Appendix A: Double Entry Bookkeeping
- Cash Accounts (bank, petty cash, etc.) Activity Accounts are the two sides of double entry bookkeeping. A balanced set of books shows that the total amount in school Cash Accounts equals the total allocation shown in all Activity Accounts.
- A debit is a (+) in a Cash Account (cash or check received for deposit. A debit is a (-) in an Activity Account (charge/disbursement). A credit is a (+) in an Activity Account (deposit). A credit is a (-) in a Cash Account (disbursement).
- More simply, you may also label receipt/deposit columns (+) and disbursement columns (-) on both "cash-in-bank" and "activity account" ledgers. This way, you ensure that each double entry is recorded as a (+) in two accounts or a (-) in two or more accounts so that the bank and the activity account(s) are being increased or decreased by the same amount to stay in balance.
- When a check is written, credit the bank, then charge (debit) an activity account by the same amount or your books will be out of balance (i.e., the debits will not equal the credits). This will show that the money came from the bank and that is was used in a particular activity account.
- When entering a receipt, debit the bank, then credit an activity account by the same amount or your books will be out of balance. Again, this shows from which activity account the funds come and to which account the funds were recorded (the cash account).
- Monthly, make sure that the total of cash accounts balances (checking, savings, NSF, petty cash) equals the total of the activity accounts balances. This will insure that all funds and supplies received were allocated properly.
- To increase a cash-in-bank balance by receiving cash (checking, savings, NSF, petty cash) debit it (+).
- To decrease a cash-in-bank balance by writing a check or otherwise disbursing cash, credit it (-).
- To increase an activity account for receipt of revenue, credit it (+).
- To decrease an activity account for expenditure made, debit it (-).
- A debit balance in the cash account means that cash is available for use in the activity accounts. The cash account should not have a credit balance at any time. This would mean that more has been spent than had available to spend.
The following books of account are required with the Double Entry Bookkeeping System:
CASH JOURNAL The Cash Journal is one of the most important records we maintain. Simply stated, without cash our system could not operate. Because cash is so easily manipulated, once it is lost or stolen, it becomes almost impossible to find, so an accurate method of bookkeeping must be maintained. Keep in mind that accountability means to show that funds are being properly recorded and expended. Accordingly, the use of dated receipts and invoices is necessary whenever possible.
The cash journal must show the beginning balance, cash receipts, cash transfers to and from particular activity accounts and the total disbursements of each fund or activity account at the end of each month. At that time, the cash journal must be closed, balanced and reconciled to the bank and cash accounts.
GENERAL JOURNAL The General Journal is the book of original entry and it is used to record, in detail, each transaction of each activity fund or account. Columns are provided for each account that has the most frequent transactions to provide a summarization for the monthly entries to the general ledger.
For those accounts with infrequent transaction, summary columns are provided, generally the last two.
It is not possible to prescribe the size or number of columns for the general journal as the requirements will vary from school to school.
Posting: Depending on how the accounts are arranged in the general journal, the information can be posted or entered into the general ledger as follows:
- If a column in the journal has been assigned to one account only, then only the totals of the debit and credit sides of that account need to be posed to that account's sheet in the general ledger.
- For those account which, because of infrequent use, share a column in the general journal, each entry in the column for the month must be posted to the applicable account's sheet in the general ledger.
After each entry is posted from the general journal to the general ledger, there must be a folio check mark put next to the amount posted. This is done to indicate that the posting process was completed and verified. All entries in the general journal must, in some way, be posted to the general ledger and balanced monthly to insure that debits equal credits.
GENERAL LEDGER The General Ledger is a book in which individual ledger sheets are maintained for each account. Information is posted from the general journal to the general ledger at the end of each month. After the monthly summary and applicable individual entry postings have been made in the general ledger and the individual account balances entered, a trial balance is prepared to assure that all accounts are in balance and that all information has been properly taken from the general journal.
The trial balance is simply a listing of all accounts with their respective debit or credit balance. If the debits equal the credits, the information has probably been recorded properly.
SUBSIDIARY LEDGER A Subsidiary Ledger is a supplemental ledger breaking down the source of the entries of a certain account in the general ledger; therefore, more than one subsidiary ledger could be maintained, if necessary.
A good example would be the Athletics Account which could be supported by a subsidiary ledger consisting of the following accounts: baseball, basketball, swimming, wrestling, golf, etc. The total of all of the balances of the subsidiary accounts should be equal to the Athletics Account in the general ledger.
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