Download - Basic Bookkeeping

BASIC BOOKKEEPING

BASIC BOOKKEEPING

Starting up a small business?

Working as an office administrator?

Bookkeeping responsibilities can be overwhelming!

In this course we will teach you the basics of bookkeeping. Learn what your accounting responsibilities are,

basic accounting terminology, the basics of financial statements and how to prepare your files for year end

BUSINESS ORGANIZATION TYPES

Proprietorship

Partnership

Corporation

THE FISCAL YEAR

A Fiscal Year is an accounting time period that is one year long

Fiscal year ends may vary from the calendar year

Corporate Tax returns are due 6 months after the corporations fiscal year end

ACCOUNT TYPES

Accounts track all of your accounting transactions and allow you to categorize your transactions

There are standard account types which are the main categories that all businesses follow

Assets, Liabilities, Equity, Revenue, Expense

ACCOUNT TYPES

o Asset Accounts (What you own) – include bank accounts, petty cash, equipment, buildings and land

o Can be liquidated for cash

o Are generally valued over $500.00 and usable for more than one year

o The balances in asset accounts carry forward from year to year until the asset is liquidated

o For tangible assets the value of the asset is amortized or spread out over multiple years

ACCOUNT TYPES

Liability Accounts (What you owe) – include loans, mortgages, lines of credit, account’s with suppliers, payroll expenses payable, GST and taxes payable, and your accounts payable account

Your accounts payable account tracks all of your outstanding bills; tracked by vendor name

ACCOUNT TYPES

o Equity Accounts (Value of the Business) – the difference between what a businesses owns and what it owes

o Equity accounts include owner or shareholder’s contributions, draws, and retained earnings which are profits left in a business

o At the end of each year the net profits (or losses) from a business are transferred into the retained earnings or owner’s equity account

ACCOUNT TYPES

Income Accounts (Revenue) – Revenue or Income is earned through business activities such as the sale of merchandise or services

Some businesses earn all their revenue by selling products, others offer services, and many offer both products and services

ACCOUNT TYPES

Expense Accounts (The Costs of Running a Business) – Expenses are tracked through 2 main categories; cost of goods sold and operating expenses

The expense accounts will vary between businesses but often are very detailed so that a company can evaluate its profitability effectively

PRACTICE

Let’s practice recognizing account types by completing the exercise in your handout on page 3

PRACTICE

THE CHART OF ACCOUNTS

Because each company is different, the types of accounts they have and how many of each type of account they have are also different

The Chart of Accounts lists the accounts for a specific business

Accounts are often assigned numbers that identify where the accounts are in the ledger or list of accounts


General Accounting Principle’s state that the accounts be organized in the following manner to create consistency amongst businesses. This order is also useful when preparing financial statements.

1. Assets are listed First; when numbered, begin with the number 1

2. Liabilities are listed Second; when numbered, begin with the number 2

3. Equity Accounts are listed Third; when numbered, begin with the number 3

4. Revenue accounts are listed Fourth; when numbered, begin with the number 4

5. Expense accounts are listed last; when numbered, begin with the number 5 or greater

WHAT ARE MY RESPONSIBILITIES AS A

BOOKKEEPER?

Accounts Payables

A/P Transactions record expenses for your company

Bills and Cheques are the main ways company’s record expenses. Credit Card transactions are also popular

Expenses are tracked by Vendors


BOOKKEEPER?

Inventory

Inventory is goods on hand which a company intends to sell or use for their services

Inventory is a unique type of expense account as it is often referred to as Cost of Goods Sold which measures the direct cost of a company’s income


BOOKKEEPER?

Accounts Receivables

A/R Transactions record revenue or income for your company

Invoices and Sales Receipts are the main ways company’s record revenue

Income is often tracked by Customer


BOOKKEEPER?

