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Double-entry bookkeeping (also known as 'double-entry accounting') is a commercial accounting system where business transactions are entered twice (hence 'double-entry'): transactions are posted to two accounts, the account and the contra account.
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Accounting systems normally fall into one of two categories: simple and double-entry bookkeeping.
In simple bookkeeping, all receipts and expenditures are recorded in chronological order. In other words, you simply record that you have received or spent money.
In contrast to simple accounting, in double-entry accounting all receipts and expenditures are entered not once but twice (hence the name 'double-entry' accounting): first, you record which account the transaction was applied to (account e.g. your bank account or the cash register). Second, you record what the money was used for (contra account e.g. travel expenses, office supplies, purchasing goods).
Not all Swiss companies are required to use double-entry bookkeeping. Companies that are required to use double-entry bookkeeping in Switzerland include
According to the Swiss Code of Obligations (OR) Article 957, sole traders and partnerships are only required to use double-entry bookkeeping if their annual turnover in the previous business year was at least CHF 500,000.
Although SMEs and self-employed people with annual turnover of less than CHF 500,000 are not required to use double-entry bookkeeping, it can still be worthwhile to do so. Find out why in the next section!
Simple bookkeeping (cash-basis accounting) can only show whether an account is running a profit or loss. Double-entry bookkeeping, on the other hand, is an important tool for a company's success. It has numerous advantages:
Remember: bexio makes double-entry bookkeeping simple, quick and easy - which means you can keep your accounts properly even without any previous knowledge. Perfectly tailored to the needs of SMEs, startups and self-employed people. Try bexio now for 30 days, free of charge and with no obligations!
The basis of double-entry bookkeeping is the balance sheet. The balance sheet is made up of accounts, which are split between an assets side and a liabilities side (net present value). The balance sheet must always be balanced, i.e. the assets and liabilities sides must ultimately have the same value.
When your company spends or receives money, these transactions must be posted to the appropriate account on the assets or liabilities side of the balance sheet. To ensure the balance sheet is balanced, each transaction is posted to two accounts instead of just one: once to show what the money was spent on and once to show where it came from.
This involves posting the entry once on the debit side and once on the credit side:
Remember: the debit side is always on the left and the credit side is always on the right of the account. The credit account is also known as a 'contra account'
The following simplified examples should help clarify double-entry bookkeeping:
Example: cash expenditure for office supplies
You buy office supplies for CHF 87.50. You pay in cash.
The following accounts are used:
In your bookkeeping program, you post CHF 87.50 to the credit side of the cash account (because it is a cash transaction and you have spent money) and to the debit side of the office supplies account. Both accounts are on the assets side of the balance sheet.
Example: settling receivables
A customer settles an invoice (receivable) for CHF 150.00 by bank transfer.
In your bookkeeping program you post CHF 150.00 to the debit side of the bank account (because you have received money by bank transfer) and the credit side of the receivables contra account (because a receivable was settled). Both accounts are on the assets side of the balance sheet.
With bexio you can do your double-entry bookkeeping online with just a few clicks - with a Mac, PC or tablet:
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