As we became managers of our own money and opened checking accounts we got the idea instilled in us that when an account is credited that’s an increase and when an account is debited that’s a decrease. That’s simply the bank’s side of the equation of the general ledger account representing your money. Like I said yesterday, each of the types of accounts generally has either a debit or a credit balance. This is what your financial statements look like:
Assets (debit) = Capital (credit) + Liabilities (credit)
Revenues (credit) – Expenses (debit) = Profit (credit) or Loss (debit)*
*At the end of the year the profit or loss is “closed” into the capital account. On a very basic level, capital is the sum of profits over the years and any investments made by you or other investors less any money taken out of the business.
Today I’d like to give you a very general picture of the financial statement of an artist and tomorrow go through some examples of transactions you might make.
Sales tax payable
Deposits from clients
Net Income (Loss)