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Now it’s time to record what’s happening with your money.
Each debit and credit transaction must be recorded correctly and in the right account. Otherwise, your account balances won’t match.

To record a transaction, first determine the accounts that will be debited and credited [double-entry method].

For example, you’ve just purchased a new laptop [$300] for your business. The transaction will affect two accounts, Why? Because you’re decreasing your cash and increasing your equipment, you would record a $300 debit for the equipment account and a $300 credit for the cash account.

Balancing your books

The last step in basic bookkeeping is to balance and close the books. When you tally up account debits and credits, the totals should match. This means that your books are “balanced.”

If the two sides don’t match [$300 Cr & $300 Dr], you’ll need to go back through the ledger and journal entries to find errors.

The first step to setting up your accounts is to decide on a bookkeeping method - Single Entry or Double Entry.

Single-entry bookkeeping, you enter each transaction only once. This method can work if your business is simple - if you , don’t have any equipment or inventory and have decided to use excel spreadsheets as your method of recording. This is perfect for freelancers or those who sell services.

However, most bookkeeping is done using the double-entry method, you’ll record two entries for each transaction: a debit (Dr) and a credit (Cr) - a transaction in one account requires an equal and opposite entry in another account.

Although more challenging double-entry ensures your books are always balanced. Plus, most accounting software starts you off with double-entry bookkeeping anyway.