Category Archives: 1 Basic Accounting

I bought stuff, now what?

You bought something for your own business and now you know you should account for it. You’re not running a shop in some small village like 100 years ago where you could just get cash from the till, go buy something and be done with it. No.

The way we do things is quite the opposite. I mean we still take money if we are going to pay by cash, but there’s more to it. Yes, we also pay via bank transfers, but that’s not what I’m on about. Continue reading →

Debit-Credit

No, not debit or credit card, but your accounting debits and credits. You may also say they’d be your assets and liabilities because with debits and credits you’re “creating” your balance sheet and income statement. Normally and simply put with the debit side of an entry you increase assets or decrease liabilities and vice a versa with the credit side. Continue reading →

Be very considerate of expenses when it comes to prepayments

I’ll be honest with you on this one – even I’ve forgotten that I had accounted some expenses first off into prepayments. What I mean by this is that I had thought I’d spread those expenses over the period of time I’m using the service and with doing the initial entry I forgot to make those entries every month as I just forgot I had thought about distributing those expenses at all. I thought I had just expensed them once and for all at the time I made the payment to the supplier.  Continue reading →

Prepayments – accounting for them

Accounting for prepayments is somewhat of a hassle. There’s a little bit more to it than just one entry for the expense and one for the payment made to the supplier.

  1. Initially you recognize that you made a payment through crediting your bank or cash balance. This is where you gave up something to get something in return. Now what was it that you got?
  2. You got something you’ll be using at a later date – a promise to receive service used over a period of time in future.
  3. This promise is something you account on your balance sheet as an asset – a prepayment made for this something you got. You’re accounting for this promise that you’ll “collect” when the time is right.
  4. When with your credit you showed that you paid for this with cash or bank transfer, then with your debit you’ll show what you got in return. Your accounting entry will show that you gave away money so you’d receive something in future.  Continue reading →