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Articles To Help Your Business
Basics of Bookkeeping
Topics included are:
Do I really have to do this?
Do I really have to do this?
There are various
levels you can work towards in your bookkeeping system. Someone
needs to do it. Period. That need not be you. In fact, if you have
trouble working with numbers, it should not be you because
you'll never get to it. Find someone with a passion for sorting
data, control their tendency to over-complicate or seek detail,
and you're on your way. However, you as principal of the company
need to understand the system, even if you're not the one doing
it.
Organization is key!
The basic building
block to good books is data entered in the right place.
Bookkeeping is merely recording expenses and income, but what
happens from there is key to good books. Whoever is entering the
data needs to understand that. Each transaction must be recorded,
documented, and filed correctly in order to maintain good books.
Double entry? Isn't that more work?!
For every transaction
in your bookkeeping, there must be a Debit and a Credit
entry in order for your books to balance. Each type of transaction
follows a standard system for determining whether to post the
amount as a debit or credit. See the chart below. Account
Type Debit Credit Assets Increase Decrease Liabilities Decrease Increase Equity Decrease Increase Income Decrease Increase Expenses Increase Decrease So, now that you've
got the basics of the double entry system, the next step is simply
a matter of beginning to enter the info. As you enter checks
you've written, they will mostly be simple entries - debit
(increase) the correct account number, and credit (decrease) bank.
If you are keeping your bills current, make your entry after you
pay your bill, and the entry will always be credit bank, debit
expense. To keep the process simple, when you receive a bill, go
through it and total what part of the money due goes to which
account, write it on the bill and use that when you make the entry
into the system. Regular exceptions to
the system above will be: - When you buy a large
tool or piece of equipment that needs to go in the asset section:
credit cash and debit the proper asset account. As you make these
entries, keep a separate list of the asset and it's details. You
will need to use the asset list to calculate your year end
deprecations. - When you pay an
expense that has been listed as a liability, like a bank payment
on a loan: credit cash, but debit two accounts, debit the
liability account you're paying on for the amount of principal,
and debit interest for the amount of interest expense. Doing this
will decrease what you owe on the loan by the principal amount you
have paid, and it will increase the record of what you have paid
in interest expense. - Inventory is a cost
you need to count as an expense only when you actually use it.
Until it is used, or sold, it's an asset. So when you purchase
inventory, credit cash and debit inventory - that will increase
the value of your inventory. When you USE inventory, credit
(reduce) inventory, and debit (increase) the appropriate expense
account - materials, supplies, etc., or an inventory change
account. So, that is the basics
of bookkeeping. If you think you're ready to challenge yourself and
maintain your own books, check out our 15
Step Walkthrough. If you don't want to do
this, and agree that you are better off with a professional
maintaining your bookkeeping, you can find a bookkeeper in our
listings by clicking
here. |
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15 Mar 2008
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