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When I was younger, say 20- I didn’t know what a debit is. I’d get confused when I went across the border and I was asked if I was paying with cash or credit. Everyone over on my side asked for débit (say it with a french accent) and I knew that once I used it, it would take money out of my bank account directly. I thought of my debit card as a money-sucker.
I was oblivious and most people are.
Now that I am a business owner, it has a new meaning. Debit is no longer just a drain of my money, but a way to organize balances.
Accounts with a DEBIT balance are your expenses, assets, and draws.
Expenses are anything you purchase to run, manage, and maintain your business. For example, Etsy fees, Paypal fees, supplies of materials, website hosting, house utilities, advertising.
Assets are objects with monetary value. For example, cash, office furniture, car, building, account receivables (amounts owed to you).
Draws are the amounts that a business owner takes out of the business to use for personal reasons. This is equivalent to a paycheck from an employer. Congrats to you if you can pay yourself a wage!
Now lets apply this to your bookkeeping.
I bought $100 worth of yarn for last month. Old-Style, it would look similar to this:
Debit- yarn supplies account
Credit- paypal (more on this later!)
In Wave apps it would look like this:
First click on “add expense”
In Wave Apps, the “account” field automatically enters your money account, taking the first one listed. My money accounts are “Cash on Hand”, “Paypal” and “Paypal USD”, so I chose “paypal”, and then I have to determine what type of account( (or category, in this case) that my expense goes under. In the drop menu of category, I can choose from a list of expenses, or make my own, which I did, and called it Yarn Supplies. Simple right?
My Yarn Supplies account now has a debit balance(increase) of $100, and my paypal account has credit balance(decrease).
I purchased yarn, and I have an increase?? It sounds ironic right? In this case, like I said at the beginning, an expense account has a regular debit balance. Then it follows that because I debited the account with $100, it has increased and my total expenses to date is $100.
Most people are accustomed to only using and tracking their bank account. In Wave Apps, each purchase that you now make has TWO accounts. When you buy supplies, you make a supply account. When you buy advertising, you make an advertising account. When you hire someone to do your taxes, you make a tax expense account. You can call them whatever you like, but the point is to be consistent so that you can track all these accounts and be able to judge whether you are spending too much on advertising, or on materials, whatever the case.
Next time I’ll go over the second part of this, which is Credit. And no, not your credit cards 😉
Do you have an expense that you don’t know how to categories/label? Let me know in the comments below!