Payroll

Payroll are expenses incurred by a company to hire staff

Payroll expenses include wages paid to employees as well as payroll liabilities

THE TRIAL BALANCE

A Trial Balance is a list of Accounts and their balances at a specific time

In accounting some account types will have a debit balance and others will have a credit balance

In the Trial Balance Report the total of all debits will equal the total of all credits

THE TRIAL BALANCE

DEBITS VS CREDITS

Assets, Equity Drawings and Expense Accounts:

Debit to Increase Credit to Decrease

Liabilities, Equity Contributions and Income Accounts:

Credit to Increase Debit to Decrease

This is so that all journal entries are balanced equations.

GENERAL JOURNAL ENTRIES

Any accounting entry results in a Journal Entry

Most entries in a computerized accounting environment will be completed automatically in the background of the program as the user will enter their information through forms

When recording a complex accounting transaction a manual journal entry is completed

When completing a manual journal entry you must remember that all debits must equal all credits


The following 5 steps will help you through drafting a manual journal entry:

1. Determine all of the Accounts within your Chart of Accounts that will be effected by the entry.

2. Next determine what type of accounts the identified accounts are.

3. Determine for each account used will the account receive a DEBIT or a CREDIT.

4. For each account determine the amount for the entry.

5. Finally, draft your General Journal Entry


This is a sample General Journal Entry.

The sample entry records a loan payment.


PRACTICE DRAFTING A GENERAL JOURNAL ENTRY FOR THE FOLLOWING SCENARIO

Scenario: Your company purchases a new company vehicle from your local car dealership. You issue the dealership a $10,000 cheque for the down payment on the vehicle and the remainder of the cost is financed through Ford Credit as a vehicle loan.

The cost of the vehicle is $60,000.00 plus $3,000.00 GST.


Step One: Determine all of the Accounts within your Chart of Accounts that will be effected by this purchase; there are 4 in this example.

1. Chequing Account

2. Ford Credit Loan Account

3. GST Paid

4. Fixed Asset – Company Vehicle


Step Two: Now you will need to think about what type of accounts these are.

Account Account Type

Chequing Account Asset (Bank)

Ford Credit Loan Account Liability (Loan)

GST Paid Liability (GST Owing)

Fixed Asset – Company Vehicle Asset (Fixed Asset)


Step Three: Next determine for each account used will the account receive a DEBIT or a CREDIT.

Account Debit or Credit

Chequing Account Credit

Ford Credit Loan Account Credit

GST Paid Debit

Fixed Asset – Company Vehicle Debit


Step Four: Now for each account determine the amount for the entry.

Account Amount

Chequing Account $10,000.00

Ford Credit Loan Account $53,000.00

GST Paid $3,000.00

Fixed Asset – Company Vehicle $60,000.00


Step Five: Finally, Draft your General Journal Entry

Account Debit Credit

Chequing Account $10,000.00

Ford Credit Loan Account $53,000.00

GST Paid $3,000.00

Company Vehicle $60,000.00


Here is a sample of what the previous General Journal Entry may look like in a computer software program such as QuickBooks.

RECONCILING ACCOUNTS

Reconciling Accounts

Reconciliations should be prepared for all bank accounts and credit card accounts

Account Reconciliations keep your accounting records accurate, complete and up to date

Bank Reconciliations will help you identify:

Outstanding Cheques and Deposits

Errors to entries

Bank Errors

RECONCILING ACCOUNTS

Steps to Reconciling Accounts

1. You will need your bank or credit card account statement

2. Enter your Opening and Closing Balances

3. Next you will go line by line, checking to ensure your accounting records from your bank or credit card accounts ledger match your statement

4. Adjust any incorrect entries

5. Enter any transactions that have not yet been entered

6. When your records match your bank statement - your account has been reconciled

GOODS AND SERVICES TAX - GST

Goods and Services Tax

GST is a type of tax charged by businesses that register for a GST number and meet the eligibility requirements by Revenue Canada for a GST Account

See Revenue Canada’s Website www.ccra.gc.ca for information on whether your business qualifies for a GST Account or not

http://www.ccra.gc.ca/

GOODS AND SERVICES TAX - GST

Goods and Services Tax

Assuming your company has a GST Account here are your responsibilities:

