1 Bookkeeping

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Introduction to bookkeeping for start-up businesses in Ireland

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<p>www.hookhead.net</p> <p>BOOKKEEPINGRichard OCallaghan Hook Head Training and Consulting Limited</p> <p>Why Bookkeeping </p> <p>www.hookhead.ne t</p> <p>Finance is the language of business It allows you to price your product or service accurately Lets you know if you're making or losing money Cash flow the lifeblood of your business Work with bankers, suppliers, customers, investors, debtors, creditors etc. Let the tax authorities know how you're doing</p> <p>You and the Revenue</p> <p>www.hookhead.ne t</p> <p>The Revenue Commissioners require you to keep full and accurate records of your business The records you keep must be sufficient to enable you to make a proper return of income for tax purposes You must keep your records for a period of six years unless your Inspector of Taxes advises you otherwise</p> <p>www.hookhead.net</p> <p>TYPES OF BOOKKEEPINGManual or Computerised</p> <p>Question</p> <p>www.hookhead.ne t</p> <p>In what ways can you keep your business records?</p> <p>Important</p> <p>www.hookhead.ne t</p> <p>Irrespective of the type of bookkeeping system used the same information is recorded The choice of system has more to do with the nature of your business and the volume of transactions than anything else</p> <p>www.hookhead.net</p> <p>THE BASIC RECORDS</p> <p>The Books</p> <p>www.hookhead.ne t</p> <p>Over time a basic set of records or books has developed as the standard Books of prime entry: Sales</p> <p>Daybook Purchase Daybook Cash Book Journal</p> <p>Purchases DaybookDate Inv. No. 1 2 3 4 5 Total s Supplier Total VAT Purchases Purchase Returns 100.00 200.00</p> <p>www.hookhead.ne t</p> <p>8.10 9.10 9.10</p> <p>James Kirkpatrick ESB Mary Smith James Kirkpatrick Cash Purchases</p> <p>121.00 242.00 10.00</p> <p>21.00 42.00 0 (4.20)</p> <p>20.00 50 350.00 (20.00)</p> <p>60.5 433.50</p> <p>10.50 69.3</p> <p>Sales DaybookDate Inv. No. Customer Total</p> <p>www.hookhead.ne t</p> <p>VAT</p> <p>Sales</p> <p>Sales Returns</p> <p>11.10 1 12.10 2 15.10 3 4 5 Total s</p> <p>McGrath &amp; Daley Grant Holdings Grant Holdings</p> <p>363.0 0 121.0 0</p> <p>63.00 21.00 (10.5)</p> <p>300.00 100.00 50.00</p> <p>484.0 0</p> <p>73.50</p> <p>400.00</p> <p>(50.00 )</p> <p>Use of the Purchases and Sales Daybook </p> <p>www.hookhead.ne t</p> <p>Every business purchase and sale is entered in these books This includes both goods and services Includes purchases and sales where money has not changed hands i.e. on credit Division between purchases for resale and other purchases May</p> <p>require other columns</p> <p>Discounts allowed and discounts received This will form the basis of your accounting records</p> <p>www.hookhead.ne t</p> <p>Cash BookCash BookDate Foli o C ash B ank Date Foli o C ash B ank</p> <p>1/10 9/10 9/10 15/1 0</p> <p>Capital J McCarth y Cash Cash Sales SL2 C GL5 800 500</p> <p>2 000</p> <p>3/10 9/10 25/1 0 31/1 0</p> <p>Rent Bank Wages ESB Bal C/D</p> <p>GL3 C GL6 PL2</p> <p>500 300 750 300 500 1 300 1 250 2 300</p> <p>300</p> <p>1/11</p> <p>Bal B/D</p> <p>1 300 500</p> <p>2 300 1 250</p> <p>www.hookhead.ne t</p> <p>Cash BookCash InDate Foli o C ash</p> <p>Cash BookB ank Date</p> <p>Cash OutFoli o C ash B ank</p> <p>1/10 9/10 9/10 15/1 0</p> <p>Capital J McCarth y Cash Cash Sales SL2 C GL5 800 500</p> <p>2 000</p> <p>3/10 9/10 25/1 0 31/1 0</p> <p>Rent Bank Wages ESB Bal C/D</p> <p>GL3 C GL6 PL2</p> <p>500 300 750 300 500 1 300 1 250 2 300</p> <p>300</p> <p>1/11</p> <p>Bal B/D</p> <p>1 300 500</p> <p>2 300 1 250</p> <p>The