How-To Do a Double-entry Bookkeeping like a Pro.
One of the time-consuming aspects in running a small business is recording the
receipts. So, how do you effectively record your receipts, vouchers, billing statements
and other documents produced by your business transactions?
Every business transaction has a dual effect that is why a double-entry bookkeeping
method is an effective tool to record transactions. The only things that you should
remember on this method are the T-account, Debit and Credit, Asset Account, Liability
and Owner’s equity accounts.
The T account is so called because of its T-shape. It is used to show the increase and
decrease in an item caused by a transaction. The T account is a convenient tool to
analyze and record every transaction in a particular account.
Rules on Debit and Credit
Debits and credits are used to record the increases and decreases in each account
affected by the dual effect in each transaction. In the T account, debit (DR) is on the left
side and credit (CR) is on the right side. Now, you might be asking on how do you
record each transaction in terms of debits and credits? Remember that all assets will be
on the DR side and the liabilities + owner’s equity are on the CR side.
+ Owner’s equity
Further, when adding and subtracting by position you must add on the same side and
subtract on the opposite side.
Rules for Asset Account
1. Adding (increase) of asset on the debit side
2. Subtracting (decrease) of asset on the credit side
3. The normal balance for an asset account is a debit balance
Increase + Decrease -
Rules for Liability and Owner’s Equity
1. Adding (increase) is on the credit side
2. Subtracting (decrease) on the debit side
3. The normal balance is called a credit balance
Provide more space for Cash Accounts because there are more transactions that affect
this account. Also, balances are determined by getting the difference between the debit
totals and credit totals. Lastly, the balances are the amounts that will be used in the trial
Double-entry Bookkeeping method is a convenient tool to analyze and record
Each transaction has a dual-effect
All assets increase are recorded on the Debit side
All liabilities and owner’s equity are recorded on the Credit side.
The balances will be used in the trial balance.
Your turn, how will the double-entry bookkeeping method help you in your business? Do
you have other best practices in recording receipts?