You must charge your customers and report GST on all taxable products and services

You must record and report all GST your company pays on eligible expenses

You must prepare and file your GST report and remittance either quarterly or annually, a personalized GST 34 form will be mailed to you by the CRA

GST Remittance amounts that are due must be paid within 30 days of the filing period end date to avoid penalties and interest charges

MANUAL BOOKKEEPING OPTIONS

Manual Bookkeeping Options

Although most businesses utilize accounting programs such as QuickBooks®, Simply Accounting®, AgPro®, and AccPac® to name a few often small businesses begin by utilizing a manual bookkeeping system

Manual bookkeeping is the paper-based and traditional way of bookkeeping. Business transactions are recorded manually by hand using manual or paper book of accounts, such as journals books, ledger books and worksheets


Manual Bookkeeping Options

Many opt for manual bookkeeping because it is cheaper and easier to maintain

Double Entry Accounting is a term often references when referring to manual bookkeeping

Double Entry Accounting introduces the concept of debits and credits, which means that for every transaction there is something received (debit) and given up (credit), as such, each recorded transaction affects two or more accounts


Below is a sample ledger that could be set up in a notebook or as a spreadsheet.


Here are points to consider when setting up a manual ledger or bookkeeping system:

1. Most businesses have a separate spreadsheet for each month

2. Income transactions are entered as a positive amount and Expense transactions are often entered as a negative amount

3. By subtotalling each column you can check your work and ensure that you balance


Here are points to consider when setting up a manual ledger or bookkeeping system:

Separating the GST collected column from the GST paid column makes preparing and filing a GST return simple

Remember to only record the Subtotal amount under the income and expense columns

You can have as many income and expense columns as you need however often its best to keep it as simple as possible. Columns should not be created for vendors or customers only general expense or income types

PRACTICEComplete the exercise on page 12 of your handout by entering in the ledger below each of the following transactions. As a final task prepare a GST Filing for May 2013.

Date Transaction Description Amount GST Subtotal

May 4, 2013 Staples Purchase of pens, paper & ink 214.00 10.20 203.80

May 6, 2013 Weekly store sales are recorded 1575.00 75.00 1500.00

May 8, 2013 Insurance is paid to AMA Insurance 430.00 0.00 430.00

May 9, 2013 Lightbulbs are purchased at WalMart 5.25 0.25 5.00

May 10, 2013 Consulting Work for a client complete 315.00 15.00 300.00

May 12, 2013 Accounting Fees are due 525.00 25.00 500.00

May 13, 2013 Weekly store sales are recorded 2730.00 130.00 2600.00

Line 101 Sales

Line 103/105GST Collected

PRACTICE

Month of May GST Income Expenses

Date Description Total GST Collected GST Paid Subtotal Retail SalesConsulting Services Insurance

Office Supplies

ProfessionalFees

Repairs &Maintenance

4Staples -214.00 -10.20 -203.80 203.80

6Weekly sales 1575.00 75.00 1500.00 1500.00

8 Insurance -430.00 0.00 -430.00 430.00

9Walmart -5.25 -0.25 -5.00 5.00

10Consulting Sales 315.00 15.00 300.00 300.00

12Accounting -525.00 -25.00 -500.00 500.00

13Weekly sales 2730.00 130.00 2600.00 2600.00

TOTALS 3445.75 220.00 -35.45 3261.20 4100.00 300.00 430.00 203.80 500.00 5.00

PRACTICE

Prepare the GST filing for May 2013

Line 101 Sales $4400.00Line 103/105GST Collected $220.00

Line 106/108GST Paid (ITC’s) $35.45

Line 109Net Tax $184.55

UNDERSTANDING BASIC FINANCIAL STATEMENTS

Income Statement or Profit and Loss Statement

Income Statement or Profit and Loss Statement presents the revenues and expenses, and the resulting net income or net loss for a specific period of time

Revenue and Expense accounts are accounted for within a company’s fiscal year and the balances of these accounts are not brought over to future years

