Also in this issue:

• Web Radio:
  Will It Pay To Play?
• Greening Of The Music Industry
• The IMA Buzz
• Making $$$$s and Sense
• April Happenings

Understanding Double Accounting

As a system of keeping track of things Double-entry accounting is incredibly useful, which is probably why just about every serious business venture since the Renaissance has used it.

Double-entry accounting basically means that there’s always a balance between your assets and the combination of your liabilities plus any money you’ve put into the business or that the business has made.

Everything counts as either a debit or a credit, though the dictionary meanings of debit and credit don’t apply. They just represent the different columns you put things in. Double-entry means that every time you enter something in the debit column you have to enter the same amount in the credit column to keep the two in balance. Let’s take a simple example. You buy a new overdrive pedal for $120.

This would seem like a straight case of cash going out. You keep a receipt and give it to your accountant on April 14th to write off. But double-entry accounting has a more nuanced view of what’s going on. You’re not just spending cash, you’re buying company assets. Therefore this affects two accounts, your cash account and your equipment account. Therefore the entries in ledger would read:

Date	Transaction	Debit	Credit
4/15	Equipment (guitar pedal)	$120
	Cash	$120

You’ll notice that spending cash is a credit to your cash account and this is where most people’s heads explode, but remember, you’re just talking about two different columns, not about the traditional meanings of the words "debit" and "credit".

The advantage of doing this is that now you know exactly what you spent the money on and that it’s accounted for in the assets that you own. Perhaps at the end of the year you find that you spent $3000 on equipment. You can see where all that money went and if that expenditure was justified or not.

The same holds true for money coming in. Let’s say you have a show at a local club and get paid $250. The next day you could give each band member $50, pay your phone bill, and forget the money ever existed. Or you could enter it as:

Date	Transaction	Debit	Credit
4/5	Cash	$250
	Performance Revenue		$250
4/6	Salary Expense	$200
	Telephone Expense	$50
	Cash	$250

Now you’re keeping track of all the money that came in, how it came in and where that money went. Remember, this entry is one of a long line of entries and each account is going to be individually tallied.

It’s useful to tally up your accounts monthly or at least quarterly. The yearly tallies that your tax accountant does doesn’t really give you as detailed a picture as you need. Eventually this data will help you make business decisions on how much money you need to charge and what your overhead is.

I recently took my band on tour for the first time. It was your typical somewhat depressing first tour; a week-long affair playing in places we’ve never played before to small crowds with all shows and publicity set up by us.

Here’s an entry from our day in Braddock, PA (just outside Pittsburgh. We played in a church owned by the mayor of Braddock. A great place to play actually though he was just in the process of starting the performance series there so the venue didn’t have a PA yet.)

Date	Transaction	Debit	Credit
8/10/06	Gas Expense	$21
	Cash		$21
	PA Expense	$100
	Cash		$100
	Cash	$370
	CD Revenue		$50
	Performance Revenue		$320

So we spent $21 on Gas, rented a PA for $100, made $320 from the performance and sold $50 of CDs (The mayor treated us to dinner and we were paying for our own breakfast and lunch on the tour so no food expenses that day.) for a total of $249 made that day (unless you amortize the van rental over the course of the week.)