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Cheat Sheet

Bookkeeping Workbook For Dummies (UK Edition)

Bookkeepers are the keepers of the cash and the crucial caretakers of all information about a company’s transactions. Whether you’re an owner keeping the books yourself or you’re an employee keeping the books for a small business owner, your job is critical for the smooth financial operation of the company. This Cheat Sheet gives you the essential, need-to-know information to keep handy as you perform this essential role.

Building Blocks of a Bookkeeping System

At the root of any system you’ll find the essential elements that form the basis of that system. In the world of bookkeeping, the three most fundamental building blocks to any bookkeeping system are:

  • Chart of Accounts: Lists all accounts in the books and is the road map of a business’s financial transactions

  • Journals: Place in the books where transactions are first entered

  • Nominal Ledger: The book that summarises all a business’s account transactions

Flow of Credits and Debits in Double-Entry Bookkeeping

In double-entry bookkeeping, you enter all transactions in the books twice: once as a debit and once as a credit. This chart shows you how debits and credits affect your various business accounts:

Account Type Debits Credits
Assets Increase Decrease
Liabilities Decrease Increase
Income Decrease Increase
Expenses Increase Decrease

Tracking Cash: Bookkeeping Musts after You Get the Money

Receiving incoming money is all well and good, but as a bookkeeper you need to remember to take certain steps after it arrives. You need to:

  • Record transactions in your books.

  • Track individual customer accounts.

  • Record any discounts that were offered.

  • Track any returns or allowances.

  • Collect from customers to whom you sell on credit.

  • Monitor customer accounts to be sure they pay on time.

  • Write off accounts from customers who just won’t pay.

Tips for Controlling Your Business Cash

If keeping the books is your responsibility, the good news is that you can implement the following function separations to control your business cash much more easily:

  • Separate cash handlers. Be sure that the person who accepts cash isn’t also recording the transaction.

  • Separate authorization responsibilities. Be sure that the person who authorizes a payment isn’t also signing the cheque or dispersing the cash.

  • Separate the duties of your bookkeeping function to ensure a good system of checks and balances. Don’t put too much trust in one person — unless it’s yourself.

  • Separate operational responsibility (actual day-to-day transactions) from record-keeping responsibility (entering transactions in the books).

Bookkeeping Ways to Value Your Stock

Bookkeepers use various methods for valuing stock. Your company must choose one method and follow that method all the time, in order to keep the tax man happy. Four ways in which you can do this are:

  • LIFO (Last In, First Out): Assumes last (most recent) item put on the shelf is the first product sold.

  • FIFO (First In, First Out): Assumes first (oldest) item put on the shelf is the first one sold.

  • Averaging: You don’t need to worry about what item came in first or last. Average the cost of stock when calculating stock value.

  • Specific identification: Track how much you paid for each individual item to determine stock value.

Key Steps in Keeping the Books

Any workflow or work process has its key stages or steps – a part of the process where you must remember to perform a certain action. In bookkeeping, the key steps are as follows:

  • Transactions: The purchases or sales of items start the process of bookkeeping.

  • Journal entries: Enter transactions into the books through journals.

  • Posting: Post journal entries to the Nominal Ledger.

  • Trial balance: Test accounts in the Nominal Ledger to see if they’re in balance.

  • Worksheet: Enter on a worksheet any account adjustments needed after the trial balance.

  • Adjusting journal entries: Post adjustments from the worksheet to affected accounts in the Nominal Ledger.

  • Financial statements: Prepare the balance sheet and income statement using the corrected account balances.

  • Closing: Close the books for the revenue and expense accounts, and start the entire cycle again with zero balances in both accounts.

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