In modern bookkeeping systems each entry has to have both a debit and credit side, and these must be equal to each other. Most basic bookkeeping entries are done through the company’s bank account, which makes one side of the entry very simple. It is always the other side that seems to confuse people.
Entering Revenues
All money that comes into your business should be entered through the revenue account. That makes this part simple. If the customer pays cash, then the other side is simply entered through the bank account. However, you must realise that there is commonly sales tax on anything sold. This means that the difference between the revenue and the actual amount of cash received is the sales tax. This must be entered into its own account – sales tax collected.
If a customer pays with credit card you need this to go to the amount owed from the credit card company, rather than the bank account, directly. Then, when the credit card company pays you directly into your bank account, it is entered into the bank account and taken out of the amount owed from the credit card company. Some credit card companies will deduct their fees directly from your deposits; others will take it separately from your bank account. Either way, this must be shown as an expense, such as bank/credit card fees. The total that actually goes into your account and the fees should add up to the revenue (including sales tax).
Entering Expenses
Expenses also go through a bank account. These may be paid by cheque, in which case the total expense will come out of your bank account; the cost of the item will be entered into your inventory account or cost of goods sold (or other appropriate account) and the sales tax amount will be entered into the “sales tax paid” account. If you use a credit card, then the total will go into the credit card balance as opposed to out of the bank account. It is essentially the same entry, except to a different “bank”. The same goes for items bought on vendor credit.
Anything bought on credit is then tracked in the separate credit account, whether accounts payable (tracked by each vendor) or a credit card. Then, once you pay the vendor or credit card, you reduce the balance in the credit account by the same amount that you pay out of your bank account. If there is any interest charged on the account, then the entry will be one side to interest expense, the other side increasing the amount owed to the credit account (credit card or vendor).
Here is a simple spreadsheet that can be used as a basic bookkeeping template.
Anything more complicated, such as loans, investments or fixed assets will be entered from that account that paid for them and recorded into the asset or liability account. You should seek advice from an accountant on these accounts for long term tracking and correct entries.
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