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VT Transaction+

Navigation: Basics

Bookkeeping basics

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In essence, the main purpose of using a bookkeeping package like VT Transaction+ to record your financial transactions is as follows:

It tells you who owes you money and who you owe money to (Display > Balance Sheet)

It tells you how much you have earned and how much you have spent (Display > Profit And Loss Account)

It tells you the amounts for your VAT return if you are registered for VAT (Display > VAT Returns)

These objectives are achieved by entering the transactions of the business into your data file using the software. As a very minimum, the money going into and out of your bank account should be entered.

Whenever a transaction is entered, a minimum of two accounts are automatically updated by the software. This is a fundamental principle of double-entry accounting. For instance, if you enter the payment of a telephone bill, the amount in your bank account will be reduced. The software will also ask you to select an analysis account, such as Expenses: Telephone and Internet. The bank account tells you how much the bank owes you (or vice versa), and the telephone and internet account, how much you have spent on telephone and internet services.

A conundrum arises when an invoice is issued some time before money changes hands. The simplest thing to do is to enter this when the money hits the bank account. However, you will then have no record of how much is owed by your customer (or to your supplier), your income and expenditure totals will be out of date, and your VAT return will be incomplete (unless you are operating the VAT cash accounting scheme). To get these things right, you could enter the invoice first (by clicking on the SIN or PIN buttons on the toolbar), and then also record the money when it subsequently comes in or out. You may wish to discuss with your accountant whether this is necessary.

When you enter an invoice using the SIN or PIN buttons, you have to select a customer or supplier's account and an analysis account. For instance, for a telephone bill you might select BT plc as the supplier and Expenses: Telephone and Internet and as the analysis account.

Confusion can also arise when an invoice already entered is subsequently paid. Instead of analysing the payment to Expenses: Telephone and Internet as in the first example, the payment should be analysed to Suppliers: BT plc. Otherwise the expenditure on telephone and internet will be double counted and the suppliers account will still show an amount due (to help avoid this confusion, there are special methods in the software for entering the payment of invoices already entered).

These alternative methods of accounting for an invoice are illustrated below:

Direct method:


Bank: Current a/c


Expenditure: Telephone and Internet

PAY- Payment

-100


100

Via the Suppliers ledger:


Bank: Current a/c

Suppliers: BT plc

Expenditure: Telephone and Internet

PIN- Purchase invoice


-100

100

PAY- Payment

-100

100


See also:

Customer transactions