Single or Double Entry
When you begin recording transactions, you’ll have to decide if you want to use the single-entry or double-entry system for accounting.
With single-entry, you’ll record each transaction one time in one account. For example, when you sell a photo package, you record that transaction as income. It’s very simple to use the single-entry method and it’s much like how you would record items in your own personal budget.
Double-entry requires you to make two entries for each transaction. The entries are equal, but opposite – one is a credit and one is a debit. Just know that a credit entry doesn’t necessarily mean money coming in and a debit doesn’t necessarily mean that money is going out. We’ll explain this more when we talk about the accounts your business needs.
The double-entry method is required if you wish to “balance your books” after a given period. If you sold a photo package and use double-entry accounting, you would make an entry to increase your cash account (because you have money coming in) plus an entry to increase your revenue account.
Recording Your Financial Transactions
Once you’ve decided on which methods are best for your business, you’re ready to start recording your financial transactions. Each transaction that you record is considered either a credit or a debit.
We’re used to seeing debits decrease our bank account balance and credits increase our balance for our personal accounts. That’s not necessarily the case with accounting. Whether a debit or credit increases or decreases the account balance depends entirely on what kind of account you’re hitting with the transaction.
There are five types of accounts that you can classify your transactions into:
Assets are what you own. A debit entry to an asset account will increase the balance and a credit entry will decrease the balance. Here are some common asset accounts:
- Cash on hand
- Equipment like your computer, lenses, lighting, and camera
- Accounts Receivables are bills that your clients haven’t paid you yet for your services
If you receive cash for your photography services, you would make a debit entry to your cash account to increase its value by the amount that you receive. Then, in a double entry accounting system, you would also need to make a credit entry in another account. In this case, you would likely credit revenue to show your sales increasing.
Liabilities are what you owe. A debit entry will decrease your liabilities while a credit entry will increase a liability account. Some common liability accounts include:
- Accounts payable for things you’ve been billed for but haven’t yet paid
- Prepaid service revenue if a client prepays for your services but you haven’t actually completed the work yet
- Loans payable if you took out loans for anything like equipment or maybe a studio space
When you are billed for a service but haven’t paid it yet, you can make a debit entry to your accounts payable account. For example, if you receive a bill for a venue space that you used for a photo shoot, you can debit your accounts payable account for the amount of the invoice. When you pay the invoice, you can make a credit entry to the accounts payable account. Then, in a double entry accounting system, you would credit your cash account. You’re reducing the cash account because money is going out of your business.
3. Revenue or Income
Revenue is the income you earn through sales for your photography services. Debit entries decrease a revenue account while credit entries increase a revenue account. You can create revenue accounts to categorize the different ways that you make income. Here are some examples that you might have:
- Portrait sales income
- Wedding session income
- Rental income if you rent out your studio space when you’re not using it
You can keep track of which types of photography services are making you the most money and which ones you might be better off without. When you earn income, you can make a credit entry to the appropriate revenue account to record it.