Credit Vs Debit Bookkeeping Question

Credit

Credit

A loan cash rm500 is paid to us by cheque.

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Jun 11, 2018
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starstarstarstarstar 		Credit Bookkeeping Entry
by: Stephanie

Your entries would be:

DEBIT Bank Account (Asset)
CREDIT Loan Payable (Long Term Liability)

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Credit Balance

Does a brought down credit balance in a bank account mean that I have money or I owe money?

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Jun 01, 2011
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starstar 		Lower Credit in Bank
by: Henk

The Bank account is an Asset Account. All Asset Accounts have a normal Debit balance, which means a Debit increases the account.

Remember, all accounts within the Expenses Account also have a normal Debit balance. A debit to this account increases your expenses. Thus, a credit decreases the amount in the bank account.

Example:

A credit of $100.00 will reduce the amount in the bank account by $100.00

A debit of $100.00 will increase the amount in the bank account by $100.00

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Duplicate Check Credits

by Valerie
(Pomona, CA)

In May two checks were issued as payment to a company and one of these checks was a duplicate payment. The company cashed both checks and issued a refund check for the duplicate payment. My records are made up of several accounts such as baby, accessories, toys, etc. How would I credit one these accounts back so that the budget of that account is correct and reflects what has truly been spent?

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Aug 23, 2023
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starstarstarstarstar 		Duplicate Payment Entry
by: BB

To correct the accounting for the duplicate payment and ensure that the budget of the specific account (e.g., baby, accessories, toys, etc.) reflects the true spending, you'll want to follow a procedure to reverse the duplicate transaction.

Here's a general process to handle this situation:

Identify the Account: Determine the specific account that the original payment was charged to (e.g., the 'baby' account, 'toys' account, etc.).

Record the Refund: In the identified account, you will record a credit for the amount of the duplicate payment. This entry will reduce the expenditure in the account by the refunded amount.

Debit: Bank or Cash Account (for the amount of the refund received)

Credit: Specific Expense Account (e.g., baby, accessories, toys, etc., for the amount of the duplicate payment)

Reconcile the Accounts: Review and reconcile the accounts to ensure that all transactions are accurately recorded, and the budget for that account now reflects the true amount spent.

By recording this entry, you are essentially reversing the effect of the duplicate payment, putting the account back into its correct balance, and aligning the budget with the actual spending.

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Discounts and Credits

by Norma Satow
(Framingham, MA)

If I have a business and I purchase fuel oil and I get a $10.00 discount, what type of an account would I create to record this discount? Thanks, Norma Satow

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Aug 23, 2023
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starstarstarstarstar 		Purchase Discount Credit
by: BB

When you receive a discount on a purchase like fuel oil for your business, you typically record this as a reduction in the expense related to the purchase. There are different ways to account for such discounts, and it can depend on your specific accounting practices.

One common way is to record the discount directly against the fuel oil expense:

Credit: Accounts Payable (for the full amount of the fuel oil before discount)

Debit: Fuel Oil Expense (for the amount of the fuel oil after applying the $10.00 discount)

By directly reducing the fuel oil expense with the discount amount, you're recording the actual amount paid for the fuel oil. If you prefer, you can create a separate account like "Purchase Discounts" and record the discount there:

Credit: Accounts Payable (for the full amount of the fuel oil)

Debit: Fuel Oil Expense (for the full amount of the fuel oil)

Credit: Purchase Discounts (for the $10.00 discount)

The first method simplifies the accounting, while the second method allows you to track all discounts in a separate account.

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Home Buyer Tax Credit For Married Filing Separately

I qualify for the $6500 home buyer tax credit. We are married filing separately. Form 5405 says I can only collect $3250 if I file separately but my husband's name is not on the deed nor mortgage and I want to collect the entire $6500 on my return. How can I do this?

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Oct 10, 2023
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by: BB

Form 5405 and The Home Buyer Tax Credit
As you mentioned, Form 5405 specifies that if you're married and filing separately, the $6,500 tax credit for homebuyers would be split, allowing $3,250 for each spouse. This is the IRS's way of dividing the benefit when couples file separately.

If Only One Spouse Is On The Deed
What I've found to be true is that even if only your name is on the deed and mortgage, the IRS typically treats assets acquired during a marriage as jointly owned, depending on your state's property laws. That said, if your spouse's name isn't on the deed or mortgage, there might be a gray area.