Cash Book Cash </p> <p>www.hookhead.ne t</p> <p>Shows payments and receiptsout and cash in</p> <p>Payments analysed as Total,</p> <p>Purchase Ledger, VAT, Other Expenses (columns as required). Sales Ledger, VAT, Other Income (columns as required)</p> <p>Receipts analysed as Total,</p> <p>The Journal</p> <p>www.hookhead.ne t</p> <p>Journal entries can be used to record information that does not go elsewhere It is also used to correct mistakes It is part of the double-entry system</p> <p>www.hookhead.net</p> <p>THE DOUBLE ENTRY SYSTEMDebits and Credits</p> <p>The Double Entry System DR CR</p> <p>www.hookhead.ne t</p> <p>Asset Expense</p> <p>Liability Income</p> <p>Reductions in value are entered on the opposite side of the account</p> <p>The Double Entry System</p> <p>www.hookhead.ne t</p> <p>All transactions entered must have at least one debit and one credit The total value of the debits and credits for a transaction must always be of equal value</p> <p>There is nothing else to it</p> <p>Asset</p> <p>www.hookhead.ne t</p> <p>An asset is something owned by the business Stocks Debtors Bank</p> <p>and cash Buildings Vehicles Machinery Investments</p> <p>Liability</p> <p>www.hookhead.ne t</p> <p>A liability is something we owe Creditors Bank</p> <p>Loans Overdraft Capital</p> <p>Income</p> <p>www.hookhead.ne t</p> <p>Amount earned in a period irrespective of when the payment is made Sales Grants</p> <p>received Interest on bank account Returns on investments Sales of fixed assets</p> <p>Expense</p> <p>www.hookhead.ne t</p> <p>Amount of goods and services used in a period irrespective of when they are paid for Purchases Rent Rates Wages</p> <p>and Salaries Travel expenses Insurance Electricity and telephone</p> <p>Purchases/Sales Ledgers</p> <p>www.hookhead.ne t</p> <p>One account for each supplier (purchases) or customer (sales) Each invoice in the purchases or sales daybook is posted to the appropriate account in the purchases or sales ledger Payments are posted from the cashbook</p> <p>Entering Transactions</p> <p>www.hookhead.ne t</p> <p>Determine whether an event should be recorded in the accounting records at this time If</p> <p>yes, determine which accounts are affected Determine whether each account affected is increased or decreased by this transaction</p> <p>Can require an amount of professional judgment in the real world You</p> <p>might have to ask your accountant how to deal with some transactions</p> <p>www.hookhead.net</p> <p>RECONCILIATIONSPurchase and Sales Ledger Cash and Bank</p> <p>Purchase and Sales Ledger</p> <p>www.hookhead.ne t</p> <p>Add up all the ledger accounts (posted from the daybook and cashbook line items) Compare the total with the general ledger control accounts (posted from the daybook and cashbook totals)</p> <p>Bank Reconciliation</p> <p>www.hookhead.ne t</p> <p>Usually there are timing differences between when data is entered in the banks systems and when data is entered in your system and this results in a discrepancy between your balances and the banks balances The goal of reconciliation is to eliminate these timing differences Once this is done any remaining discrepancy is due to error rather than timing</p> <p>Causes of Difference Lodgements</p> <p>www.hookhead.ne t</p> <p>not yet appearing in the bank</p> <p>statement Cheques written on your account(s) not yet appearing in the banks records Bank interest not yet recorded in your books Bank charges not yet recorded in your books Direct debts not yet recorded in your books</p> <p>The Bank Reconciliation Process</p> <p>www.hookhead.ne t</p> <p>Amend your records for those items correctly appearing on your bank statement, but not yet