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Guesty’s accounting solution uses a method called double-entry bookkeeping, where each transaction recorded in an account requires a corresponding transaction in a different account. A combination of credits and debits are created automatically in Guesty to achieve this.
An increase in an asset account creates a debit transaction, while a decrease creates a credit transaction.
An increase in a liability account creates a credit transaction, while a decrease creates a debit transaction. See examples of relevant debit and credit transactions below.
Payment from a Guest
- A debit transaction in the Cash account. This indicates that money was received from the guest.
- A credit transaction in the Advanced Deposits account. This indicates that the guest is owed an equivalent service for their payment.
During the Reservation
- A debit transaction in the Advanced Deposits account. This indicates that the guest has consumed the service they have paid for and they are no longer owed funds from the trust account.
- A credit transaction in the Owners account. This indicates that the owner is owed their share of the reservation from the trust account.
- A credit transaction in the Accounts Payable (PMC, Vendors, Tax) account. This indicates that the relevant parties are owed their share of the reservation from the trust account.
Payment to an Owner
- A credit transaction in the Cash account. This indicates that money is transferred from the trust account to the owner.
- A debit transaction in the Owners account. This indicates that the owner has been paid their share of the reservation from the trust account.
Payment to Property Management Company, Vendors, and Tax Authorities
- Credit transactions in the Cash account. These indicate that money was transferred from the trust account to the property management company, the vendors, and the tax authorities.
- Debit transactions in the Accounts Payable (PMC, Vendors, Tax) account. These indicate that the property management company and the vendors have been paid their share of the reservation from the trust account and that the reservation's taxes have been submitted to the tax authorities.
Bank Reconciliation
A bank reconciliation is a process that compares the cash balance on a company's journal entries in the books to the transactions on its bank statement. Reconciling the two accounts helps identify whether accounting changes are needed.
Bank reconciliations are done regularly - every month, every week or even every day - to ensure the company's cash records are correct. This is a critical process for any company as it's the best way to validate that the company received all the income it was expecting to receive.
This process is also mandatory in most countries by the tax authorities and it is regulated. After a successful reconciliation, the company's ending cash balance should match the bank balance.
