Understanding Accounting and Black Friday

Every year people in America rush to retail stores the day after Thanksgiving in order to pick up the season's hottest items on sale. Christmas shopping has begun and this favorite day is known as 'Black Friday.' Stores typically open around four o'clock in the morning offering promotional sales and although it's not an actual holiday, some employees are given the day off which helps increase the amount of shoppers. Since 2005, this has been one of the busiest shopping days of the year.

Many retailers did not approve of the term Black Friday being used for this day because they felt it was negative. A different theory started circulating in the early '80s that retailers had no financial gain from the first month of the year, January, through the eleventh month of the year, November but their gain came from Black Friday to the holiday season. As this was recorded using accounting practices, red ink would be used to show amounts in the negative whereas black ink would be used to show amounts in the positive. Using this theory, when Black Friday came, retailers would not be in the red or have losses. Instead they would be in the black which means they were taking in profits. This became known as the black ink theory.

Why call it Black Friday if this is the most profitable day for retailers? Because they make profits and remember that positive amounts or profits were recorded in black ink. It's a great, profitable day for retailers but due to a busy shopping day, employees have to work harder which, in their eyes, bring a negative aspect to Black Friday. This shopping season is extremely important to retailers and although some attempt and succeed at profiting during the first of the year, some are more dependent on the holiday shopping season. The last quarter of the year is so profitable that it makes up for any losses occurring the rest of the year for many retailers.

Black Friday has come with controversy as well. Shoppers have been known to wait in line for hours prior to the store opening the doors. Becoming agitated and anxious, they start pushing, shoving, breaking down doors and becoming unruly. There have been many stories of shoppers being hurt in the process and even a person being trampled to death. Regardless of these stories though, this day of shopping remains popular among holiday shoppers and retailers alike. Shoppers get great deals on the newest items and retailers make great profits and are back in the black ink.

Businesses in the United States no longer use ink in order to track losses and profits as the days of colored ink pens are gone, but accounting software continues to use color-coding with the color red indicating loss and the color black indicating profit. For this reason, retailers and other businesses will always hope that the popular shopping day after Thanksgiving will always be a Black Friday and never a red one.

Debits (black ink) and credits (red ink) shouldn't be looked upon as negative or positive but viewed as opposites that help offset one another when they are on one side of an accounting equation. In most cases, credits and debits will equal each other which helps in creating the equations balance. Accounting equations should always be in balance and have the ability to provide a lot of information. The debits and credits tend to equal each other, creating that balance, allowing for parts of the accounting equation to change and the result to be the same.

Almost everyone will face difficulties when it comes to truly understanding the rules of credits and debits but for accountants and bookkeepers it's something they must learn. The real way to gain a true understanding is to simply make the entries repeatedly. As they say, practice makes perfect and eventually making these accounting entries will become second nature and once you learn it, you will likely never forget how it's done.

Accounting can be a complicated subject but it's definitely one worth studying and mastering as it will help in various aspects of business and life. To learn more about credits, debits, and accounting basics, visit the following links:

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