If you were to look at a Trial Balance Report you would use all Revenue and Expense accounts and their corresponding values to generate an

Income Statement or Profit and Loss Statement


Balance Sheet

A Balance Sheet reports the assets, liabilities, and owner’s equity at a specific date

After a company’s yearend is completed all Revenue, Expense and Drawings accounts are cleared as the Owner’s Equity Account is updated

A Balance Sheet report summarizes the company’s activity from year to year. The report calculates how much your business is worth (your business's equity) by subtracting all the money your company owes (liabilities) from everything it owns (assets)

If you were to look at a Trial Balance Report you would use all Asset, Liability and Equity accounts and their corresponding values to generate a Balance Sheet


PRACTICE PREPARING BASIC FINANCIAL STATEMENTS

Using the Trial Balance Report from the sample company: White Ridge Construction Company ; fill in the blanks for the

Profit and Loss Statement

and the

Balance Sheet

RevenuesConstruction Income 52,986.85$

Less Cost of Goods SoldDirect Cost of Goods Sold:Direct Labour Costs 1,280.00

Direct Cost of Goods Sold:Direct Materials Costs 22,250.00

Total Cost of Goods Sold 23,530.00

Gross Profit 29,456.85$

Operating ExpensesFreight/Shipping 378.00

Insurance:Liability Insurance 245.00

Professional Fees:Accounting 428.57

Rent 1,450.00

Supplies:Marketing 850.00

Utilities:Electricity 344.21

Utilities:Phone 157.02

Vehicles:Fuel 378.00

Vehicles:Maintenance & Repair 81.51

Total Operating Expenses 4,312.31

Net Income 25,144.54$

White Ridge Construction CompanyIncome Statement

Month Ended January 2010

AssetsChequing 12,500.00Accounts Receivable 5,500.00Inventory Asset 1,649.25Construction Equipment 50,269.68 Total Assets 69,918.93

Liabilities and Owner's EquityLiabilities Accounts Payable 8,469.52Credit Cards:MasterCard 85.32Credit Cards:Visa 795.50GST/HST Payable -2,882.99 Total Liabilities 6,467.35

Owner's Equity 38,307.04 + 52,986.85 63,451.58

Total Liabilities and Owners Equity 69,918.93

White Ridge Construction CompanyBalance Sheet

January 30, 2010

25,144.54

Opening balance equity

Net Income (from P & L) pg 13

YEAR END

Preparing your Files for Year End -Whether your accounting files are going to an auditor, tax prepare or accountant here are the documents that you should have in order to prepare for year end.

YEAR END

Year End Checklist¨ Accounts Receivables Listing¨ Accounts Payables Listing¨ New Asset Files¨ New Loans Files¨ Bank Reconciliations¨ Revenue and Expense Files¨ Chart of Accounts¨ Sales Tax Files¨ Payroll T4 and Remittance Files¨ Year End Trial Balances from Previous Year and End of Current Year¨ Backup Copy of your computerized Accounting File or Your Manual Ledger/Spreadsheet

REVIEW

Use your Glossary on page 19 of your handout to review

the accounting terms you have

learned

GLOSSARY

Accounts Payables a record that shows how much a company owes suppliers for the purchase of goods or services on credit

Accounts Receivables a record that shows how much is owed to a company by customers who have purchased goods or services on credit

Assets The property that is owned by an organization. The items on a balance sheet that constitute the total value of an organization

Balance Sheet a statement showing the assets and liabilities of a company or institution at a particular time

Bookkeeping the activity or profession of recording the money received and spent by a person, business, or organization

Chart of Accounts a chart explaining the numerical codes identifying the ledger accounts in an accounting system

Corporation A company recognized by law as a single body with its own powers and liabilities, separate from those of the individual members.

Cost of Goods Sold the cost of materials and labour required to build a product or offer a service

Customer a person or company that buys goods or services

Double Entry Bookkeeping Double Entry Accounting introduces the concept of debits and credits, which means that for every transaction there is something received (debit) and given up (credit), as such, each recorded transaction affects two or more accounts.

