Bookkeeping is one of the essential parts of any business. This is the way of keeping the record of the financial transactions that take place in the trade. Whether it is a big enterprise, a corporate or a small business you need to keep the track of the money that is coming and going. You need to know where you are spending the money and what your income is.
All these transactions are either recorded in a general journal or in different special journals. These special journals can be of 4 types viz
- Sales journal
- Purchase journal
- Cash receipts journal
- Cash disbursement journal
So you can come to the inference that a detailed record of all the financial transactions of the business is an accounting journal.
How do you record these transactions then? These are entered in the chronological order as and when the transactions take place.
This accounting journal is a book of all the details. In this book, you have different columns for date, amount of debit, account and an amount of credit.
Let us know when a debit entry is made when a credit entry is made in the journal. This is the first step that a bookkeeper needs to learn. There are some simple rules which you need to follow. Then the work of bookkeeping will be easy.
Use of debit and credit
Always both the debit and credit are used for every journal entry made. This is called a double entry bookkeeping.
You make two columns for the journal entry. One is for debit and the other for credit. Now you need to remember a simple format of the accounting equation. Here assets are equal to liabilities plus equity of the owners.
You write the written on the left side and the liabilities and equity on the right. When you make the entry check if the account is on the left side or the right side. If it is on the left it is on the debit side and on the right means on the credit side. So accordingly you have a debit that increases the accounts and a credit that decreased them.
So if you have an account in the liabilities and equity side it is entered in the right or the credit side. Here credit will increase and the debit will decrease in the accounts.
Need to have normal balances
The above-said rule is sometimes a bit confusing for the beginners. There is an easy way to remember when to debit and when to credit in an account. You need to remember different types of accounts. So the rule is that normal balance is one in which in the increases are more than the decreases. Try to remember these and then you will be able to save a lot of time.
The asset accounts are the same as debit and the liability accounts are the credit. The owner’s equity is credit as well as the revenue account is credit along with expense account also is credit.
Thus if you record an entry to the liability account you would credit it and then debit the asset account. Learning these rules may take a little time, but with practice, you may be able to accomplish the skill of good bookkeeping.