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Accounting Savvy for Business Owners – Excerpt – Chapter 1

Chapter 1 – Basic Accounting Rules

Business accounting is based on a double entry system of bookkeeping. This means that for every entry you make there must be an equal and opposite entry. Opposite refers to the other side of the ledger.

The Ledger

The ledger sides are labeled DEBIT (always on the left) and CREDIT (always on the right), and you must make sure that every transaction has equal entries posted to both sides of the ledger.

If you do your bookkeeping manually, or in a spreadsheet program, you must enter both sides of the ledger. If you use checkwriting software (such as Quicken) you should move those transactions into a manual system or a spreadsheet program in order to enter transactions to both sides of the ledger accurately (or, even better, invest in real accounting software).
If you use accounting software, you usually have to enter only one side of the transaction because your setup and configuration of the software pre-determines the postings. For most transactions the software takes care of the “other side” of the entry for you automatically, so you don’t even have to think about it. (The exception is a journal entry which is generally used to adjust existing figures in the ledger.) However, you do have to assign the appropriate account to a transaction, which means you have to understand the way business accounting transactions work in order to set up your software properly.

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