We present the main rules to learn how to manage the Double-entry accounting.
The Double-entry accounting is based on four main account categories:
ASSETS
The accounts that represent the positive elements of the estate
LIABILITIES
The accounts that represent the negative elements of the estate
COSTS
The accounts that represent the costs (but not those related to the purchase of estate goods)
REVENUES
The accounts that represent the earnings (but not those obtained by the sale of estate goods)
The account is an entity that groups the amounts that belong to the same transaction category. Every account must be registered as debit or credit, depending on the type of accounting transaction.
Debit and Credit
The rule of Debit and Credit is a fixed point on which the Double-entry Accounting is based.
The General Rule
ASSETS
→
DEBIT
LIABILITIES
→
CREDIT
COSTS
→
DEBIT
REVENUES
→
CREDIT
The assets, liabilities, costs and revenues are subject to continuous variations: increases and decreases.
The increasing variations
INCREASE IN ASSETS
→
DEBIT
INCREASE IN LIABILITIES
→
CREDIT
INCREASE IN COSTS
→
DEBIT
INCREASE IN REVENUES
→
CREDIT
The decreasing variations
DECREASE IN ASSETS
→
CREDIT
DECREASE IN LIABILITIES
→
DEBIT
DECREASE IN COSTS
→
CREDIT
DECREASE IN REVENUES
→
DEBIT
The Instruments of the Double-entry Accounting
Double-entry accounting uses the following principal instruments: the Chart of Accounts, Journal, Balance Sheet and Profit and Loss Statement.
The Chart of accounts
This is the list of all the accounts that group the different transactions categories together (ex. cash book, bank, purchases, sales, etc.).
To use Banana Accounting one must simply take an already predefined accounting plan, adapt it to the proper requirements and insert the transactions. The rest will be executed by the program.
The Journal
This is the list of all the operations that influence the activity daily (withdrawals, deposits, purchases, sales, salaries, rent, etc.) It corresponds to that which the larger part of the small businesses already have even if it’s only on paper or Excel, to then give to the accountant.
The Balance Sheet
This is a summary outline of the assets and liabilities. The difference between the assets and liabilities represents the net capital amount of the firm.
The Profit & Loss Statement
It is a summary of all costs and revenues. The balance represents the result for the year (profit or loss).