Overview
Beeswax uses double-entry bookkeeping, the standard method used by businesses worldwide. Understanding the basics helps you make sense of your accounts, even if your accountant handles the details.
This guide covers the fundamentals of how double-entry accounting works and why it matters.
Double-Entry Accounting
Every financial transaction in Beeswax is recorded in two accounts. This is the core principle of double-entry bookkeeping — for every debit, there is an equal and opposite credit. The total of all debits must always equal the total of all credits.
For example, when you receive a payment from a client:
- Your Bank Account (an asset) is debited (increases)
- Your Accounts Receivable (an asset) is credited (decreases)
This ensures your books always balance and provides a complete audit trail of where money comes from and where it goes.
Account Types
There are five fundamental account types in accounting. Each type behaves differently when debited or credited.
| Account Type | Debit Effect | Credit Effect |
|---|---|---|
| Asset | Increases | Decreases |
| Liability | Decreases | Increases |
| Equity | Decreases | Increases |
| Revenue | Decreases | Increases |
| Expense | Increases | Decreases |
Why It Can Be Confusing
A common source of confusion is that bank statements appear to show the opposite of what you might expect. When your bank shows a "credit" to your account, it means your balance has gone up.
This is because your bank statement is written from the bank's perspective, not yours. To the bank, your deposit is their liability (they owe you that money), so they credit their liability account, which increases it.
From your perspective as the account holder, that same deposit is a debit to your asset account, which also increases it. Both sides are correct — they are just looking at the same transaction from different angles.
A Simple Memory Trick
To remember which accounts increase with debits and which increase with credits:
Debits increase:
- Assets
- Expenses
Credits increase (debits decrease):
- Liabilities
- Equity
- Revenue
Note: You do not need to memorise all of this to use Beeswax effectively. When you create invoices and expenses, Beeswax handles the double-entry postings automatically. This guide is here to help you understand what is happening behind the scenes.
Cash vs Accrual Accounting
There are two methods for recognising revenue and expenses:
- Cash basis — Revenue is recorded when payment is received, and expenses when payment is made. Simpler to manage and gives a clear picture of actual cash flow.
- Accrual basis — Revenue is recorded when earned (e.g. when an invoice is issued) and expenses when incurred, regardless of when payment happens. Gives a more accurate picture of profitability over time.
Independent Reporting Methods
In Beeswax, you can set these two methods independently:
| Setting | What It Controls |
|---|---|
| VAT Reporting Basis | How VAT or VAT is calculated on your VAT returns |
| Income Tax Reporting Basis | How revenue and expenses appear on your Profit & Loss report and annual tax return |
It is very common for businesses to use Cash basis for VAT and Accrual basis for income tax. While this may seem counter-intuitive, the two reporting obligations are governed by completely separate legislation and are independent choices.
Tip: If you are unsure which combination to use, speak to your accountant. Note that UK limited companies must use Accrual for corporation tax, but can choose Cash or Accrual for VAT independently.