Bookkeeping basics - PART 3
things are about to get saucy!
Okay, so you now know some basic bookkeeping and accounting terminology! Hats off to you!
Things are about to get more serious, though...
This section of our free bookkeeping course will teach you the basics of double entry bookkeeping, which has to do with debits and credits. This section of the course is as hard as bookkeeping gets, so bear with it, read all the content, and watch the video at the bottom of the page.
If you can get your head around double entry bookkeeping, then you're on your way to becoming a master of accounting i.e. Accounting Wizard Extraordinaire and Member of the Accounting Inner Circle!
Things are about to get more serious, though...
This section of our free bookkeeping course will teach you the basics of double entry bookkeeping, which has to do with debits and credits. This section of the course is as hard as bookkeeping gets, so bear with it, read all the content, and watch the video at the bottom of the page.
If you can get your head around double entry bookkeeping, then you're on your way to becoming a master of accounting i.e. Accounting Wizard Extraordinaire and Member of the Accounting Inner Circle!
lesson 1 - double entry bookkeeping basics
Bookkeeping is the act of keeping a record of the financial transactions of a business, company, or other entity. Another way of expressing this is 'keeping the accounts', 'keeping the books', 'doing the accounts', or 'doing the books'.
Double entry bookkeeping is the most common bookkeeping method for keeping accounts. It is used by almost all accountants and bookkeepers. It is recognized and used across the globe. It involves recording 2 entries - hence the term 'double entry' - for every 1 financial transaction of a business, company, or other entity.
As an example...
If a business has a sale on 23rd March of 500 (£/€/$) this transaction could be recorded as...
Date: 23/03
Description: Sale
Amount: 500.00
Using double entry bookkeeping, though, there would need to be 2 entries. This double entry could look something like this...
Date: 23/03
Description: Sale
Amount: 500.00
Date: 23/03
Description: Card Payment into Bank from Sale
Amount: 500.00
Right now, you may be thinking 'why bother with2 entries?! Isn't that just more time consuming?!' As this course goes on, you should come to the realisation - with my saucy help - that double entry bookkeeping is the ULTIMATE way to keep accurate accounting records and generate some of the most useful financial reports. There is no better way to bookkeep than by using double entry.
Double entry bookkeeping is the most common bookkeeping method for keeping accounts. It is used by almost all accountants and bookkeepers. It is recognized and used across the globe. It involves recording 2 entries - hence the term 'double entry' - for every 1 financial transaction of a business, company, or other entity.
As an example...
If a business has a sale on 23rd March of 500 (£/€/$) this transaction could be recorded as...
Date: 23/03
Description: Sale
Amount: 500.00
Using double entry bookkeeping, though, there would need to be 2 entries. This double entry could look something like this...
Date: 23/03
Description: Sale
Amount: 500.00
Date: 23/03
Description: Card Payment into Bank from Sale
Amount: 500.00
Right now, you may be thinking 'why bother with2 entries?! Isn't that just more time consuming?!' As this course goes on, you should come to the realisation - with my saucy help - that double entry bookkeeping is the ULTIMATE way to keep accurate accounting records and generate some of the most useful financial reports. There is no better way to bookkeep than by using double entry.
Lesson 2 - debits and credits explained
Okay, so this is where things potentially start to get confusing...
Bookkeeping is recording - or accounting for - the financial transactions of a business, company, or entity. Got it? Tick.
Double entry bookkeeping is a bookkeeping method which uses multiple (usually 2) recorded entries per financial transaction. Got it? Tick.
Debit and credit entries are the accounting method used to balance the double entries. Huh? Let me explain...
To help ensure that the double entry is recorded correctly, and to keep the integrity and accuracy of the accounts, every recorded double entry will have both an equal debit amount and credit amount. In other words, every debit and credit entry will balance.
Let's go back to our sale example...
Date: 23/03
Description: Sale
Amount: 500.00
Date: 23/03
Description: Card Payment into Bank from Sale
Amount: 500.00
In double entry bookkeeping - with it's debit and credit - our transactions could now look like the following...
Credit (CR)
Date: 23/03
Description: Sale
Amount: 500.00
Debit (DR)
Date: 23/03
Description: Card Payment into Bank from Sale
Amount: 500.00
Credit total: 500.00
Debit total: 500.00
Can you see how the debit and the credit entries both equal 500?
So, how to you know which entries to post as a debit and which to post as a credit? Well, this all depends on the type of transaction that is being recorded... Is the transaction a sale? Is it an asset? Perhaps the transaction is an expense?
Debit transactions are for purchases, expenses, and assets. Credit transactions are for capital (equity), liabilities, and sales.
To help me remember which transactions are debits and which are credits, I use the PEARLS acronym...
Bookkeeping is recording - or accounting for - the financial transactions of a business, company, or entity. Got it? Tick.
Double entry bookkeeping is a bookkeeping method which uses multiple (usually 2) recorded entries per financial transaction. Got it? Tick.
Debit and credit entries are the accounting method used to balance the double entries. Huh? Let me explain...
To help ensure that the double entry is recorded correctly, and to keep the integrity and accuracy of the accounts, every recorded double entry will have both an equal debit amount and credit amount. In other words, every debit and credit entry will balance.
Let's go back to our sale example...
Date: 23/03
Description: Sale
Amount: 500.00
Date: 23/03
Description: Card Payment into Bank from Sale
Amount: 500.00
In double entry bookkeeping - with it's debit and credit - our transactions could now look like the following...
Credit (CR)
Date: 23/03
Description: Sale
Amount: 500.00
Debit (DR)
Date: 23/03
Description: Card Payment into Bank from Sale
Amount: 500.00
Credit total: 500.00
Debit total: 500.00
Can you see how the debit and the credit entries both equal 500?
So, how to you know which entries to post as a debit and which to post as a credit? Well, this all depends on the type of transaction that is being recorded... Is the transaction a sale? Is it an asset? Perhaps the transaction is an expense?
Debit transactions are for purchases, expenses, and assets. Credit transactions are for capital (equity), liabilities, and sales.
To help me remember which transactions are debits and which are credits, I use the PEARLS acronym...
There is also the double entry acronym DEAD CLIC...
There is also the double entry acronym DEAD CLIC...
Confused? Try watching the video below...
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