Accounting? You can do it! Follow the 10 steps

All companies are required to record all transactions affecting their assets and activities.

Each accounting entry is necessary not only to trace the flow of activity, but also to draw up a standardized, reliable and faithful picture of the company's financial situation.

Whether you're already used to it, or you're doing it for the first time, if you're here, it's because bookkeeping is one of your missions, and you're looking for accounting advice. So, how do you record accounting transactions? How do you fill in the accounting journal, and how do you enter an invoice?

Follow this guide, co-written with Raphael Berguig, certified accountant and statutory auditor at Nexco!

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Accounting entries: definition

An accounting entry consists of recording each incoming or outgoing transaction in your accounts, with an entry in one of the accounting journals.

All accounting entries are then used as the basis for calculating profit and loss and the balance sheet.

There is no legal requirement as to who should make the accounting entries. While it is not necessarily necessary to have a degree in accounting, it is useful to know a little about bookkeeping.

Nevertheless, depending on the type of business, this task is generally performed by either :

• the company manager, in the case of a very small structure,
• the accountant or accounting department,
• a chartered accountant.

How do you record accounting transactions?

Step 1: Collect supporting documents

By law, every purchase or sale must be accompanied by an invoice. And when you make an accounting entry, you need to be able to justify each entry with the corresponding supporting document in the event of an audit by the tax authorities.

In addition to sales and purchase invoices, there are also :

• the must invoice, which is a credit note recording a debt owed by the customer to the supplier,
• and the credit note, which is a credit note recording a debt owed by the supplier to the customer.

These invoices enable potential discrepancies between invoice and reality to be rectified, either in the case of a commercial discount granted a posteriori (if delivery is late, for example), or in the case of a return of goods.

👉 There are, however, a few exceptions, which do not exempt you from presenting any document enabling you to justify a purchase or sale in the event of a tax audit: weight sheet, output sheet, slip, bank statements, cash blotter, etc.

A word from the Expert

The rigorous collection of supporting documents is essential to ensure the transparency and verifiability of every accounting entry. This includes not only purchase and sales invoices, but also other documents such as bank slips and statements, which are essential in the event of a tax audit.

Raphael Berguig,

Step 2: Choose the journal

If you opt for the single journal, also known as the centralizing journal, you will be able to record all your operations, whatever their nature, in the same journal. This means you can record all purchases, sales, bank and cash transactions, etc., in the same journal.

But the most common option is to use different subsidiary journals to separate operations according to their type:

• The sales journal, for sales of merchandise, finished goods and services.
• The purchase journal, for purchases of merchandise, raw materials and certain overheads.
• The cash journal, to record commercial transactions linked to the cash register. It is essential for retail businesses and sales to the general public.
• The bank journal, for movements on your bank account. It is particularly useful at the end of each month for bank reconciliations.
• The miscellaneous operations journal (OD), for operations not related to sales, purchases or cash flow.

A word from the Expert

The choice of accounting journal influences the organization and efficiency of transaction tracking. Using specific journals for different categories of operations, such as sales or purchases, enables better segmentation and more precise analysis of financial activities.

Raphael Berguig,

Step 3: Enter the elements of the accounting entry

So, what does an accounting entry actually consist of? The following elements must be entered:

• the date,
• the debit amount
• the credit amount,
• the transaction title,
• the account number of the transaction,
• voucher number.

Forgetting one of these elements can have a considerable impact on your accounting records. To make sure you don't leave anything out, equip yourself with accounting software: in addition to automating your accounting records, it saves you precious time in your accounting and administrative management.

• Indy, for example, is the benchmark accounting software for the self-employed . Ultra-simple to use and fully customizable, it synchronizes with your bank and automatically analyzes and classifies your transactions in the right accounting accounts, ensuring that your accounting records and profit and loss statements are clear and accurate.You'll also benefit from tax returns and pre-filled VAT returns, automatically uploaded to your AGA or CGA and to the tax authorities, for a one-click tax close.
  
  
• We should also mention Regate, the benchmark accounting and financial management software for SMEs and chartered accountants. Designed as a true financial cockpit, Regate lets you automate invoicing, easily retrieve receipts and perform bank reconciliations in just a few clicks. 100% integrated with your usual production software, Regate automatically generates the right accounting entries.

