Basic Bookkeeping Made Easy
Don't know your debits from your credits? Here's a quick primer on how basic bookkeeping works and an easy way to understand debits and credits.
First, know that debits are not "deductions" and credits are not "increases". Debit and credit are the names of the columns on bookkeeping ledgers (debit is the column on the left and credit is the column on the right).
In double entry accounting (bookkeeping) the sum of each column must equal the other. To make an entry, the bookkeeper makes an entry on the debit side of the ledger (a debit) and an equal entry on the credit side (a credit). All entries are positive numbers. By making sure that the sum of each column equals the other, the bookkeeper can eliminate arithmetic errors.
Into which column do you place any particular entry? A simple way to remember is that the accounts that represent your money increase with debits and decrease with credits. All other accounts are the reverse - they increase with credits and decrease with debits.
What are the "money" accounts? Those that represent actual money (cash, accounts receivable, etc.); assets; and, expenses (basically money that you've spent with others). In other words, assets and expenses are debit up, credit down - otherwise it's debit down, credit up.
As an example, you make your first sale for $10 worth of goods. The customer paid cash. You would credit the account called "sales" $10 and it would increase in value. You would offset that entry with a $10 debit to the account called "cash" and it would also increase in value. The total of both the debit and credit columns would be $10.
While bookkeeping can seem confusing it quickly becomes easy with practice. Basic bookkeeping is the foundation of financial reporting. Gaining comfort with it will allow you to manage more effectively your business.
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Below are links to our business articles, we hope that you find them helpful.
Basic Bookkeeping Made Easy.
The Basic Business Plan.
Be a Successful Salesperson in Five Steps.
How to Get a Business Loan in Five Steps.
How to Overcome Sales Objections in Five Steps.
How to Start Your Own Business.
How to Write a Business Plan in Five Steps.
How to Have Lenders and Investors Eating Out of Your Hand.
Secrets of a Great Business Plan.
What is a Business Plan?
Why Write a Business Plan?
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