How to Double Entry: Why you need to know

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There are different things which lock out women entrepreneurs from external funding and a date with investors. One is poor record keeping. But if you can’t prepare financial statements, you can also get part time help from an accredited accountant. Nice hack.

When it comes to day-to-day record keeping, you will have to do it yourself unless you’re not bothered about keeping your cost of doing business down. Who isn’t?

This process seems deceptively easy. Just write down the money you get and the one you pay in some nice hard cover note book, or a spreadsheet. This is not how things are done though. First, it’s better if you base your business records on transactions and not when money changes hands. Two, you must understand the philosophy of how business transactions work.

This is the concept of double entry. Business people, like you, from way back in the 13th Century are credited with figuring out the idea. You can read a book like ‘How the Merchants of Venice Created Modern Finance‘ by Jane Gleeson, which details this development. Some historians argue that banks would have discovered it first, since it makes sense for how they do business. When you deposit cash at a bank, they get money and also owe you that money.

This may not be so straightforward nowadays because bank money is more computer “beep boop” than the notes in your purse. Yeah. You didn’t really think the loans are people’s deposits, did you? Haha (we need Islamic banking).

How double entry works

The dual effect of double entry is also realized in your business every time. For example, when you buy stock. You get stock (a short term asset) but lose the cash you use to pay for it. This is based off of the “science” that for you to acquire an asset, you must either spend your own money or borrow money.

For business records, this is simplfied by making entries on the debit (left) or credit (right) sides depending on what increases or decreases, everytime you conclude a transaction. This helps you have easy-to-trace business records, with few mistakes if any. Here’s what you enter on each side:

Debit (Dr.)

  • Increase in assets
  • Increase in expenses
  • Decrease in capital
  • Decrease in liabilities
  • Decrease in revenue

Credit (Cr.)

  • Decrease in assets
  • Decrease in expenses
  • Increasing in capital
  • Increase in liabilities
  • Increase in revenue

Let’s see. When you pay employees, you have an increase in expense that you debit and a decrease in your cash assets that you credit. This works out seamlessly for any business transaction. All you need to do is figure out which two aspects have been affected.

We are doing two series of articles to end the year – yaaay!! Check out our other awesome series:

#HerDiary – Experience of being a woman entrepreneur in Kenya

#HERsler – How Kenyan women under 25 are making moves

Value Addition – Agriculture, but you get to maintain your nails

This is the first. And this means we will share, with templates, how to put this to use when you make your initial business records, immediately after a transaction. Stick around.

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Web Content and stuff. You can reach me you know: editor@herbusiness.co.ke, malitrobert@gmail.com