Double-entry accounting
The basic principle of double-entry accounting is that every business transaction is posted to at least two different accounts, and is therefore posted at least twice. In the most simple cases, only two accounts are affected.
- The most important thing to remember in this context is Debit to Credit.
- This means that you should post a transaction to the debit side in one account, but to the credit side in another.
- Basic principle: The total for debit postings is always the same as the total for credit postings, regardless of the number of accounts affected
Accounting types-balance sheet acounts
- Business transactions are posted to accounts (= invoices kept on two sides, in which movements are registered).
- In a double entry accounting system it is possible to separate the accounts into different types of basic accounts, which themselves are divided into two partial accounts:
- Balance sheet accounts (property accounts and capital and debtor accounts), to which stocks and changes to these stocks are posted.
- P&L accounts (expense/cost accounts and revenue/sales accounts), to which transactions affecting net income are posted
- The following basic equation applies to the structure of all accounts:
Opening balance + addition - disposal = closing balance - However, the basic accounts above differ in which side the opening balance, addition, disposal and closing balance are posted to.
SD postings
- In the example of an SD business transaction, an accounting document is created at the point of goods issue and/or invoice creation.
- At the point of goods issue, the goods physically leave the warehouse. This results in a stock-related and value-related posting. This means that the stock is reduced and the materials used increased. The posting is therefore called "Materials used to stock".
- At the point of billing, receivables are accumulated by the customer, and additions are posted to sales revenues (posting record: Receivables to sales revenues).
- If the incoming payment is made in FI, the receivables are reduced again and the amount of the cash inflow is posted to a bank account (posting record: Bank to receivables).
- Posting output tax has been ignored for the purposes of this simplified example.
- In the example of an MM business transaction, an addition to stock occurs at the point of goods receipt. The clearing entry is made against a special goods receipt/invoice receipt clearing account (stock to GR/IR clearing account).
- Provided that standard prices are used for valuation, it may be necessary to post to a price difference account the amount of the difference between costs for purchasing and valuation.
- At the point of invoice creation, the GR/IR account is credited and payables accumulated by the relevant creditor (GR/IR clearing account to creditors).
- The payables are reconciled in the payment run, and a disposal is is entered in the bank account (payables to bank).
- Posting the tax due has been ignored for the purposes of this simplified example
