Money In
Your income will arrive in one of 2 ways - simply:
- Your customer will pay you at the time of purchase and you'll either put the cash or cheque into your bank account or the money will be taken from their credit or debit card and deposited into your bank account.
- You'll deliver goods or services to your customer and raise an invoice for the products or work done. Your customer will then pay the amount stated in the invoice into your bank account or to you directly.
The first method is easy to track - money comes in, goods go out. The sale is entered into the corresponding income account and is shown in the Balance Sheet as an asset - that money is yours, it's in your bank account.
The second income method of invoice, followed by payment is only slightly more complicated but can cause of few headache for the uninitiated. Double-entry Bookkeeping can take a bit to grasp so don't be too put off if it takes a few goes to get it right.
Try thinking of it as a see-saw - if you put something on one side ie: income or expenses, then you must even it out by putting something of the same weight on the other side ieAsideIncome AssetExpenses Liability: either asset or liability.
Side A
|
Side B
|
| Income |
Asset |
| Expenses |
Liability |
| Profit & Loss Report |
Balance Sheet |
| |
|
- Invoice is raised against the customer for the goods - the sale goes into the income account.
- Income is shown on the Profit & Loss Report and must correspond to an entry in the Balance Sheet (this is where the double-entry part comes in) as the 2 are supposed to show an equal amount at the bottom.
- This amount sits in the Balance Sheet under Debtors as an asset (yet to be collected)
- Once the payment is made, it's matched against the invoice in the accounting system and the amount moves out of Debtors and into the Bank Account in the Balance Sheet.
This can get tricky if the accounting system is not set-up correctly.
Tip for Hiring a Bookkeeper
If you don't feel comfortable doing all this yourself - get an expert in and save yourself the stress.
When you look to hire a bookkeeper ask them during the selection process to expain to you what an asset and liability are. Get them to tell you what's income and what's an expense. More importantly though - ask them how they all interact in your accounting system.
If they explain it in a way that makes it simple for you to understand - hire them! If not, keep looking or get a trainer in to teach you how to do it on your own data.
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