Debit and Credit - the basis for bookkeeping | Saldo accounting

Written by: 
Mattias Segerbrand

By law, you must keep a record of every business event in your company. It is therefore essential that you learn basic bookkeeping. You may not have the time or inclination to do this, in which case you can of course seek help from an external accountant. But surely it would still be good for you to understand this critical part of your business. Here is a summary.

How it works in practice

You can start by remembering two simple main rules:

  1. Debit (left side) equals + or even.
  2. Credit (right side) equals – or from.

This can be more easily exemplified by a fictitious business event. Let's say you have sold consulting services to a Swedish company. You sell the service for 26,000 including VAT.

In this case, you can post the sales as follows:

● 1911 - main cash box (debit/left) 26,000

● 2611 - outgoing VAT (credit/right) 6,500

● 3001 - sales within Sweden (credit/right) 19,500

The total is evened out, i.e. we charge debit as much as credit. We have included VAT because the vast majority of goods and services are subject to VAT.

Let's look at another example. You have bought a typewriter for your business for SEK 12,500 including VAT.

In this case, the accounting can look like this:

● 1930 - business account (credit/right) 12,500

● 2640 - input VAT (debit/left) 2,500

● 4010 - purchase of materials and supplies (debit/left) 10,000

You must always make sure that both credit and debit are debited with the same amount. However, you can split the amounts between different accounts. We will come back to why this is the case later in this article.

This technology allows you to see what the money has been used for and where the money has come from. Because not all costs are expenses that just disappear. Sometimes you can record the expense as an asset of the company. It is therefore not always logical to think of company finances as personal finances. When it comes to your personal finances, you probably treat the vast majority of expenses as pure costs.

Double posting

Debit and credit lead to what is called double-entry bookkeeping. This means that you offset each business transaction against something, either on the left or right side. This makes your accounting work easier. One reason for this is that mistakes are more rare when you offset the amounts. At the same time, it should be added that it is not a watertight system.

However, there are other reasons why this principle is commonplace. It is easier to track your business events when you book through this system. You will most likely want to know where the money goes and where it comes from, especially if you run a business with several employees. In any case, the tax authorities are interested in this.

Chart of accounts

The charts of accounts are made up of different cost centres. You assign accounts to the various accounts so that you can see how your business events affect the overall economy. This is a very important principle, and in many cases there are existing accounts to which specific expenses and income should be charged.

You may have wondered how we came up with the sample accounts we used. There are charts of accounts to help you manage your bookkeeping. There are also templates or guides to help you keep track of what is increasing and what is decreasing. At the same time, it should be added that this can be a difficult task for someone who has not worked with accounting, but if you spend a lot of time learning and get yourself an accounting program, you will be able to handle the bookkeeping on your own.

Accounting software

In the past, accounting used to be done with pen and paper. This was a solid job that required both experience and skills. There are still companies that use this method, although it has become increasingly rare. So, how do the majority of businesses do it today? They use a bookkeeping program or get help from professionals accountants. There are many reasons for the latter, but let's look at some of the benefits of using a program to support them:

● You don't have to calculate results and such on your own. The program does all this for you. You also get a better overview of your business finances.

● You get access to several different accounts. In fact, many times the system can suggest to which account you should post a business transaction. Then you don't have to do your own research every time you have a new one that you haven't booked before.

● Another advantage is that you don't have to worry about losing your records because they are stored digitally. If you keep everything in different binders, the documentation could be destroyed in a fire or the like. This would spell disaster for a business.

● Finally, it should be mentioned that we are all only human. We make mistakes relatively often. When it comes to accounting, simple mistakes can create an enormous amount of extra work. In some cases, you have to go through every business event. This is time that you will never get back. For that reason, it's easier to let a machine do the calculations.

What should all the accounting lead to?

Basically, it can be said that it should lead to a financial statement.

The financial statements will show whether your business is doing well or not. It will also list your assets and liabilities.

This is very important information for you as an entrepreneur, but it is also important information for your suppliers, clients and not least the Tax Agency. You will need to present your results to the Tax Agency at least once a year so that they can then make a decision on your total tax payments.

Do you still find this bookkeeping business complicated? If so, you should hire accountants to do the job for you. You can always contact us for a no-obligation meeting to discuss your needs and wishes.

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