Accounts understanding for FRA directly, statements, accounting, starting

spartan1

Hi Guys,


I am starting off with FRA today. I took a brief look at it and most of it is about interpreting account statements (i already know that). Do you guys think its best to learn accounting basics before starting FRA or just give it a shot directly?


Thanks,
Biggie

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Bigspydee - " SpiderMan XXL "

kasinkei

I hope others will chime in here, but from what I've seen, we do not have to learn the T diagrams for debits and credits. Please someone correct me if I'm wrong.

You should still know the "accounts" that will augment the statement and the "accounts" that will diminish the statement (i.e. what's added and what's subtracted), but not having to know the "debits" and "credits" was a relief for me.

smartpants

I am sorry of misconception, when i said "accounts" i meant "accounting principles" (like basics, what are credits and debits? how do u identify them? etc whatever these question lead to)

shootingstar

I don't think you can truly analyze financial statements without understanding debits and credits.

chetan86

Yes, in general, we should know the concepts of debits and credits. In the text, however, the author said that the T diagrams with postings for credits and debits was beyond the scope of this exam.

In general, yes you have to know accounting principles. For example, the text does go into a discussion about making a post to an account and the offsetting post to a contraccount. They spoke of it, though, generally and theoretically. So the chapters I have read thus far are higher level and not as mechanical, as say, the first several chapters in your Accounting 101 textbook, where you are making T diagrams and learning from the ground up.

Bluetick1010

Although T accounts with debits and credits is as mentioned beyond the scope of the exam, I think you should have knowledge of debits and credits and how it impacts asset, liability, income, expense, and equity accounts.

i.e.

a DEBIT will INCREASE the balance in the following accounts: Asset, Expense, Equity
a CREDIT will INCREASE the balance in the following accounts: Liability and Income

and vice versa.



Edited 2 time(s). Last edit at Wednesday, February 17, 2010 at 01:12PM by johnnybogey.

Jolyn

credit increases equity accounts.

remember it like this:

issues stock:

DR Cash xxx
CR Common Stock xxx

scr879

Jonnybogey, I don't think Debit increases Equity (Can someone else confirm?) The entry to increase capital it is Cash increase (debit) by X and Contributed Capital increase (Credit) by X.

Debit is generally positive for the Balance sheet and negative for the Income statement. I think thats in the CFA books.

ramzes

Ok, let me make this a bit easier.

On the "T Account" the left side is debit and the right side is credit.

Assets = Liability + Equity

The left side of the equation (assets) is increased with debits (left side of T Account). The right side of the equation is increased by credits (right side of the T Account). Vice versa for decreasing those accounts.

That actually might not help, but it did for me.