A word from the Expert

Each entry must clearly show the date, debit and credit amounts, transaction title and voucher number. Accuracy here is essential to maintain accounting integrity and facilitate audits.

Raphael Berguig,

Step 4: Follow accounting principles

Recording an accounting entry is a relatively straightforward operation. However, there are a few accounting principles to be observed:

1. record transactions in chronological order;
2. follow double-entry bookkeeping, which means that the debit and credit columns must balance;
3. use the reverse entry to cancel an entry, then enter a new entry if necessary;
4. each accounting entry must refer to a numbered supporting document to provide proof of its existence.

A word from the Expert

Respecting the principles of double-entry bookkeeping and the chronological recording of transactions are fundamental to accurate, reliable accounting. This ensures that all accounts are balanced, and that records accurately reflect the economic reality of the company.

Raphael Berguig,

Step 5: book a purchase invoice

How do you book a purchase invoice?

1. Locate the following items on the invoice: amount before tax, amount including VAT, amount including VAT (and any other charges such as shipping costs).
   
   
2. Record them in the corresponding accounts:
   • credit Suppliers account for amount incl. VAT.
   • debit account 4456 deductible VAT for the VAT amount,
   • debit the purchase expense account (class 6) for the amount excluding VAT.
     
     
3. Then record the corresponding bank transaction when the debt is paid:
   • debit account 401 Suppliers for the amount incl. VAT,
   • credit account 512 Bank for the amount incl. VAT.

Step 6: Enter a sales invoice

How do I enter a sales invoice?

1. Locate the following items on the invoice: amount excluding VAT, amount including VAT, amount including VAT (and any other charges such as shipping costs).
   
   
2. Record them in the corresponding accounts:
   • debit the revenue account (class 7) for the amount excluding VAT,
   • debit account 4457 Collected VAT for the VAT amount,
   • credit the Customer account for the amount incl. VAT.
     
     
3. Then record the corresponding bank transaction when the debt is paid:
   • credit account 411 Customers for the amount incl. VAT,
   • debit account 512 Bank for the amount incl. VAT.

Step 7: book a discount

For the customer to book a discount obtained from a supplier, you must :

1. debit account 401 Suppliers,
2. credit account 765 Cash discounts obtained,
3. credit account 44566 VAT on other goods and services.

For the supplier to record a discount granted to a customer, you must :

1. credit account 411 Customer,
2. debit account 665 Discounts granted,
3. debit account 44571 output VAT.

Step 8: Record a supplier credit note

Making a credit note to correct the difference is therefore common practice. But how do you book this credit note?

During the accounting period

Recording a discount

1. debit account 4011 Suppliers - Purchases of goods and services,
2. credit account 44566 Input VAT on other goods and services,
3. credit account 609 Rebates and discounts on purchases,
4. ensure at year-end that account 609 is balanced and that the amount has been transferred to the purchase account.

👉 In the case of a fixed asset, debit account 4041 and credit accounts 44562 and the relevant class 2 account.

Posting a return

Credit the credit note to the expense account debited at the time of purchase.

At year-end

In other words, when the credit note will not be received until the next accounting period.

Accounting for a discount or return

1. debit account 4098 Discounts, rebates and other credit notes not yet received,
2. credit account 44 586 Sales tax on invoices not yet received,
3. credit the corresponding class 6 account.

Step 9: book a customer credit note

How do you book a customer credit memo?

During the financial year

Recording a discount

1. debit account 709 Discounts and rebates granted by the company,
2. debit account 44571 VAT collected,
3. credit account 4111 Customers - Sale of goods or services,
4. at year-end, ensure that account 609 is balanced and that the amount has been transferred to the purchase account.

👉 In the case of fixed assets, debit accounts 775 and 4571, and credit account 4111.

Accounting for a return

Debit account 672 Exceptional charges from previous years.

At year-end

Recognition of a discount or return

1. debit the corresponding class 7 account,
2. debit account 44587 Sales tax on invoices to be issued,
3. credit account 4198 Rebates, discounts and other credit notes to be issued.

