Double Entry Downloading From Bank And Credit Card UPDATED

Double Entry Downloading From Bank And Credit Card

Debits and credits can sometimes seem confusing but you will demand a basic understanding of how debit and credit transactions affect your accounts to be able to empathize your business reports and spot any anomalies.

The concept of double entry accounting dates back to 1494 when the first principles of double-entry were developed by an Italian Monk named Luca Pacioli – the basic concepts accept changed very piffling since.

The term double entry accounting comes from the basic principle that every business organization transaction has two entries. A debit and a credit.

• At that place will always be (at least) two entries for each transaction
• There will ever be a debit and a credit in each transaction
• The debit and the credit must exist equal, they must rest.

Essentially these stand for the giving and receiving of a benefit.

Debits and Credits are similar abdomen buttons!

Innies and outies!

Not a particularly grown up fashion to retrieve about it, but this how I learned and have never forgotten!

DEBITS are innies and CREDITS outies.

Debits and credits in the Balance Canvas

Firstly, you probably know a lot more than nigh debits and credits than you might think, consider your own DEBIT and CREDIT Cards.

• DEBIT Card –This is money y'all physically own, this is your asset.  Whatever spend you make from your DEBIT card will immediately reduce your nugget – your bank rest. Therefore your assets in your balance sheet will be made up ofDEBIT transactions.
• CREDIT Card –This is money you owe, as y'all will need to pay this dorsum this is your liability. The liabilities in your remainder canvass will be made up ofCREDIT transactions.

DEBITs and CREDITS are exact opposites, in the aforementioned way as "Plus+"and "Minus–".

They besides work like Yin and Yang, you lot cannot have one without the other and whenever yous create aDEBIT transactions there will likewise need to be an identical CREDIT entry to match it.

Rest Canvass structure
Transaction	Debit	Credit
Assets	X
Less liabilities		X
Equals capital or equity	Ten	X

Your business rest canvass may look like this:

Think, in balance sheet terms – the sum of your avails less your liabilities equals your capital or your equity.

Debits and credits in the Profit and Loss (P&L)

Generally, income will always exist a CREDIT and expenses will always be a DEBIT – unless you are issuing or receiving a credit note to reduce income or expenses.

Profit and Loss or Income Argument structure
Transaction	Debit	Credit
Income		X
Less expenses	X
Equals profit or loss	10	X

Your business organization P&L may await similar this:

Let's look at some examples of typical business transactions and how they might touch your accounts.

Case 1

Say you use your DEBIT carte du jour to pay for some stationery. From a residual canvass perspective – you are moving funds from 1 location to another – e.thousand. from your bank account to someone else's bank account, from a P&L perspective yous are incurring a cost.

Buy £xv of stationery from Bills Newspaper-me-bobs  in Cash
Transaction	Debit	Credit
CREDIT the Bank to reduce your banking concern balance in the balance canvass		15
DEBIT the Stationery expense code in the P&L with the cost	15
Total	15	15

Case 2

Say yous use your CREDIT bill of fare to pay for some stationery. From a residual canvas perspective – yous are creating a liability. Yous have incurred a cost on credit that you volition pay for later. From a P&L perspective, you are incurring the same toll as you did when you paid for the detail in cash.

Purchase £fifteen of jotter from Bills Paper-me-bobs on a credit card
Transaction	Debit	Credit
CREDIT the CREDIT Menu liability account; increase your liabilities the rest sail		15
DEBIT the Stationery expense code in the P&L with the cost	15
Total	xv	xv

Each DEBIT must have an equal and reverse CREDIT

Case three

When y'all make a sale, for cash or on credit, y'all would create the following entries.

Make a cash sale or credit sale of £50 to Wendy Plumber.
Transaction	Debit	Credit
You will increase your greenbacks avails past £50, and then DEBIT Banking concern with the £fifty received IF You heighten an invoice for £fifty and give Wendy 30 days credit, the DEBIT entry goes to Merchandise Debtors or Receivables. This is an asset in your rest sail until Wendy pays y'all the residue owed.	50
CREDIT Sales in your P&L		fifty
Total	50	50

Depository financial institution Statements – the confusion they cause

Now you may be wondering why your bank statements say the verbal opposite to what your accounts say when it comes to DEBIT and CREDIT transactions, in fact, all transactions volition be the opposite from the information the banking company gives to you.

This is because the bank statements y'all receive are from their betoken of view – not yours. Whoever knew a depository financial institution would exist cocky-centered?

The reason this is the contrary to yours is that if y'all have a DEBIT carte du jour bank account with them this is money they owe to you whereas a CREDIT bill of fare will be coin you owe them. Your asset is their liability, equal and opposite.

Nonetheless, these are your accounts and you want to portray them from your indicate of view.

And then how does this work in practice?

The turn a profit and loss account and the balance sheet work in harmony in double entry accounting. A DEBIT in i will be a CREDIT in another.

In fact, you may even detect if yous put both financial reports side by side, they are complete opposites.

Why might I need to know this?

Mostly nigh systems practice these bulk of these entries automatically for you; nonetheless, you want to be able to understand if something doesn't quite look right and what could be causing it to look different.

This is also and then that yous tin can understand any journals, transactions, invoices, credit notes or adjustments in your accounts. Which can be especially useful if you accept more than than 1 person creating entries. That style you lot can look for anything which looks abnormal more than simply more importantly, it means you can understand how to become about fixing it.

This is the basic concept for how accountants and bookkeepers make adjusting journals – assuasive them to accrue and prepay costs across your accounts then that your income matches your expenses.

If you understand the basics of DEBITS and CREDITSyou understand much more virtually accounting than you might accept originally thought.

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