Bookkeeping can be a confusing task because there are so many ways to do it. It’s not easy for someone who is untrained to understand how to log transactions.
Most people have heard of double-entry bookkeeping, but what about journal entry? What’s the difference between these two? Is there even a difference at all?
A journal entry, in the field of accounting, is the idea of logging a transaction as a journal item.
A journal entry can be several recordings, and each recording is either a debit or a credit.
For the entry to balance, the total of the debits and credits must be equal.
Journal entries, alone, are not a bookkeeping system, but they are a part of the task of “doing the books”.
Double entry is a system of bookkeeping which uses two or more accounts. They may have a cash account and a loans payable account, for example.
When they borrow money, the money will go into the cash account, and will also have a corresponding entry in loans payable.
When they make a loan payment, the payment will decrease loans payable, and money will also be deducted from the cash account.
All transactions in double entry require two entries, but it can sometimes be confusing figuring out which account to record a purchase under.
Journal entries are a part of double-entry bookkeeping, for transactions that are not cash or bank purchases.
Choosing a Bookkeeping System
For a very small business, double-entry bookkeeping might be overkill.
If you are a sole trader with very few transactions on a monthly basis then you may be fine doing single entry accounting.
This is particularly true if your customers tend to pay cash or pay as they receive their services.
With single-entry bookkeeping, you simply record each transaction as a journal entry with a date, description, and whether it was a credit or debit.
You may want to put the transactions into types so that you can keep track of them more readily. It’s simple and efficient, and ideal for small businesses.
When your business grows and you have to keep track of accounts receivable, then you will need to have a more detailed system and that’s when assets, liabilities, and multiple accounts become more useful.
Accounts can be tracked in a cash book, a spreadsheet, or accounting software such as Xero or Quickbooks (both of which have both online and offline versions).
Accounting software makes it easier for you to keep track of your transactions.
The entry-level versions of the most popular types of accounting software are quite easy to use and will guide you when it comes to where to add transactions to make things balance.
If you are still confused or would like someone to look at your books to tell you whether or not you are doing things correctly, then we recommend you call in some experts.
A little time spent now to have your accounts properly looked over can go a long way towards ensuring that everything is “balanced” and that your business is running the way that it should be.
Whatever bookkeeping system you decide to use, make sure that you are consistent about logging transactions as they occur.
Don’t let them rack up for too long, because trying to catch up with dozens or hundreds of unprocessed transactions can be stressful and time-consuming, and that’s when errors start to creep in.
Stay on top of your transactions, and monitoring the health of your business will be much easier. The best part is that your tax returns will be simpler as well!
If you are looking for a blend of truly personal service and expertise, please call us today on 03 9510 2120 or contact us through our website