Hello. We have been doing a series on ‘How to Double Entry’. If you’re just catching up, it’s a series of templates to guide you on how to maintain your day-to-day business financial records. And why you should opt to maintain records by transactions and not when you receive cash. Please catch up:
Yes, you can maintain a journal as an alternative to this. You can. But the ledger is like the center of everything. It’s on a ledger where you compile and summarize your month of business activity. It’s also from a ledger that you get information to prepare your main financial statements, which are:
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A journal will introduce you to the concept of double entry, as will a ledger. Basically, every business transaction has a dual effect. Like, if you pay salaries – you lose cash and see your expense figures go up. What can I say? Business is hard. Recording transactions with this in mind is considered professional by most, like banks.
But what makes a ledger superior is how it enables you to single out business activities by account or aspect of business. The 5 aspects of business, as I’ve learnt online, are what you’re worth, what you have, what you owe, what you spend and what you receive. Corny but it worked. So, capital, assets, liabilities, expenses and revenues respectively.
For example, wouldn’t you want to monitor how your business cash fluctuated on a single page? Wouldn’t you want to see how your favorite credit customer pays (or does not) through the month? Accounts include; salary expense, receivables (debt), payables (debt), cash, bank, plus what fits to deserve an account of it’s own. Just the way mama mboga has a book for you while you flex on social media (you don’t deserve her). A journal isn’t this convenient. But if you can handle it, who will stop you?
Preparing a small business general ledger
Your ledger would look kind of like the cash book with it’s “T format.” On one side you indicate your Debit (Dr.) information and on the other side you’ll have your Credit (Cr.) information. Don’t worry if you don’t know what Dr. and Cr. are. We touched upon in the first article of this series. So, just go through it and see.
To be thorough, you’ll indicate date, detail of transaction and amount on your general ledger. The details should be brief since they are being derived from other detailed recordings. There is also a “ref” (reference) column to indicate the page of your journal from which you got the transaction detail. It’s not a must, in my opinion. It’s a call back from when our fathers and mothers (wHo WenT To SchOoL wiThoUt ShoEs) put everything in a book.
Nowadays you can use spreadsheets and organize the folders and files well. Now, if you can afford a bookkeeping software you’re good to go. We’re jealous. All you would need to do is enter numbers and all this format blah blah will be done for you.
Also, you have to tally your accounts. And they must be equal on both side. The balance between the Dr. and Cr. side fills the deficit as a balance carried down (c/d) entry. This amount will be brought down (b/d) into the next month of the particular account as continuation from where you left. I hope I haven’t tied myself or you into a knot.
Here’s the template for a cash account (you can find pre-made ones on the internet). We’ve done the Dr .and Cr. parts separately, they should be side by side (opposite sides of a T).
|1st Nov||from Wanjiku||1000|
|1st Dec||b/d (start of Dec’s cash account)||1200|
Now the Credit side. This is where you compile decrease in cash (cash is an asset and in the double entry system decrease in assets is credited while increase is debited).
|1st Nov||paid Juma||300|
|30th Nov||c/d (deficit between Dr. and Cr. Here Dr. is greater)||1200|