Understanding Why Accounting Feels Like a Struggle (And How to Overcome It)

Accounting, for many students, is a subject that evokes feelings of dread and confusion. It’s a field that requires precision, organization, and a deep understanding of financial principles. So, if you’re asking yourself, “Why do I keep failing accounting?” you’re certainly not alone. The subject can be challenging, but by identifying where things are going wrong, you can overcome the obstacles and build a solid foundation.

In this tutorial, we will break down common mistakes accounting students make, work through examples to solidify key concepts, and provide practical advice to improve your understanding. Accounting is all about patterns, logic, and structure, and once you understand those elements, you’ll be able to navigate through the subject with greater ease.

Understanding the Basics: The Foundation of Accounting

At the heart of accounting is the accounting equation:

Assets = Liabilities + Equity

This is the foundation on which all of accounting is built. Every transaction you record will affect this equation. If you don’t understand how this equation works, it’s easy to get lost when more complex concepts come into play.

Example:

Let’s start with a simple example. Suppose you start a small business selling handmade jewelry, and you invest $10,000 of your own money into the business.

The journal entry to record this transaction would look like this:

In this case, the business has gained $10,000 in cash (an asset) and the owner’s equity has increased by the same amount. The accounting equation still balances:
Assets ($10,000) = Liabilities ($0) + Equity ($10,000).

As you proceed with more complex transactions, you’ll always need to ensure that the accounting equation remains in balance.

Why Are Journal Entries So Important?

Journal entries form the backbone of accounting. They record every financial transaction that happens within your business. A key reason students struggle with accounting is they fail to properly understand the journal entry process. If you can master the art of journal entries, everything else becomes easier.

The basic structure of a journal entry follows these principles:

1. Debits must always equal credits.
2. Each entry will affect at least two accounts (due to the double-entry system).
3. Assets increase with debits and decrease with credits.
4. Liabilities and Equity increase with credits and decrease with debits.

Let’s walk through a few more examples to better understand journal entries.

Example 1: Purchasing Equipment on Credit

Let’s say you purchase a new piece of equipment for $2,000 on credit.

In this case, you’ve increased your equipment (an asset), so you debit the Equipment account. Because you bought the equipment on credit, you now owe the money, so you credit Accounts Payable (a liability).

Your accounting equation now looks like this:

Assets ($12,000) = Liabilities ($2,000) + Equity ($10,000).

Notice how each transaction keeps the equation in balance.

Example 2: Paying Off a Liability

Now, let’s say you pay off $500 of the amount you owe for the equipment. Here’s how you would record that:

This time, you debit Accounts Payable to reduce the liability (you’ve paid off part of the debt), and credit Cash (an asset) because you’ve used cash to make the payment. The accounting equation remains balanced.

Assets ($11,500) = Liabilities ($1,500) + Equity ($10,000).

By now, you’re seeing how each transaction flows through the business, affecting both sides of the accounting equation.

Understanding Financial Statements

At the heart of accounting is the preparation of financial statements, such as the balance sheet, income statement, and cash flow statement. For many students, the struggle comes when trying to understand how these statements fit together and reflect the financial position of a business.

Balance Sheet

The balance sheet is a snapshot of your company’s financial position at a specific point in time. It shows your assets, liabilities, and equity.

Here’s a simplified balance sheet for our jewelry business after the first few transactions:

This balance sheet tells you that the business has $12,500 in assets, which is financed by $1,500 in liabilities and $10,000 in equity.

Income Statement

The income statement shows the company’s revenue and expenses over a period of time (e.g., a month, quarter, or year). It’s used to assess profitability. Here’s an example of an income statement for your jewelry business:

The net income is calculated by subtracting expenses (like the cost of producing the jewelry) from revenue. In this case, the business earned $5,000 in sales but had $1,000 in expenses, leaving a net income of $4,000.

Cash Flow Statement

The cash flow statement shows the inflows and outflows of cash during a given period. It’s essential for understanding the liquidity of a business. The cash flow statement is divided into three sections: operating activities, investing activities, and financing activities.

Here’s a simplified cash flow statement:

Overcoming Common Struggles in Accounting

Now that we’ve covered the basics, let’s address the most common struggles students face and how you can overcome them.

1. Not Understanding the Accounting Equation
   If you don’t fully grasp how the accounting equation works, it will be difficult to understand the impact of each transaction. Make sure to practice basic journal entries and always check that your accounting equation is balanced.
2. Confusing Debits and Credits
   Debits and credits can be confusing at first, but they are fundamental to the double-entry system. Use flashcards or charts to remind yourself of the rules for assets, liabilities, and equity. With practice, this will become second nature.
3. Not Seeing the Big Picture
   It’s easy to get lost in individual transactions, but remember, accounting is about creating a full picture of a business’s financial health. Make sure you understand how each transaction affects your financial statements, and work through examples to see the relationships.
4. Skipping the Practice
   Accounting is not something you can simply read about; it requires hands-on practice. The more journal entries and financial statements you work through, the more comfortable you’ll become with the process.

Practice Questions

Now that you’ve got a better understanding of accounting, try these practice questions to test your knowledge.

Question 1:

On January 1, 2024, your business invests $5,000 in cash, receives a loan for $2,000, and purchases inventory worth $3,000 on credit. Record the journal entries.

Answer:

Question 2:

On February 1, 2024, the business sells inventory worth $2,500 for $4,000 in cash. Record the journal entries.

Answer:

Question 3:

On March 1, 2024, the business pays off $1,500 of its loan. Record the journal entries.

Answer:

With practice and a solid understanding of these core concepts, you’ll be on your way to mastering accounting. Keep pushing forward and don’t give up!