Accurate bookkeeping is the backbone of financial reporting, ensuring that your business tracks its financial transactions properly. Software solutions—such as QuickBooks®, NetSuite®, or Xero™ —can simplify double-entry accounting. However, understanding the process behind these tools can provide reassurance that your books are in order.
Debits and Credits: A Quick Overview Assets represent the resources your business owns, such as accounts receivable, inventory, and equipment. Liabilities are what your business owes, including accounts payable, credit lines, and loans. The difference between the two is referred to as owner’s equity. This relationship is captured by the accounting equation:
Assets = Liabilities + Owner’s Equity Bookkeepers use T-accounts to record transactions. Assets are on the left side, and liabilities and owner’s equity are on the right. An increase in an asset is recorded as a debit (left side), while an increase in liabilities or equity is recorded as a credit (right side). The reverse is also true—decreases in assets are credits, and decreases in liabilities or equity are debits. This ensures that for every financial transaction, debits and credits remain in balance.
A Practical Example To demonstrate how debits and credits work in practice, let’s consider an appliance repair company. Imagine the company repairs a washing machine for $500, and the customer pays in cash. This would be recorded by debiting the cash account (an asset) for $500 and crediting the revenue account for $500. Now, let’s say the repair person is a contractor who charges $100 for labor. The company would record this by debiting the contractor fees expense account for $100 and crediting accounts payable for $100. When the contractor is paid, the bookkeeper will debit accounts payable and credit cash.
Generating Financial Reports Bookkeeping tracks transactions throughout the accounting period and helps generate key financial reports, such as the balance sheet, income statement, and statement of cash flows. These reports clearly show your business’s financial health, helping you make informed decisions.
Keeping Your Bookkeeping on Track While bookkeeping basics may seem simple, more complex transactions — especially those involving payroll, inventory, or accrual accounting — require careful attention. Correcting bookkeeping errors can be time-consuming and frustrating, often resulting in lost time and missed opportunities. If you’re finding that bookkeeping tasks are taking away from your core business activities, outsourcing your bookkeeping may be a smart option. Having a dedicated team manage your books can free up your time and ensure your financials are accurate and compliant. Our Managed Accounting Services team specializes in helping businesses maintain accurate financial records, ensuring compliance, and generating timely financial reports. Whether you’re looking for guidance on software solutions or need a more hands-on approach to managing your books, we can provide the support you need. Contact Gregory Pepin and the team today to learn more about how we can streamline your bookkeeping process and keep your business on track.
Gregory Pepin, CPA, Partner
Gregory Pepin is one of Reynolds + Rowella’s tax partners and leads the firm’s Managed Accounting and Family Office Solutions Group. Greg specializes in tax consultation, planning, and compliance for closely-held businesses and high-net-worth individuals. Greg prides himself on being a trusted advisor to his clients for all their related financial matters. Greg is a member of the American Institute of Certified Public Accountants, the Connecticut State Society of Certified Public Accountants, CTCPA Professional Ethics Committee, Fairfield County Community Foundation – Rising Professional Advisory Council, past Trustee of the Keeler Tavern Museum and History Center Endowment Fund and past Connecticut Society of CPAs CPE/Networking Steering Committee. Greg is a board member of The Center for Empowerment and Education.
Reynolds + Rowella is a regional accounting and consulting firm known for a team approach to financial problem solving. As Certified Public Accountants, our partners foster a personal touch with our clients. As members of DFK International/USA, an association of accountants and advisors, our professional network is international, yet many of our clients have known us for years through the local communities we serve. Our mission is to operate as a financial services firm of outstanding quality. Our efforts are directed at serving our clients in the most efficient and responsive manner possible, delivering services that exceed the expectations of those we serve. The firm has offices at 90 Grove St., Ridgefield, Conn., and 51 Locust Ave., New Canaan, Conn. For more information, please contact Elizabeth Bresnan at 203.438.0161 or email.
