1 Introduction to credits and debits
Credit and Debit notation is confusing.
But transfers are conceptually easy:
2 Show a deposit into a bank
This shows a customer depositing money into the bank into their own account.
3 Accounting notation
Original transfer notation:
Accounting notation:
The net result is actually identical.
4 Simplest bank
- Safety deposit box
- Piggy bank
- No interest earned
5 Ponzi bank
- high rate of interest
- Very simple
- Nothing is done with the money invested
- Loss making
6 Real bank
- pays lower rate of interest
- puts the money to work
-
profitable
-
Net profit of £1.50
7 Conclusion
- Thinking about accounting transactions in termes of transfers is easier than using credit and debit.
- Banks need to do more than just store money. They need to make money.
References
8 Legend
This is an index to colour coding each of the accounts/nodes and giving them a are more expressive title:
| Colour | Meaning |
|---|---|
| $$\definecolor{equity}{RGB}{238,238,187}\colorbox{equity}{Equity}$$ | Money invested by the owners or their profits |
| $$\definecolor{asset}{RGB}{204,221,170}\colorbox{asset}{Asset}$$ | Things that the entity has or is owing to it |
| $$\definecolor{liability}{RGB}{221,221,221}\colorbox{liability}{Liabilities}$$ | Things that the entity has or is owing to it |
| $$\definecolor{income}{RGB}{187,204,238}\colorbox{income}{Income}$$ | Income earned by the business |
| $$\definecolor{expense}{RGB}{255,204,204}\colorbox{expense}{Expense}$$ | Expenses incurred by the business |