Accounting, explained for a shop

The guides

• Debit and credit — Almost everything else in book-keeping falls out of one idea: money never appears, it only moves. Every entry therefore has two sides.
• Chart of accounts — The list of every pot your money can sit in. Get it right once and every report afterwards reads itself.
• Day book — Every entry made today, in the order it happened. The least glamorous report in the book, and the one you will use most.
• Trial balance — Every ledger balance in two columns. If the totals do not match, something is wrong — and if they do match, that proves less than people think.
• Profit & loss — What the business earned and what it spent over a period, and the difference between them. Two lines in it matter more than all the rest.
• Balance sheet — What the business owns, what it owes, and what is left over for you — on one day. Not a period: a photograph.
• Outstanding — Two lists that decide whether a profitable shop has any money in it. Most shops keep them in their head, and most shops are wrong.
• Bank reconciliation — Your books say one figure and the passbook says another. That is normal. Reconciliation is finding out exactly why.
• Journal entries — The entry for what no document covers. Powerful, and the first place a set of books goes wrong when it is used for the wrong thing.

Where to start

If book-keeping has never made sense, start with debit and credit. The rest of it follows from that one idea and takes about ten minutes.

If your accountant has asked you for something and you are not sure what it is, it is almost always the trial balance, the profit & loss or the balance sheet.

If the shop is profitable and there is no money in it, read what you are owed and the profit is not cash section of the profit & loss guide. Between them they account for most of it.

What these pages avoid

No depreciation rates, no audit limits, no filing dates. Those change, and a page carrying a stale one is worse than no page — somebody plans around it. These guides explain what a thing is and how it works.

And the GST side

Tax is a separate question from book-keeping. The GST guide covers invoices, the CGST/SGST/IGST split, HSN codes, GSTIN, reverse charge and credit notes, with two free tools that run the same billing engine as our software.

Which edition. Accounting — ledgers, vouchers, trial balance, profit & loss and balance sheet — is in Silver. Basic is billing and inventory: invoices, stock, parties, outstanding and GST reports, and no ledgers. Both prices are on the pricing page.

This page explains how book-keeping works so a shopkeeper can follow what an accountant is asking for. It is not accounting or tax advice — talk to your accountant before you rely on it for a filing or a return.

Questions

Is this accounting advice?

No. It explains how book-keeping works so a shopkeeper can follow what an accountant is asking for. Check anything you intend to file with your accountant.

Do I need accounting software, or is billing software enough?

Billing software is enough while the questions are what did I sell, what is in stock and who owes me. You need ledgers when the question becomes what the business actually earned, and when a bank or an accountant asks for statements.

Which Aned Book edition has accounting?

Silver. Basic is billing and inventory — invoices, stock, parties, outstanding and GST reports — and has no ledgers, trial balance or balance sheet.