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Double Entry Bookkeeping and QuickBooks

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Most of my clients do not have an accounting background. They may have taken a class in High School or College, but even then most of the information has been forgotten. Because of this, QuickBooks tries to hide a lot of the accounting in the background. One of the key parts to QuickBooks that is fairly seamless is doing the double entry for every transaction.

Double entry bookkeeping is a way to record the flow of money in a business which has an effect on at least two different accounts. In simple terms, it is a way to show where money came from, and where it went. Every transaction has to have a source and a destination. QuickBooks does this for you in the background, and will not let you save a transaction that is not ‘in balance’.

An easy way to think about this is with a check. Let’s say that you purchased some office supplies using a check. In a non-double entry bookkeeping system, you could simply enter a check for the amount of the purchase and be done with it. However, in QuickBooks, you have to have two accounts. The other account in this case would be your expense account. You are increasing the expenses that your business incurred. So in this example, your two accounts would be your bank account and your office supply expense account.

Because every transaction needs to have two accounts, some of my clients get confused about what account to use. They typically know one part of the transaction (I wrote a check, so I have to decrease my bank account), but are sometimes lost as to what the other account would be. In these cases, I recommend having an account called “Ask My Accountant” as an expense account setup. This lets you use this as a temporary offset when you are not sure what to do. Just be sure to make some notes in the Memo field about what this is, so when you discuss it with your accountant.

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