Bookkeeping
Find answers to frequently asked questions about how to stay on top of accounting and bookkeeping with Dappr's bookkeeping features.
Merging transactions
You can merge transactions in two scenarios:
Balance sheet transaction merger
When you create a transaction between two balance sheet accounts, an additional "hidden" transaction is created with opposite account, category, and amount details. This is done because every balance sheet transaction results in both a debit and credit transaction. If you by accident created the second transaction manually, the second transaction will be a duplicate. You can solve this issue by merging the two transactions.
Example
If you withdraw cash from your bank account, the balance of your bank account will decrease, while your Cash on Hand account will increase, which results in two transactions. However, since the transaction only signifies a single movement of assets, Dappr will only display one of the transactions, while two transactions will appear on the general ledger. Here's an example of a situation in which two identical transactions are displayed in the accounting page's Bookkeeping tab, which will enable the ability to merge the duplicate transactions:
Account (Credit): Checking account Category (Debit): Cash on hand Amount displayed in Dappr: -50
Account (Debit): Cash on Hand Category (Credit): Checking account Amount displayed in Dappr: +50
You can then select the two transactions and click the "Merge" button. If there are discrepencies between the two transactions (e.g. different dates or descriptions), you can enter the correct details before saving the merged transaction
Identical transaction merger
If your books contain at least 2 duplicate transactions, they can be merged. The following three details must be identical:
Account
Category
Amount
The description and date does not have to be identical. After clicking the Merge button, you must enter the correct details and save the transaction. The remaining duplicate transactions will be permanently deleted.
Selecting account and category
When creating a transaction, you must select two accounts for accurate bookkeeping. Dappr refers to these two accounts as the "Account" and "Category".
When selecting an "Account", only accounts available on the balance sheet will be available for selection. Whenever a transaction occurs between two Balance Sheet accounts (which is either an Asset, a Liability, or Equity), it is good practice to select the account that initiated the transaction as the "Account" and second account as "Category". For example, if you have withdrawn money from a Checking account, you should select the Checking account as "Account" and Cash On Hand as "Category". When you have deposited cash, you should select Cash On Hand as "Account" and the Checking account as "Category".
If the transaction is associated with one Balance Sheet account (e.g. Accounts Receivable) and one Income Statement account (e.g. Sales), you would select Accounts Receivable as "Account" and Sales as "Category".
What is an account?
In accounting, an account is a record of financial transactions for a specific asset, liability, equity, revenue, or expense item. Accounts are typically organized into a chart of accounts, which lists all of the accounts that a company uses, and their account numbers. Each account has a unique account number and is classified into one of several categories, such as assets, liabilities, equity, revenue, or expenses. Transactions are recorded by debiting one account and crediting another account, with the sum of all debits and credits in each account always equal to zero. This system is known as double-entry accounting.
Upon setting up the Accounting feature, Dappr will automatically add frequently used accounts to your Chart of Accounts. You can create additional accounts at any time from the "Chart of Accounts" tab.
Accounting Methods
When managing your business’s finances, choosing the right accounting method is crucial for accurate financial reporting and compliance. Dappr’s accounting system offers two primary accounting methods: Cash Basis and Accrual Basis. Understanding the differences between these methods will help you make informed decisions about how to track your company’s financial transactions.
For LLCs, you'll select the accounting method prior to generating your operating agreement.
Cash Basis Accounting
Definition: Cash basis accounting recognizes revenue and expenses only when cash changes hands. This means that income is recorded when payment is received, and expenses are recorded when they are paid.
Key Features:
Simplicity: Cash basis accounting is straightforward and easy to implement, making it ideal for small businesses and startups with simple financial transactions.
Immediate Tracking: This method provides a clear picture of your cash flow, as it tracks actual cash available in real-time.
No Accounts Receivable/Payable: Since transactions are recorded only when cash is received or paid, there is no need to track accounts receivable or accounts payable.
Advantages:
Ease of Use: With its simplicity, cash basis accounting requires less bookkeeping and is easier to understand.
Tax Timing: Taxes are only paid on income that has actually been received, potentially improving cash flow.
Disadvantages:
Inaccurate Long-Term Picture: It may not provide an accurate picture of long-term financial health, as it does not account for money that is owed or due.
Limited Insight: It can be less useful for businesses that need to track long-term financial obligations or inventory.
Accrual Basis Accounting
Definition: Accrual basis accounting recognizes revenue and expenses when they are earned or incurred, regardless of when cash is received or paid. This means income is recorded when a sale is made, and expenses are recorded when they are incurred.
Key Features:
Comprehensive Tracking: Accrual basis accounting provides a more accurate and comprehensive view of your financial position by including accounts receivable and accounts payable.
Matching Principle: This method adheres to the matching principle, where expenses are matched with the revenues they help generate, providing a clearer picture of profitability.
Complexity: Accrual accounting is more complex and requires diligent record-keeping to track transactions accurately.
Advantages:
Accurate Financial Picture: Provides a more accurate view of your business’s financial health and performance over time.
Better Decision-Making: Enables more informed financial decisions by showing true revenue and expenses, irrespective of cash flow.
Compliance: Often required for larger businesses or those that must adhere to Generally Accepted Accounting Principles (GAAP).
Disadvantages:
Complexity: Requires more sophisticated bookkeeping and can be more challenging to manage.
Cash Flow Issues: Because income and expenses are recorded before cash is exchanged, it can sometimes present cash flow challenges.
Choosing the Right Method for Your Business
The choice between cash basis and accrual basis accounting depends on several factors, including the size of your business, the complexity of your financial transactions, and your specific reporting needs. Here are some considerations to help you decide:
Business Size and Complexity: Small businesses with straightforward transactions might prefer the simplicity of cash basis accounting. Larger businesses with more complex financial dealings often benefit from the accuracy of accrual basis accounting.
Tax Requirements: Consult with a tax professional to understand any regulatory requirements or tax implications associated with each method.
Financial Reporting Needs: Consider what kind of financial insights you need for making business decisions. If you require a detailed and accurate picture of your financial health, accrual basis may be more suitable.
Dappr’s Accounting System
Dappr’s accounting system supports both cash basis and accrual basis accounting, giving you the flexibility to choose the method that best fits your business needs. Our platform provides the tools and features to manage your finances effectively, whether you prefer the simplicity of cash basis or the comprehensive tracking of accrual basis.
Features of Dappr’s Accounting System:
User-Friendly Interface: Easy to navigate and use, regardless of your chosen accounting method.
Automated Tracking: Automate tracking of income and expenses to reduce manual entry and errors.
Comprehensive Reporting: Generate detailed financial reports to gain insights into your business’s financial performance.
Compliance Monitoring: Ensure compliance with accounting standards and tax regulations with built-in monitoring features.
By understanding the differences between cash basis and accrual basis accounting, you can make an informed decision that aligns with your business goals and financial management needs. Dappr is here to support you every step of the way, providing the tools and resources necessary for accurate and efficient accounting.
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