Business owners know why it is important to have records of all small and big transactions and why having clear knowledge of such transactions for their formats, way of recording, its impact on accounts and more. It is essential to know bookkeeping and its principles to ensure record transparency for business growth.
Don’t get confused for debits, credits, double entry and more. We have come up with this unique and easy-to-digest guide to help you understand bookkeeping and have bookkeeping tips for beginners.
Clear concepts and principles make it easy to adapt bookkeeping as per your needs and ensure transparency in your business.
The accounting equation
This is the most basic concept you need to understand as the business works in a manner to balance the two sides’ income and expense to ensure records are maintained for all transactions that occurred during the given financial year.
A clear accounting equation lets you know and understand what to record and what to categorise as debit, credit and other entries in a journal to have a proper balance sheet. It makes the bookkeeping easy.
Assets =Liabilities+Ownerr’s equityMachine, equipment, money=Bills, salary, credit+Owner’s investment in business
Always remember that, in any case, both sides of the equation try to balance each other, and the balanced equation after recording transactions in the bookkeeping ensures that transactions are recorded as they occurred.
Example: Purchasing machinery for a factory via a bank loan raises the asset and liability, and thus the owner’s equity decreases to maintain the equation.
The same can be understood as the rise in the debt and interest via loan reduces the leftover profit amount known as owner’s equity to balance the equation.
Chart of accounts
The chart of accounts is even essential for beginner small business basic bookkeeping because it includes the set of accounts or categories in which the majority of business transactions and financial activities and transactions are recorded.
Imagining yourself to purchase goods from vendors, purchasing loans, and selling goods on credit and vice versa, making investments, savings, bonds and more. In bookkeeping, all of these need to be recorded, and the chart of accounts shows the headings in which all of these transactions and activities are recorded.
These account chart Shows common headings used for bookkeeping
| Accounts categories | Description |
| Assets | This includes owned things such as equipment, machines, infrastructure, accounts receivable, etc. |
| Liabilities | It includes the cost to the company which is remaining to be paid such as debts, loans, tax payable, accounts payable, etc. |
| Owner’s equity | Owner’s capital and drawings |
| Revenue | Income from different sources such as investment and sales. |
| Expenses | Cost to the company such as rent, salary, raw material, etc. |
| Inventory | It is inventory, finished goods, and goods in progress which are stored. |
| Depreciation | It is the cost related to a decrease in value from long-term usage. |
Accounts: Debits and Credits
Debit and credit is a very old concept and is the major reason for headaches for business owners and accountants, though it is quite simple. Let’s see.
Debit: This is the amount which is received or which is to be received though it is perceived differently for different accounts such as it increases for assets and expenses and decreases for owner’s equity and liability.
Credit: It raises your liability and owner’s equity and decreases the assets and expenses. It is the amount which your business owes to others.
Accounting tips for beginners are to consider debit as money coming in, and credit as money flowing out from business.
| Assets & Expenses | Liabilities & owner’s equity | |
| Debit | ||
| Credit |
The double-entry system
It is one of the important concepts for bookkeeping for beginners since it makes the bookkeeping accurate it shows how each transaction affects two entries or accounts where one always increases and the other one always decreases.
It is the best way to cross-check the transactions and the recordings done for accuracy. It is very important for you as an individual or your accountant to understand what two related transactions will be affected by each transaction.
It is essential to understand categories in the right manner to ensure balancing equations hold.
Example: You can better understand the below transaction where when you sell your product, then the asset increases i.e. cash with the decrease in the sales account which reveals the revenue account.
This makes it easy for the bookkeeper and financial report creator to identify errors or transactions that are mismatched.
Transaction recording
It is very essential to ensure that the transactions are recorded in the given manner and format and they are recorded and checked from time to time.
The format shows what are how the transactions are recorded and what details you need to include to avoid confusion and ensure transparency.
These transactions are to be recorded initially in the journal entries, and they must include the Date, account category, Amount, and description i.e. from what account to which account. Such details must be available for all transactions throughout the year.
Example:
Date: 09th July 2024
Account: Cash (Dr)
Account: Sales (Cr)
Amount: $7500
Description: Sold soap for $7500.
Reconciling financial statements
Bank statements or financial statements are the summarised form of transactions done in the financial year that show the financial status of your business.
It is essential for you to create and understand how financial reports and statements from the bookkeeping transactions and know your business status and growth for decision making.
For effective bookkeeping knowledge of balance sheet, income statement and cash flow is important as based on this bookkeeping strategies are formed.
Bookkeeping is a very simple but important task as it reveals the financial health and attracts investors, and thus let us do it for you to ensure accuracy and business growth.
IntQBooks has been known for its expertise in bookkeeping for years, our dedicated experienced team ensures proper bookkeeping with transparent reports for all our actions.
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