Introduction
Cash is the most liquid asset that a company can have, and it is also a current asset and this means that it is an asset that the business will use within less than one year. Cash will include paper currency, coins and funds in a savings or a current account. It can also include money orders and travelers’ checks. Cash is sued by your business to purchase inventory, supplies and equipment. It can also be used to buy real estate. This is the reason why any business needs to be able to document the amounts that are being deposited in its bank account in terms of credit and debit.
Step 1
Bank deposits need to have the date of the transaction in the bank ledger of your business. To support the date that this transaction was made, you need a cash receipt that will be issued by the bank where you made the deposit. The cash receipt by the bank will indicate the date that you made the cash deposit. You will need to indicate next to the date of the transaction that this was a cash transaction and you can do this by having the word “cash” written next to the date of the transaction. This will inform everyone concerned that a cash deposit has been made. This is to credit the bank.
Step 2
When money has been deposited into the bank account of your business there are some accounts that need to be debited and there are others that need to be credited. There is usually some confusion among business persons who do not have any accounting knowledge. This is because when these people return from the bank, the teller will have told them that their bank account has been to credit with some money. Does this mean that you also have to credit your cash account to this effect? Lets us have a closer look at such a situation of ho to credit.
Step 3
By crediting your bank account, it means that the bank teller has increased the amount of money in your bank account. This means that the closing balance of your bank account will increase by the amount of money that you have deposited. If the bank debits your bank it means that your bank balance will reduce. However, in accounting the opposite is what happens. If we choose to credit an account, it means that the closing balance will reduce, while debiting an account meant that we are increasing the balance.
Step 4
This means that the two accounts that you will need to credit deposits to your bank account ledger are the bank account ledger account and your cash account ledger account. In the bank account ledger, you will debit the bank account as opposed to crediting it like your bank teller did. You will also need to credit your cash account because you have removed money from your cash account and taken it to your bank. In accounting language, we say to credit the account that is contributing something while we debit the account that is receiving something. You can learn more about this by joining an accounting class.
