| -- End Ad Box ---> | | | | "value" coming in is to be debited and the |
| Business owners, whether they do their own small | | | | corresponding account is to be credited. |
| business accounting or use outsourced bookkeeping, | | | | What is a trial balance? |
| should have a basic understanding of bookkeeping | | | | A trial balance is a list of all the balances from your |
| basics. To state it in very simple terms, bookkeeping is | | | | small business accounting ledgers, which are the debit |
| the recording of your company's income (receipts) and | | | | and credit balances. The debits and credits in the trial |
| expenses (payments) into a set of account books. | | | | balance must equal each other. Any differences in |
| What is a double entry system? | | | | these balances means that your double entry |
| Double entry is to enter transactions twice into your | | | | bookkeeping is incorrect and has to be corrected |
| bookkeeping system. All this data is entered as a Debit | | | | before the other final accounts can be prepared. |
| or as a Credit. For example, if you make a $20 cash | | | | What is an income statement? |
| sale, you would debit that cash (or bank account) and | | | | The income statement, also known as the profit and |
| credit the sales account with the $20. So when you | | | | loss statement (P&L), is basically a statement that |
| prepare your trial balance in your small business | | | | shows how well a company buys and sells inventory |
| accounting system, your cash account balance would | | | | (or services) to make a profit. You calculate your |
| have a debit balance of $20 and your sales account | | | | gross profit by how much sales you have made, and |
| balance would have a credit balance of $20, meaning | | | | then subtract your purchases and other expenses |
| your trial balance ledger balances. A double entry | | | | which are directly connected with your sales. After |
| system is a system of checks and balances. | | | | determining your gross profit, you would then deduct it |
| Do I debit or credit? | | | | from your administrative and other expenses to |
| All you have to remember is that the "D" in debit also | | | | calculate your net profit or net loss for the year. |
| stands for the "D" in deposits. So when you receive | | | | What is a balance sheet? |
| that payment of $20 for a cash sale, you would of | | | | The balance sheet for your small business accounting |
| course deposit it or debit the bank account in your | | | | system is used to get a snapshot of your company's |
| small business accounting system. And since it is a | | | | current financial position by listing all the current and |
| sale, you would credit the sales account. | | | | fixed assets, the current and long-term liabilities, the |
| How does this apply to a cash purchase? | | | | shareholdings and capital, and the profit or loss for the |
| When you purchase or spend money on something, | | | | year. This essential bookkeeping tool will reflect what is |
| the value coming in would be the item itself, since cash | | | | known as your company's net worth. A positive net |
| is going out. You would, therefore, debit (deposit) the | | | | worth means that your company has more assets |
| item's account and credit (take away from) the cash | | | | than liabilities, and a negative net worth means that |
| account. So, the basic bookkeeping rule is that any | | | | your company has more liabilities than assets. |