Double entry bookkeeping requires each transaction to have at least two general ledger accounts assigned, which balance to offset each other. At least one account will receive a ‘debit’ entry and at least one other will receive a ‘credit’ entry for each transaction.
A debit entry increases what you OWN or reduces your Profit.
A credit entry reduces what your OWN or increases your Profit.
Knowing what you need to credit and what needs to be debited is generally what confuses people most when they're starting out. One of the great benefits of A2X is that this can be pre-mapped for your Amazon Settlements.
Each transaction has two parts that are equal, opposite and balancing. Many of the newer accounting software programs have double entry written into their code. This ensures that most mistakes, that occurred in the past due to manual accounting, are reduced.
Other benefits of double entry bookkeeping include improving the accuracy of the accounts, reducing the amount of errors made while preparing the accounts and providing a valid audit trail which may help reduce the risk of fraud.
Example of a double entry transaction
Amazon Advertising - $125
Credit - Cash account decreases $125
(Cash Account on the balance sheet – Credit reduces what your own)
Debit – Amazon Advertising expense $125
(Advertising Account on the P&L – Debit reduces the profit)
It can prove tricky to get your head around Debits and Credits, so please review the below table for an easy guide.