👉 If accounts receivable are in credit at year-end, adjust by debiting account 4111 and crediting account 4197.

Step 10: Recording the appropriation of earnings

Recording a loss

If you are faced with a loss at year-end, you will need to carry the loss forward to the following year.

1. debit account 119 Deficit carried forward,

2. credit account 129 Loss for the year.

Accounting for a profit

When the company generates profits at the end of the fiscal year, it must allocate them :

• to the legal reserve (minimum 5% of profits),

• to other optional reserves (such as the statutory reserve),

• dividends to be paid to shareholders.

Here's how to proceed:

1. 1. debit account 120 Profit for the year,
   2. credit account 1061 Legal reserve,
   3. credit (as appropriate) account 1068 Other reserves,
   4. credit (as appropriate) account 457 Dividends payable,
   5. credit (if retained earnings debit in year N-1) account 119 Retained earnings debit.

Example of an accounting entry

Let's take the example of a company with a buy-and-sell activity. This allows us to see both purchase and sale entries:

• it buys a stock of goods from its supplier worth €5,432.89 excluding VAT,

• then resells each unit to its customers at €49.90 incl. VAT.

💡 Are you sometimes unsure which accounts to record your expenses and income in? Consult our article dedicated to the general chart of accounts and download our PCG.

Purchase accounting entry

Accounting entry for the bank transaction corresponding to the purchase

Accounting entry for a sale

Accounting entry for the bank transaction corresponding to the sale

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Software to automate accounting entries

All those accounting entry mechanisms seem a little complex to you? We understand!

So why not use software to make this tedious task easier? By automating processes such as accounting entries and bank reconciliations, you can :

• save time,
• reduce errors,
• make verification and control work easier.

A word from the Expert

Automating accounting records through software such as Indy or Regate simplifies data entry, reduces errors and increases efficiency. These tools also facilitate tax compliance and bank reconciliation, making monthly and annual closings smoother.

Raphael Berguig,

Here are just a few examples:

• Dext is a pre-accounting software package that not only collects and centralizes your purchase invoices, but also converts all data into accounting entries, to facilitate your records. It can handle a very large volume of supplier invoices, and integrates perfectly with your accounting management solution.
  
  
• iPaidThat is accounting automation and management software that will make your day-to-day life a whole lot easier. Thanks to artificial intelligence and machine learning, it collects your invoices, performs accounting entry and bank reconciliation, all automatically. It's a highly efficient and reliable tool that's incredibly easy to use.
  
  
• Macompta.fr is an online solution designed for the self-employed and very small businesses. Easy to use and offering good value for money, it automates a wide range of operations, including accounting and bank reconciliation. The platform' s comprehensive range of advanced functions (e.g., balance sheet and profit and loss statements) also takes care of cash management and tax returns.
  
  
• Pennylane is a complete accounting software package perfectly adapted to the needs of SMEs and their accountants. On the accounting side, the tool automates your operations to the maximum and reduces manual actions. So you can focus more on higher value-added tasks! But Pennylane goes even further, taking care of all management tasks (invoicing, purchasing, etc.) and cash flow management. As a result, you save precious time and make better financial decisions.
  
  

• QuickBooks will save you time on your accounting! This software, dedicated to the self-employed, small and medium-sized businesses, automates your accounting processes: from entering expenses, to monitoring budget forecasts, recurring payments and bank reconciliation. Take advantage of free customer support to get to grips with the tool at its full potential.
  
  

• Sage Business Cloud Compta is a 100% cloud software solution tailored to the needs of small and medium-sized businesses. As well as giving you the benefit of Sage's solid expertise, the solution saves you precious time. For example, it automates the generation of purchase, sales and cash flow entries (importing your invoices and bank statements), as well as their control and validation. All with a modular, easy-to-use tool.
  
  

• Spendesk is a centralized solution for managing company expenses. It automates data entry, invoice collection and bank reconciliation, and interfaces with your accounting software to export your data in a single click, with the peace of mind of having reliable data and all the supporting documents associated with your expenses.

Check out our comparison of the best accounting software to find the right tool for your needs and budget.

It's also possible to use an online chartered accountant, an online accounting management solution that includes both an automation tool and personalized support from an expert.