# Double Entry Accounting

## A basic overview of the accounting equation and how it is used in Profit Diagnostix

Assets = Liabilities + owners equity

including the profit and loss

Assets+expenses=liabilities+equity+revenue

## Instructions

1. Most Veterinary practices use a Cash accounting system. This recognises revenue and expenses when funds are exchanged.
Accrual accounting requires recording revenues when they are earned and not when they are received in cash, and recording expenses when they are incurred and not when they are paid.

2. Firstly the only true accounting account types are:

Assets, Expenses,Liabilities,Equity,Revenue

Anything else is simply the accounting software developers breaking this rule which is actually wrong.

3. Cost of sales is actually an expense. It is separated to calculate the gross profit from revenue. These are items that the business purchases and sells on to clients.
Usually included → Drugs, consumables, merchandise, laboratory fees and cremation fees

4. Other income in Profit diagnostix is actually just income .

5. Other expenses are actually just expenses. Expenses are all the other costs involved in producing the sales including wages, rent, interest and other running costs. In PD we separate some of these expenses to

6. Assets can also have many categories, but they are just 'assets'. eg fixed assets, non-fixed assets etc, etc.

7. Assets+expenses=liabilities+equity+revenue

adding all the accounts and transactions in any accounting system, the sum of everything on the left always equals everything on the right - that is the magic of accounting

The left is called a Debit (DR) or the debit side of the equation

the right is called a credit (CR) or the credit side

If I debit anything on the left of the equation then it is positive

eg DR Assets \$100 then its positive

If I credit anything on the left then its negative eg CR assets \$100 then this is -\$100 to assets

Opposite applies to the right of the equation

CR a liability \$100 this adds \$100 to liabilities

DR a liability by \$ 100 subtracts

In practice this is what would happen

I loan \$100 to buy some equipment.

Equipment is an asset, a loan is a liability.

DR \$100 to assets - I have \$100 more assets

CR \$100 to liabilities - I have more loaned

The left and right side of the equation are equal for EVERY single transaction

Example 2 I pay off \$10 of the loan from my bank account (a bank account is an asset)

DR liabilities - minus\$10 from the loan

CR assets - minus \$10 from my bank account