Hey, this is Alex from the Aplos Academy today we're gonna take a look at
transactions what they are how and when you record them and how they impact your
nonprofit accounting system if you've created a non-profit chart of accounts
and are ready to record transactions this is the course for you what are
transactions in the previous lesson we learned what accounts are and how you
set them up to represent the five areas of accounting the money that you have o
receive spend and your overall work these accounts are given value by
recording transactions which are essentially the happenings within your
organization receiving money spending money paying bills and transferring
money in between your banks are all examples of transactions that happen on
a daily basis for your nonprofit so how do you record transactions using your
accounts before we dive into the format I want to tell you about the
relationship between the types of accounts once you understand this
everything else becomes a lot easier to deal with accounts work together in a
system which is called double entry accounting which basically means in
every transaction there's gonna be two sides one side is called debit and the
other side is called credit so before we move forward forget everything you know
about the terms debit and credit it doesn't mean your debit and credit cards
and it doesn't even necessarily mean debiting or crediting an account in
accounting debit and credit means something completely different than what
you've ever learned you're welcome there are five types of accounts and each one
is increased or decreased by a debit or credit if you're increasing an asset or
an expense account you would use the debit column and for increasing
liabilities income and equity you would use the credit column every transaction
has a debit and a credit amount and these amounts will always equal each
other let's take a look at an example so you can see how this actually plays out
so let's say you go to the store and you buy some supplies some paper pens
stapler that all amount to about 50 when recording this purchase you're
going to use one of your expense accounts since they're used when you
record spending money so YouTube the expense account office supplies since
expense accounts are increased by debits you're going to put the $50 in the debit
column next to the office supplies account so what is the other side of
this transaction when we're doing double entry accounting well if you purchase
these supplies with money from your checking account your checking balance
is being reduced therefore the other side of this transaction would be your
asset account checking for the credit amount of $50 again since the expense
account is being increased it's going to be on the debit side and since the asset
is being decreased it's on the credit side debit is 15 credit is 50 they both
equal each other there's your transaction so welcome to
recording transactions this process is called double entry bookkeeping and it's
a necessary part to any accounting system let's take a look at one more
example this time using income so let's say you received a donation for $100
this is money that's being received by your organization therefore it's
considered income the income account you're going to use is called
contributions and since it's increasing an income account it's going to be in
the credit column so again what are the other side of this transaction using
double entry accounting well if you're depositing the money into your bank
account in other words you're checking that would be the other side of the
transaction so since assets are increased by debits
you can see that this works out in our transaction so your income is increased
by the credit side the assets are increased by the debit side the debits
and credits balance each other so as you record transactions for your nonprofit
remember the chart that we used a couple of minutes ago remembering this chart is
going to be essential if you ever need to figure out the double entry
accounting system so how do you record these transactions this is going to
happen one of two ways either by hand or through the use of some sort of software
obviously software is easier but if you do it by hand you need to understand two
things the general journal and the general ledger the general journals
where you're going to manually record the transactions like the examples we
mentioned earlier you're going to record both accounts that are used and their
debit and credit sides and you might also want to record some other
information like the date where you purchase something who gave you money or
any other details once you have the transaction recorded in the journal you
would record the account details in the general ledger the ledger
is a further breakdown of your account balances and the sum of your
transactions so that's where we're gonna stop for today on the recording
transactions by hand by now you're probably going a little cross-eyed the
journal and the ledger of both entirely replaced by software which makes the
whole process infinitely easier software allows you to record transactions with
all the details that you need plus they usually have screens that are a lot
easier to use so you don't even have to do double entry accounting you'll record
one account that you're using and they'll automatically do the other side
of it for you plus it will automatically keep your account balances up to date
which will allow you to run reports which we'll cover in the next lesson so
as a nonprofit when you look for accounting software make sure that it
has these three things fund accounting nonprofit reporting and integrated
donations so what's next now that we've learned how to structure a chart of
accounts and record transactions it's time to see how everything boils down in
what's called generating reports we're going to take a look at the two most
commonly generated reports plus the reports that you need as a nonprofit as
per the IRS guidelines until next time make sure to read the content below
because it's going to go into a lot more detail on what we covered today plus if
you're interested in nonprofit accounting software be sure to try
Aplos' 15-day free trial to see how simple this whole process can be