Keeping Track of Transactions
Some company owners keep track of transactions by collecting notes, receipts, invoices and the like in a shoebox. At the end of the year they hand the shoebox over to their accountant and pay large amounts for the final accounts to be extracted. There is a better way. Bookkeeping is the skill of keeping track of all transactions as they occur in a logical and systematic way. A good bookkeeper will:
Some Basic Definitions Basic bookkeeping involves transactions, accounts and reports.
Accounts, transactions and reports will be dealt with in greater detail in chapters 2, 3 and 4. There will also be many examples given.
Bookkeeping Conventions
Every money transaction is recorded in two different accounts in the ledger. This is recognition that there are always two sides to every transaction. If Mary Smith lends me $5 then my cash account will increase by $5 and the Mary Smith account must show that I owe her $5. By convention the two entries have to be made on opposite sides. If the entry in the cash account is on the left-hand-side then the entry in the Mary Smith account must be made on the right hand side. At any stage the totals of all of the entries into the LHS must be the equal to the totals of all the entries into the RHS. The system must be in balance. Fortunately, the double entry system is vastly simplified by Express Accounts, the software package that he uses to facilitate what used to be a difficult process. Normally a single entry in an appropriate “journal” is all that is required.
The money entries in an account can be entered in either the left hand column or the right hand column. Beginners often find it difficult to understand in which column to place an entry.
When we receive our Bank Statement each month, it will show a credit balance if we have money in the bank. This is from the bank's viewpoint. The bank sees us as their creditor because they owe us money. However in our books our bank account should show a debit balance. Thus a credit entry in our account at the bank is reflected by a debit entry in the Bank Account in our books.
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