recorded in your books Do bank reconciliation statement Add</p> <p>in cheques/payments received not yet credited Remove cheques written not yet presented</p> <p>Undertaking a Reconciliation</p> <p>www.hookhead.ne t</p> <p>Cash Book Balance Add</p> <p>direct credits not yet written Less direct debts</p> <p>Amended cash book balanceAmended CB balance equals BS balance</p> <p>Bank Statement balance Add</p> <p>receipts not yet lodged/credited Less cheques not yet cashed</p> <p>True cashbook balance</p> <p>www.hookhead.net</p> <p>COMPUTERISED ACCOUNTING SYSTEMSUsing IT to keep the books</p> <p>Accounting and IT</p> <p>www.hookhead.ne t</p> <p>Huge developments in the last number of years Basic packages very cheap Free open source products also available Quite easy to use Examples Sage,</p> <p>Red Books, MYOB, TAS Books, Intuit, QuickBooks</p> <p>Basic Accounts System </p> <p>www.hookhead.ne t</p> <p>Customers and sales ledger Suppliers and purchasers ledger Accounts and nominal ledger Cash and bank VAT Minimum Reports</p> <p>Other Software Requirements</p> <p>www.hookhead.ne t</p> <p>Payroll Most</p> <p>firms will have employees so will need to pay them</p> <p>Receipts and invoicing Statements Marketing and analysis Multi-Currency Multi-Company Sales and purchase orders Stock Control eBanking </p> <p>www.hookhead.net</p> <p>WHERE TO NEXT?</p> <p>The Books are Done, Now What?</p> <p>www.hookhead.ne t</p> <p>The books are done, we are now moving to the creation of the accounts</p> <p>Assets Expenditure Receipts</p> <p>Liabilities Income Payments</p> <p>Balance Sheet Profit and Loss Account Cash Flow Statement</p> <p>End of Period Procedures</p> <p>www.hookhead.ne t</p> <p>Trial Balancea listing of all general ledger accounts, with balance total debits must equal total credits</p> <p>if not, must correct errors before proceeding further</p> <p>Adjusting journal entries</p> <p>record end of period adjustments that are not supported by transactions</p> <p>Operating Statement</p> <p>www.hookhead.ne t</p> <p>The difference between costs &amp; income Profit</p> <p>&amp; loss accounts (commercial) Income &amp; expenditure accounts (I &amp; E) </p> <p>Shows where the resource was spent Covers a period of time Matches expenses and income to time period</p> <p>Basic Profit and Loss AccountIncome Pay expenses Non-Pay expenses Net Surplus/(Deficit) Previous surplus/(deficit) b/f Retained Surplus To Balance Sheet X (X) (X) X X X</p> <p>www.hookhead.ne t</p> <p>The Balance Sheet</p> <p>www.hookhead.ne t</p> <p>Is a position statement which evaluates wealth at a point in time. It considers capital costs. Consists of assets and claims on those assets Assets (owned) Fixed liabilities Current Liabilities Current Loans Owners capital</p> <p>The Balance Sheet</p> <p>www.hookhead.ne t</p> <p>Fixed Assets Current Assets Stock Debtors Cash 150 250 600</p> <p>1000</p> <p>200</p> <p>Current Liabilities Creditors 150 Overdraft 250 Net Working Capital Capital Employed Long Term Loans Capital Original Owners Retained surplus</p> <p>(400) 1200 (300) 900 700 200 900</p> <p>200</p> <p>Cash Flow Statement</p> <p>www.hookhead.ne t</p> <p>Record of cash in and cash out for a period Net</p> <p>Cash inflow from operating activities Dividends received Returns on investment and servicing of finance Taxation Capital expenditure Sales of fixed assets Investments in subsidiaries, joint ventures and associated undertakings Equity Dividends paid Financing</p> <p>www.hookhead.net</p> <p>CONCLUSION</p> <p>Conclusion </p> <p>www.hookhead.ne t</p> <p>Finance is the language of business Bookkeeping is the first step in the communications process Need to keep minimum records</p>