Accounting Myth Busters

Accounting is all about Mathematics!

Definitely a myth! Math is everywhere, in Physics, Chemistry, even History (when it says XYZ happened on August 15,1947; it all began 10 year before the event- well this is Math too). The only math you need in accounting is basic math – addition, subtraction, multiplication and division- nothing very complicated! Most of the accountant don’t even do this basic math mentally- they use calculators or excel worksheets! So no , Accounting is NOT EQUAL TO Mathematics! Accounting is more of story telling about company’s financials using numbers!

Revenue is same as Net Profit

Not true! Revenue is the total income generated from sale of the company’s products or services. Net profit on the other hand is Revenue minus all expenses the company incurs. That is the math in accounting!

Cash in bank is the same as Cash in the financial books

Not true in some cases. Cash in the bank is the balance of your accounts that you see on your bank’s website. Cash in the financial books includes any checks that you might have written but has not been cashed, so does not show on the bank side; or checks that you have received from your customers, recorded on your books and mailed to the bank but is still in transit- so not recorded on the bank side. So cash that you see on your bank website might be different from the cash you see on your financial books.

Debit means increasing the account and credit means decreasing the account

Not true! How an account is affected by the debits and credits depends on the nature of the account. Debit to an asset or expense account increases the balance of the account, and a credit to these accounts reduces the balances. Credit to liability, revenue and equity account increases the balance and debit reduces the balance on these accounts.