Options
Consult a Tax Advisor: Due to the complexity and potential legal implications, your first step should be to consult a certified tax advisor or an Enrolled Agent. They can provide advice tailored to your specific situation.

Consider Filing Jointly: If it's beneficial for both you and your spouse, you could consider filing jointly to claim the full $6,500 credit. However, this would mean merging all your incomes, deductions, and credits.

Read State Laws: Property laws can vary by state, so be sure to understand how your state treats property ownership within a marriage.

Contact the IRS: For a definitive answer, you can always reach out to the IRS directly. They can clarify how the rule applies in your specific situation.

Next Steps
Given that you can't afford to make a mistake in this uncertain economy, the best course of action is to consult a tax professional. They can guide you through the legal and financial maze to determine the most favorable approach for you.

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Recording a Revolving Line of Credit

What is the best way to record a checking account and the revolving line of credit attached to it. The bank moves money every day to keep a certain amount in the checking account, but I need to know the true balance of the checking account.

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Oct 10, 2023
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starstarstarstarstar 		Revolving Line of Credit
by: BB

Managing a checking account linked to a revolving line of credit can be a bit of a balancing act, especially if your bank moves money around automatically to maintain a certain balance. Here's how you can navigate this situation based on my own experiences and insights.

Separate Ledgers

First and foremost, it's crucial to maintain separate ledgers or account books for both the checking account and the revolving line of credit. This ensures that you always know the true balance in each account, independent of transfers between them.

Daily Reconciliation

The best practice is to reconcile these accounts daily, particularly if your bank is moving money automatically. Here's how:

1. **Checking Account**: Every day, record all the transactions in your checking account, including any automatic transfers from the line of credit. This way, you know exactly how much is in there.

2. **Line of Credit**: Similarly, keep a record of the amount transferred to the checking account, along with any other transactions or interest applied to this account.

Software Tools

Use a bookkeeping software that allows you to easily reconcile both accounts. Most modern platforms have this feature. It simplifies tracking and can automatically categorize transfers as 'Transfers from Line of Credit' or similar terms.

Monthly Review

On a monthly basis, review both ledgers to make sure everything balances out. Any discrepancies should be investigated right away to avoid potential issues down the road.

Reporting

Finally, when you run financial reports, you'll have a clearer picture of your true operational costs, without the distortion created by the revolving line of credit.

Keeping meticulous records and reconciling daily has always given me peace of mind and an accurate view of my financial standing. This becomes particularly vital in an uncertain economy where every financial move must be calculated.

It might sound like a lot, but I promise it gets easier once you establish a routine. And remember, if ever in doubt, consult a financial advisor to guide you through this nuanced task. With these strategies, you'll be well-equipped to know your true account balances at any given time.

So, do you think you're ready to start managing your checking account and revolving line of credit more effectively?

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Using Business Credit Card/Checking in Single Entry System?

How should I record the monthly payment to my business credit card in a single-entry bookkeeping system like Tiny Books, given that I already enter individual transactions as tax-deductible expenses?

Should the payment be categorized as a "non-tax-deductible reconciliation," an "owner draw," or a "personal expense"? Also, is it better to pay quarterly estimates and 1040 income tax from my business checking account or personal checking account?

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Oct 10, 2023
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starstarstarstarstar 		Single-Entry Bookkeeping
by: BB

When you're using a single-entry bookkeeping system like Tiny Books, it's crucial to remember that each payment and expense should only be entered once to avoid duplication. You've already recorded the individual transactions when you made the purchases on your credit card. Those transactions go into various expense categories and are tax-deductible.

When you pay off the credit card from your business checking account, you don't need to enter it as a new expense because it's essentially a transfer of funds between two accounts. In the single-entry system, this could be recorded as a "non-tax-deductible reconciliation" or a simple "transfer" if your software allows for it. The key here is that it's not a new expense, but rather a settlement of existing ones.

Paying Taxes: Business or Personal Checking?
For quarterly estimates and 1040 income tax, the best approach often depends on the structure of your business and personal preferences. If you're a sole proprietor or your business is a pass-through entity, paying from a personal account can simplify your tax accounting. However, it's usually good practice to keep business and personal expenses separate, so many business owners opt to make these payments from their business checking accounts.

In an uncertain economy, it's more important than ever to keep your business finances streamlined and well-documented. Knowing how to properly categorize and record transactions can save you time, money, and headaches when tax season rolls around.

So, how do you feel about managing these financial aspects now?

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