How to Keep the Books With a Debit and Credit Sheet

Recording accounting entries with debits and credits is often referred to as double-entry bookkeeping. This is because every entry made for income, expenses, liabilities and owner's capital has two entries: a debit and a corresponding credit. When you start a business, you need to set up a bookkeeping system that allows you to record debits and credits. Each liability and capital account and income and expense item should have a specific number assigned to it, so that when a transaction occurs, it can be properly recorded into the books under that account number.


Instructions

1 Assign each income, expense and capital item a specific account code. This is called "the chart of accounts." For example, ordinary expenses such as rent and advertising might be assigned as accounts 200 through 299. Advertising might be assigned account number 201 and rent might be 250. Income might be assigned 400 through 499. Income from foreign sales might be account 405, and income from domestic sales might be account 450. Liabilities such as loans payable or taxes payable might by 600 through 699. Capital assets such as equipment, vehicles and real estate might be 700 through 799, and owner's capital might be a single account such as 900.

2 Record each transaction as a double entry in your records, which is sometimes called a general journal. For every debit there is always a corresponding credit. For example, if you pay for rent, the accounting entry would be to credit (reduce) cash and debit (increase) the expense, which is rent. In essence, you have "less" cash and you have a corresponding expense (rent) for the same amount. Making correct accounting entries into a double-entry system requires a thorough knowledge of accounting principles.

3 Summarize all the entries from the general journal into a "trial balance." This is basically a summary of all the debits and credits broken down by category. All debits and credits should be recorded in the trial balance so that, in the end, the debits always equal the credits. For example, if you wrote several checks for advertising expenses, all of these would be summarized in the trial balance. Do the same for sales entries. For example, all your foreign sales transactions would be summarized as one total. From the trial balance, you can prepare a financial statement by taking all the debits and credits summarized in the trial balance.