Just because you have entered your data into QuickBooks, doesn’t mean you can throw away the paper copies. You are obligated to keep them. It’s important to know how long you should keep your paper documents. Here’s a great website with a complete list of documents and how long they should be kept. http://www.skocpa.com/document_retention_recommendation.htm
The “Cheat Sheet” for Debits and Credits by Linda Logan, Partner/President/Founder of Fiscal Foundations LLC
Asset accounts have debit balances.
Debits increase Asset accounts.
Credits decrease Asset accounts.
Liability accounts have credit balances.
Credits increase Liability Accounts.
Debits decrease Liability Accounts.
Equity accounts have credit balances.
Credits increase Equity Accounts.
Debits decrease Equity Accounts.
Income accounts have credit balances.
Credits increase Income Accounts.
Debits decrease Income Accounts.
Cost of Goods Sold accounts have debit balances.
Debits increase Cost of Goods Sold accounts.
Credits decrease Cost of Goods Sold accounts.
Expense accounts have debit balances.
Debits increase Expense accounts.
Credits decrease Expense accounts.
Your bank account is an asset. It is something of value that you own. When you deposit money into your account, you are increasing that Asset account. What increases an Asset account? A debit.
CHALLENGE QUESTION – If a bank deposit is a debit to your bank account, why does your bank statement call it a credit?
ANSWER – Because the bank statement is stated from the bank’s point of view. The money deposited into your checking account is a debit to you (an increase in an asset), but it is a credit to the bank because it is not their money. It is your money and the bank owes it back to you, so on their books, it is a liability. An increase in a Liability account is a credit.
What you OWN – What you OWE = What you’re WORTH
ASSETS – LIABILITIES = EQUITY
This is the basic formula on which double-entry bookkeeping is based. Even if you have not had any training, I believe you can understand these principles. This is a common-sense formula. If you were to determine what your business was worth if you wanted to sell it, you would look at what the business owns that is of value (Assets), you would subtract your debt (Liabilities), and the result would represent your net worth (Equity). These are the types of accounts that are shown on the Balance Sheet.
For the next logical step, I’ll ask you to recall a little Algebra from high school. Remember that if you add or subtract an amount from one side of an equation, you must do the same to the other side in order to keep the equation equal. So we can do the following:
ASSETS – LIABILITIES + LIABILITIES = EQUITY + LIABILITIES
Now the formula can be stated as:
ASSETS = LIABILITIES + EQUITY
While Assets, Liabilities and Equity are types of accounts, debits and credits are the increases and decreases made to the various accounts whenever a financial transaction occurs.
The cardinal rule of bookkeeping is that DEBITS must equal CREDITS.
There is no limitation on the number of debits or credits in a transaction, but the total dollars of each must be equal. Let’s take an example:
You go to Office Max and write a check for $2,605 to purchase a computer, paper and ink cartridges.
What accounts would be affected?
Office Equipment + Office Supplies = Checking Account
$2500 + $105 = $2605
DEBITS = CREDITS
ASSETS = LIABILITIES + EQUITY
DEBITS = CREDITS
Asset accounts normally have DEBIT balances. When you deposit money in your bank account you are increasing or debiting your Checking Account. When you write a check, you are decreasing or crediting your Checking Account.
Liability and Equity accounts normally have CREDIT balances. If you borrow money from a bank and deposit it in your Checking Account, you increase or credit a Liability account, Bank Loan Payable, and increase or debit an Asset account, Checking Account.
To extend the reach of our training programs and services, Linda is developing a complete online curriculum in small business accounting for business owners and their staffs. The program will be divided into single topic modules to allow individualized customization. We’ll start with a basic training package and then add special topics like job costing for construction trades and fund/program management for nonprofits. The courses will be delivered as multi-media video presentations that detail the results you can achieve from managing various aspect of your accounting, complete how-to instructions, QuickBooks demonstration, and accounting principles. Go to our website and opt in to our email list. You’ll receive notification when new products become available.
- ALWAYS back up your accounting data file, daily or weekly.
- Print your checks.
- Direct Deposit and email paystubs.
- Print deposit summaries to attach to bank receipts.
- Get online access to bank accounts and credit card statements.
- Pay all payroll taxes online.
- Use bill pay through bank account.
- Email invoices/statements to customers.
- Routinely send out W-9′s to subcontractors before year end.
- Make up and post a schedule of tax deadlines for all taxes and forms.
- Organize pending files for payables and receivables by name.
- Organize paid invoices/check stubs and file by customer name.
- Organize paid bills/check stubs and file by vendor name.
- Organize personnel files by employee name.
- Create payroll tax files for each type of tax: 941, State withholding, 940, SUI.
- Use Smead Viewable tabs for your files (You can see them from any direction – top, side, back).
- File with your newest transaction in front.
- Box up, label and store each year’s files after tax returns have been filed.
- If you find that doing your own bookkeeping is frustrating, confusing, or too time consuming – outsource it.