Equity the value of a piece of property over and above any mortgage or other liabilities relating to it

Expense the value of a resource that has been used during the current accounting period and can be charged against revenues for that period

Fiscal Year a 12-month period at the end of which all accounts are completed in order to provide a statement of a company's, organization's, or government's financial condition, or for tax purposes. A fiscal year does

Financial Statement A financial statement (or financial report) is a formal record of the financial activities of a business, person, or other entity

Generally Accepted Accounting Principles Generally Accepted Accounting Principles (GAAP) is a term used to refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as Accounting Standards. GAAP includes the standards, conventions, and rules accountants follow in recording and summarizing transactions, and in the preparation of financial statements

Income the amount of money received over a period of time either as payment for work, goods, or services, or as profit on capital

Income Statements(Profit & Loss Reports)

a financial statement showing the profit or loss sustained by a company during a particular period, including all items of income and expenditure

Inventory the merchandise or stock that a store or company has on hand

Liabilities all debts and other financial obligations that appear on a balance sheet

Partnership the relationship between two or more people or organizations that are involved in the same business activity

Payroll the total sum of money to be paid to employees at a given time

Proprietorship the owner of a commercial enterprise or establishment such as a store, hotel, or restaurant

Revenue money that comes into a business from the sale of goods or services

Trial Balance a statement used to check that the debits and credits in a double-entry bookkeeping ledger are equal

Vendor somebody who sells something

http://en.wikipedia.org/wiki/Financial_accounting

http://en.wikipedia.org/wiki/Financial_statements

EXTRA PRACTICEPrepare a Profit & Loss Statement for April, 2013 using the manual bookkeeping example on page 11

Month of April 2013 GST Income Expenses

Date Description Total GST Collected GST Paid SubtotalRetail Sales

Consulting Services

Inventory Purchased Advertising Bank Fees

Office Supplies

Professional Fees Rent

Repairs & Maintenance

1 Weekly Sales 1575.00 75.00 1500.00 1500.00

1 Building Rent -630.00 -30.00 -600.00 600.00

3 Bank Fees -12.50 0.00 -12.50 12.50

7 Weekly News -93.45 -4.45 -89.00 89.00

8 Rona Hardware -17.64 -0.84 -16.80 16.80

8Consulting Income 682.50 32.50 650.00 650.00

8 Weekly Sales 2016.00 96.00 1920.00 1920.00

12 Staples -48.30 -2.30 -46.00 46.00

15 Weekly Sales 1008.00 48.00 960.00 960.00

16Store stock purchased -1863.75 -88.75 -1775.00 1775.00

17 Legal Fees -525.00 -25.00 -500.00 500.00

18 Canadian Tire -72.45 -3.45 -69.00 69.00

22 Weekly Sales 2415.00 115.00 2300.00 2300.00

23Consulting Income 446.25 21.25 425.00 425.00

27 Accounting Fees -840.00 -40.00 -800.00 800.00

29 Weekly Sales 2730.00 130.00 2600.00 2600.00

TOTALS 6769.66 517.75 -194.79 6446.70 9280.00 1075.00 1775.00 89.00 12.50 46.00 1300.00 600.00 85.80

EXTRA PRACTICE

Profit & Loss StatementMonth Ended April 2013

Revenues

Retail Sales $ 9280.00

Consulting Services $ 1075.00

Total Revenue $ 10,355.00

Expenses

COGS: Inventory Purchased $ 1775.00

Advertising $ 89.00

Bank Fees $ 12.50

Office Supplies $ 46.00

Professional Fees $ 1300.00

Rent $ 600.00

Repairs & Maintenance $ 85.80

Total Expenses $ 3908.30

Net Income $ 6446.70

COURSE EVALUATION FORMS AVAILABLE AT

WWW.BUSINESSIQTRAINING.COM

Thank You!

Download - Basic Bookkeeping

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