In South Africa there is certain things to be paid like at year end. In the interrim I have set up Provision accounts whereby I must reflect the monthly amounts into the Provision Accounts. Nearly like a monthly saving and then at the end of the year pay it with physical money. Although not physically paid it will show in the Balance sheet under liabilities as a “saving” of the amounts, but the money is still in the bank untill the end of the year.
In some acc software like Pastel, one can Journalise from the bank Account to the Provision Account.
How do I deal with this.
I have read the post. Regarding the accruals, I will not worry about if the actual amount is less. The amount remaining can stay in the accrual account. It will be like a savings account.
If the Actual amount is more I will just pay the balance from the Bank as a payment.
My only question is, If I debit an account, does it not mean that the money is shifted to that account and if I credit an account, does it not mean that I am taking money out of that account?
Technically if one reads the above statement, there will not be money in the accrual account.
Sorry, but my accounting knowledge are sometimes limited.
My only question is, If I debit an account, does it not mean that the money is shifted to that account and if I credit an account, does it not mean that I am taking money out of that account?
Debit and Credit can be confusing and is therfore often referred to as left side (Debit) and (Credit) to take away the notion that Debit is taking money away and credit is receiving money. There are 3 main balance sheet accounts Assets, Liabilities and Equity and 3 main profit & loss (P&L) accounts: Revenue, Expenses and Net-profit. For each of these you could setup a T-account with Debit on the Left and Credit on the right. The easiest way to deal with CREDIT (CR) is to think about it as the SOURCE of funds and DEBIT (DR) as the DESTINATION of funds.
So in practice:
Example a) Assume you sold to customer John apples for $100 and he paid in cash. So in P&L this is the “source” of Revenue and $100 would thus be on the CR side of the Revenue T-account. This $100 was received in the Cash account of the balance sheet, because this is the “destination” of the funds it appears on the DR side of the Cash T-Account. In the complete balance sheet there would be $100 in Cash Account under Assets and $100 in Retained earnings under Equity. So $100 in Assets = $100 in Equity + 0 Liabilites so in perfect balance.
Example b) You transferred $500 to supplier Anna for purchase of apples. The “source” is now your bank account so $500 will be posted on the CR side of the Bank T-account. The “destination” is inventory Apples, so $500 will be posted on the DR side of the Inventory T-account. So -$500 in Bank Assets moves to $500 in Inventory Assets, this also perfectly balances it out.
Obviously this is a simplification but meant to help understand that Dr and CR are related to the main accounts in various ways that ensure that there is always a balance between what one Owns and Owes. I would advise to search for some basic accouting lessons and use the Manager guides as well as they often explain well how to do things. Over time you will get better at it.
Please note that the only legitimate abbreviation in accounting for Credit is CR (credere) and DR (debere). So please no DT or CT 