formulas. But fear not! The Substitute Method  can transform those formulas into  easier-to-remember visuals, making them much easier to understand and apply.

The Substitute Method involves replacing difficult terms in a formula with simpler images or sounds that you can easily recall.

1. Demystifying the Accounting Equation:

A fundamental equation in accounting is: Assets = Liabilities + Equity.

This equation can be a bit dry. Let’s substitute the terms with easier-to-remember visuals:

• Assets: Imagine a giant SAFE where you keep all your valuable things (money, property, etc.).
• Liabilities: Picture a stack of LOUSY bills you owe (money you need to pay back).
• Equity: Think of your ** piggy BANK** filled with your savings (money that belongs to the business owner).

2. Visualize the Equation:

Imagine a giant scale. On one side, place your safe (assets). On the other side, place the stack of lousy bills (liabilities) and your piggy bank (equity).  The scale should be balanced, representing the equation: Safe (Assets) = Lousy Bills (Liabilities) + Piggy Bank (Equity).

3. Test Yourself:

Can you recall the visual substitutes for each term in the equation?  If not, revisit your created visuals.

4. Apply the Equation:

Now, imagine adding or removing items from your safe (assets).  The scale must remain balanced, so you’ll need to adjust the lousy bills (liabilities) or the piggy bank (equity) accordingly.  By visualizing the equation, you’ll gain a deeper understanding of how it works.

The Substitute Method allows you to transform complex accounting formulas into relatable visuals. By creating these substitutes and practicing the equation with them, you’ll be a formula whiz in no time!