Any small business needs to have a good understanding of both debits and credits in order to successfully manage their finances. Being successful in managing your books may make all the difference in whether or not your business will be successful. There are several things to remember to help you correctly manage your credits and debits.
The following are some of these tips:
1. Knowing the difference between a debit and a credit – A debt is an expense or charge of the business. An easy way to remember this is to remember your debit card. Any expenses are added to your debit card. A credit is a revenue or money that is earned by the business. Keeping these two straight is the first step to being successful when managing your business finances and help you determine your cash flow.
2. Remember the acronym DEAL for debits – DEAL stands for Dividends, Expenses, Assets, and Losses. Each one of these different things would be recorded as a debt when dealing with accounting.
3. Remember the acronym GIRLS for credits – GIRLS stands for Gains, Income, Revenues, Liabilities, and Stockholders’ Equity. In the accounting world, these would all be recorded as a credit.
4. Keep your books in balance – When you are dealing with the accounting books, you must stay in balance. Whenever you debit one book, you need to remember to credit the other book. Everything that is done must be done with the knowledge that your books have to stay in balance.
5. What does each transaction do and what books does it affect? Having a working knowledge of each transaction will make recording debits and credits much easier. Every transaction that is worked will influence Accounts Receivables, Inventory, Cash, and Surplus. Every transaction takes payment for a product or service and needs to be recorded in each book as appropriate.
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