Double Entry – No Worry!

Many bookkeepers use programs such as MYOB and Quickbooks relatively successfully without understanding the underlying accounting entries they are processing. This causes difficulties when processing important but infrequent transactions such as loans or major asset purchases or when transferring to a larger accounting system such as Great Plains or Navision.

Calculator, pencil and data sheet

One reason this occurs is because MYOB and Quickbooks allow transaction processing without a necessary understanding of double entry bookkeeping. Larger systems are not so forgiving. Manual bookkeeping, which formerly taught the skills of double entry bookkeeping, is now almost unknown, except in high school and TAFE bookkeeping courses.

Double entry bookkeeping is simply a method by which every transaction is recorded by entries to two or more accounts, where the total of the debits (Dr) is equal to the total of the credits (Cr). The concept of what accounts usually attract a Dr and which usually attract a Cr is sometimes confusing. The table below represents all possible situations:

Type Of Account Increasing amount is: Decreasing amount is:
Asset

Dr

Cr

Liability

Cr

Dr

Equity

Cr

Dr

Income

Cr

Dr

Expense

Dr

Cr

Examples:

A payment for a $100 telephone bill is made from the bank account. The entry is:

Telephone expense (expense increasing) Dr $100

Bank Account (asset decreasing) Cr $100

 

A sale of goods for $250 is made to a customer on account. The entry is:

Accounts Receivable (asset increasing) Dr $250

Sales (income increasing) Cr $250

 

A new computer is purchased on a business credit card for $3000. The entry is:

Fixed Assets – Computer (asset increasing) Dr $3,000

Credit Card (liability increasing) Cr $3,000

 

This article was written by Mitchell Holmes, CPA and Consultant Accountant with Fix My Business.

 

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