Bookkeeping Workbook For Dummies Cheat Sheet

Good bookkeeping comes down to a few core skills: controlling your cash, recording transactions accurately, and keeping your financial records in balance. This cheat sheet breaks down everything you need to know — from how double-entry bookkeeping works and what belongs in your Chart of Accounts, to the best methods for valuing your business inventory.

Bookkeepers maintain control of many key facets that facilitate the success of a business, such as cash control and tracking of where it goes. Double-entry bookkeeping helps keep things in balance. The bookkeeping system gives you the road map to keep things humming. Inventory control helps you manage the products the business sells.

How to control your business cash

You want to help the business owner keep an eye on where their cash goes. You need to keep strict controls over all cash that comes in and goes out.

• Separate cash handlers (whether by cash, credit, or checks). Be sure the person who records a transaction is not the same as the person who accepts the cash.
• Separate authorization responsibilities. Be sure the person who authorizes a payment is not the same person who signs the check or disperses the cash.
• Separate the duties of your bookkeeping function to be sure there is a good system of checks and balances. Make sure you don’t put too much trust in one person.
• Separate operational responsibility (actual day-to-day transactions) from recordkeeping responsibility (entering the transactions in the books). Different people should be in charge of these tasks.

Tracking cash: What to do after your business gets money

To maintain control of cash, you need to manage how cash is used in the many activities that keep the business operating. Here are some key functions to track the use of cash.

• Record transactions in your books.
• Track individual customer accounts.
• Record any discounts that you offered.
• Track any returns or allowances that you gave to customers.
• 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.

Credits and debits of double-entry bookkeeping

All transactions are entered in the books twice, once as a debit and once as a credit. The following chart shows how debits and credits impact your accounts:

The key parts of a bookkeeping system

There are three key parts that make up the core of the bookkeeping system: the Chart of Accounts, Journals, and the General Ledger. Keeping all these up to date is a critical function of the bookkeepers.

• Chart of Accounts: The Chart of Accounts serves as a road map to a business’s financial transactions. It lists all accounts in the books.
• Journals: Journals are the place in the books where you first enter transactions.
• General Ledger: The General Ledger is a book that summarizes all a business’s account transactions.

Key steps in keeping the books

Bookkeepers follow some key steps to maintain the bookkeeping system and track where the business’s cash goes. You don’t want to miss any of these steps.

1. Transactions: A transaction using cash starts the process of bookkeeping. Transactions are used to purchase goods or sell them for profit. This starts the process of bookkeeping.
2. ‍Journal entries: Transactions are first entered into the books through journals.
3. ‍Posting: Journal entries are then posted to the General Ledger.
4. ‍Trial balance: You must be sure the books are in balance. A Trial Balance of the accounts in the General Ledger is used to test their accuracy.
5. ‍Worksheet: After the trial balance test, adjustments may be needed to accounts to correct any balance issues.
6. ‍Adjusting journal entries: Then these adjustments from the worksheet must be posted to affected accounts in the General Ledger.
7. ‍Financial statements: The Balance Sheet and Income Statement are then prepared using the corrected account balances.
8. ‍Closing: Books are closed for the Revenue and Expense accounts, and the entire cycle is started again with zero balances in the Revenue and Expense accounts.

How to value your business’s inventory

Every business needs to report a value for the inventory on hand. The way that valuation is done can vary based on the type of business for which the inventory is being tracked.

• Last In, First Out (LIFO): This method assumes that the last (most recent) item put on the shelf is the first product sold. This method is common in a hardware store, for example, where the age of inventory doesn’t usually matter.
• First In, First Out (FIFO): This method assumes that the first (oldest) item put on the shelf is the first one sold. This method is common, for example, in a food store, where you want the oldest inventory sold first.
• Averaging: In this method, you don’t need to worry about what item came in first or last. You average the cost of inventory when calculating inventory value. If timing doesn’t matter, this method is the easiest way to track inventory purchases.
• Specific identification: In this method, you track how much you paid for each individual item to determine inventory value. This method is commonly used, for example, in a business selling cars, where identifying each unique vehicle when it’s sold is critical.