I think I don't know how the difference between money you receive from sales ( credit side - income ) and money you have in bank (debit side - asset ) should be properly understood. Money in bank tells you how much money physically you have on your bank account. What about money from sales on your sales account? How to interpret information that 100 pounds from sales is on your sales account?
Revenue from sales is in the P&L. Money in the bank is in the balance sheet.
You make a sale, the sale is recorded against the customer and when the money is receieved the outstanding customer balance is cleared as it moves to the bank.
So, looking at the double entries
Make sale :
Cr Income
Dr Customer account
recieve money from customer
Cr Customer Account
Dr Bank
Of the above only Income is in the income statement. The other two fields are on the balance sheet under current assets. Regardless as to when the money is receieved the Income is recognised in the correct period.
At the end of the period the balance from the income statement is moved to the capital account and that will balance against the combination of the bank balance and the remaining customer accounts that have not yet been receieved (accruals).
HTH,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
As you no doubt realise, the double entry system is based on the concept of opposites that, in total, equal one another - or balance: that's why all the debits in any given transaction must tally with all the credits.
When it comes to the debits and credits on the profit and loss account and the balance sheet, there is another set of opposites in play (again, grossly oversimplified). On the P&L, what you want to see are more credit amounts and less debits - more income from sales, and less expenditure. Whereas on the balance sheet, what you want to see are more debit amounts and less credits - more assets and less liabilities.
Debits are assets. So a debit on the bank account is a positive balance (what the bank - and most people who don't understand why - say is a credit balance). And a debit on the sales ledger account is money owed to the business by customers.
__________________
Vince M Hudd - Soft Rock Software
(I only came here looking for fellow apiarists...)
