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BOOKKEEPINGRichard O’CallaghanHook Head Training and Consulting Limited
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Why Bookkeeping
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
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You and the Revenue
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
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TYPES OF BOOKKEEPING
Manual or Computerised
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Question
In what ways can you keep your business records?
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Important
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
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THE BASIC RECORDS
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“The Books”
Over time a basic set of records or “books” has developed as the standard
Books of prime entry: Sales Daybook Purchase Daybook Cash Book Journal
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Purchases Daybook
Date Inv.No.
Supplier Total VAT Purchases Purchase Returns
8.10 1 James Kirkpatrick
121.00 21.00 100.00
9.10 2 ESB 242.00 42.00 200.00
9.10 3 Mary Smith 10.00 0
4 James Kirkpatrick
(4.20) 20.00
5 Cash Purchases
60.5 10.50 50
Totals
433.50 69.3 350.00 (20.00)
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Sales Daybook
Date Inv.No.
Customer Total VAT Sales Sales Returns
11.10 1 McGrath & Daley
363.00
63.00 300.00
12.10 2 Grant Holdings
121.00
21.00 100.00
15.10 3 Grant Holdings
(10.5) 50.00
4
5
Totals
484.00
73.50 400.00 (50.00)
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Use of the Purchases and Sales Daybook
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 require other columns
Discounts allowed and discounts received This will form the basis of your accounting
records
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Cash Book
Cash Book
Date Folio
Cash
Bank
Date Folio
Cash
Bank
1/10 Capital 2000
3/10 Rent GL3 500
9/10 J McCarthy
SL2 500 9/10 Bank C 300
9/10 Cash C 300 25/10
Wages GL6 750
15/10
Cash Sales
GL5 800 ESB PL2 300
31/10
Bal C/D 500 1250
1300
2300
1300
23001/11 Bal B/D 500 125
0
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Cash Book
Cash Book
Date Folio
Cash
Bank
Date Folio
Cash
Bank
1/10 Capital 2000
3/10 Rent GL3 500
9/10 J McCarthy
SL2 500 9/10 Bank C 300
9/10 Cash C 300 25/10
Wages GL6 750
15/10
Cash Sales
GL5 800 ESB PL2 300
31/10
Bal C/D 500 1250
1300
2300
1300
23001/11 Bal B/D 500 125
0
Cash In Cash Out
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The Cash Book
Shows payments and receipts Cash out and cash in
Payments analysed as Total, Purchase Ledger, VAT, Other Expenses
(columns as required). Receipts analysed as
Total, Sales Ledger, VAT, Other Income (columns as required)
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The Journal
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
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THE DOUBLE ENTRY SYSTEM
Debits and Credits
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The Double Entry System
DR CR
Asset Liability
Expense IncomeReductions in value are entered on the opposite
side of the account
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The Double Entry System
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
There is nothing else to it
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Asset
An asset is something owned by the business Stocks Debtors Bank and cash Buildings Vehicles Machinery Investments
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Liability
A liability is something we owe Creditors Bank Loans Overdraft Capital
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Income
Amount earned in a period irrespective of when the payment is made Sales Grants received Interest on bank account Returns on investments Sales of fixed assets
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Expense
Amount of goods and services used in a period irrespective of when they are paid for Purchases Rent Rates Wages and Salaries Travel expenses Insurance Electricity and telephone
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Purchases/Sales Ledgers
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
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Entering Transactions
Determine whether an event should be recorded in the accounting records at this time If yes, determine which accounts are affected Determine whether each account affected is
increased or decreased by this transaction
Can require an amount of professional judgment in the real world You might have to ask your accountant how to
deal with some transactions
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RECONCILIATIONSPurchase and Sales LedgerCash and Bank
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Purchase and Sales Ledger
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)
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Bank Reconciliation
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
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Causes of Difference
Lodgements not yet appearing in the bank 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
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The Bank Reconciliation Process Amend your records for those items
correctly appearing on your bank statement, but not yet recorded in your books
Do bank reconciliation statement Add in cheques/payments received not yet
credited Remove cheques written not yet presented
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Undertaking a Reconciliation Cash Book Balance
Add direct credits not yet written Less direct debts
Amended cash book balanceAmended CB balance equals BS balance
Bank Statement balance Add receipts not yet lodged/credited Less cheques not yet cashed
True cashbook balance
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COMPUTERISED ACCOUNTING SYSTEMS
Using IT to keep the books
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Accounting and IT
Huge developments in the last number of years
Basic packages very cheap Free open source products also available Quite easy to use Examples
Sage, Red Books, MYOB, TAS Books, Intuit, QuickBooks
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Basic Accounts System
Customers and sales ledger Suppliers and purchasers ledger Accounts and nominal ledger Cash and bank VAT Minimum Reports
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Other Software Requirements Payroll
Most firms will have employees so will need to pay them
Receipts and invoicing Statements Marketing and analysis Multi-Currency Multi-Company Sales and purchase orders Stock Control eBanking ………………………
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WHERE TO NEXT?
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The Books are Done, Now What? The books are done, we are now moving
to the creation of the accounts
Assets Liabilities Balance Sheet
Expenditure Income Profit and Loss Account
Receipts Payments Cash Flow Statement
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End of Period Procedures
Trial Balance a listing of all general ledger accounts,
with balance total debits must equal total credits
if not, must correct errors before proceeding further
Adjusting journal entries record end of period adjustments that are
not supported by transactions
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Operating Statement
The difference between costs & income Profit & loss accounts (commercial) Income & expenditure accounts (I & E)
Shows where the resource was spent Covers a period of time Matches expenses and income to time
period
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Basic Profit and Loss Account
Income X
Pay expenses (X)Non-Pay expenses (X)Net Surplus/(Deficit) XPrevious surplus/(deficit) b/f X Retained Surplus X
€€
To Balance Sheet
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The Balance Sheet
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) Liabilities
Fixed Current liabilities
Current Loans Owners capital
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The Balance Sheet
Fixed AssetsFixed Assets 10001000
Current AssetsCurrent Assets StockStock 150150DebtorsDebtors 250250CashCash 200200 600600
Current LiabilitiesCurrent LiabilitiesCreditorsCreditors 150150OverdraftOverdraft 250250 (400)(400)Net Working Capital Net Working Capital 200200
Capital EmployedCapital Employed 12001200
Long Term LoansLong Term Loans (300)(300) 900900
CapitalCapital Original OwnersOriginal Owners 700 700Retained surplusRetained surplus 200200
900900
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Cash Flow Statement
Record of cash in and cash out for a period Net 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
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CONCLUSION
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Conclusion
Finance is the language of business Bookkeeping is the first step in the
communications process Need to keep minimum records
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