Bookkeeping Cheat Sheet
If you’re like most small business owners, bookkeeping is probably not your favorite task. It can be confusing and time-consuming, but it’s essential to keeping your financial data in order.
The good news is, we’ve put together an ultimate guide to bookkeeping for you. This cheat sheet will help you understand the basics of bookkeeping.
We’ll also provide some helpful tips on streamlining the process so you can spend less time on bookkeeping and more time running your business.
So whether you’re just getting started with bookkeeping or looking for ways to make the process easier, this guide has everything you need. So let’s get started! 🙂
What is the simple definition of bookkeeping?
Bookkeeping is the process of recording and storing financial transactions. A financial transaction can be recorded under the expense, equity, or cash account.
What does Bookkeepers do?
Bookkeepers keep tabs on purchases, sales, receipts, and payments to record data in the books. They often use specialized software to track and produce reports that small business owners use to make business decisions.
While bookkeeping seems like a tedious task, it is crucial to running a successful business. For businesses just starting, keeping accurate records can mean the difference between success and failure.
Bookkeeping is critical, and it is essential to choose a method that best suits your needs. There are many different bookkeeping methods, but single-entry and double-entry bookkeeping are the most common.
Each has its advantages and disadvantages, so it is essential to understand both before deciding.
Single Entry Bookkeeping
In its simplest form, single-entry bookkeeping is a system where transactions are recorded one by one as they occur.
Small businesses and individuals often use this type of bookkeeping because it is less complex than double-entry bookkeeping.
In single-entry bookkeeping, each transaction is only entered into the ledger once.
The pros of single-entry bookkeeping; it is easier to keep track of finances, but the cons to that, there is more room for error.
Double Entry Bookkeeping
Double-entry bookkeeping is a system of accounting principles that ensures all financial transactions are recorded correctly.
Every time a business makes a transaction, it will impact two accounts in the financial statement. This bookkeeping system helps companies track their income & expenses and assets & liabilities.
By using double-entry bookkeeping, companies can generate accurate reports such as the income statement, statement of cash flow, and balance sheet.
Remembering Double Entry
A great way to remember double-entry bookkeeping is that every transaction must have a debit and a credit account.
This means when you record a transaction, there will be two accounting entries; a debit entry and a credit entry. The two entries must be balanced and equal to zero.
Here’s a breakdown of when to use debits and credits. These Golden Rules of Accounting will be your holy grail, or how I like to call it, your Bookkeeping Cheat Sheet.
When to debit or credit a transaction?
- “Debit the receiver, credit the giver” – This means you’ll debit the account that received the transaction and credit the account that gave out the transaction.
For example, if you received office supplies and paid cash, you’ll debit Office supplies and credit cash.
- “Debit anything that comes in and credit what goes out” – Incoming transactions are debited, and outgoing transactions are credited.
For example, if your business sells products, the inventory account is debited; in contrast, it is credited when you purchase inventory.
- “Debit expenses and losses and credit income and gains” – Expenses and losses are debited, whereas income and gains from transactions are credited.
Now that we’ve got the debits and credits out the way, we’ve collected the Top Bookkeeping Terms to add to your Bookkeeping cheat sheet.
Accounts Payable (AP)
The term “accounts payable” refers to a company’s outstanding financial obligations to its creditors.
This can include vendor invoices, employee expenses, and other types of debt. In essence, it is the money that a company owes to others.
Accounts Receivable (AR)
Accounts receivable is a term used to describe the money owed to a company for products or services that have been sold on credit.
The total amount of accounts receivable is recorded on the company’s balance sheet as an asset.
Adjusting entries are entries that correct the balances of ledger accounts. The point of adjusting entries is to ensure that the financial statements are accurate.
Generally, most businesses make their adjusting entries at the end of their fiscal year.
However, there can be instances where adjusting entries are necessary throughout the year. Some common examples include accruals and prepayments.
Bank reconciliation is the process of confirming that the balances in a company’s accounting records (its “book” balance) are equal to the balances in its bank statement.
Doing so ensures that your bank account is accurate and up-to-date. We’ll discuss this further below.
Chart of Accounts
A chart of accounts (COA) is a created list of the accounts used by an organization to define each type of asset, liability, equity, revenue, and expense.
It is used to organize financial transactions to provide consistent information for financial reporting. The COA can be customized to fit the unique needs of any organization.
While the format and structure of a Chart of Accounts may vary from company to company, most businesses will use the below account types.
- Asset Accounts: These accounts represent the resources that a business owns and uses to generate revenue. Examples of asset accounts include cash, inventory, investments, office equipment, and vehicles.
- Liability Accounts: Liability accounts represent the debts
- Income accounts: These accounts are revenues the business receives.
- Equity accounts: Equity is the business owner’s share or investment
- Expense accounts: These accounts include purchases by the company to operate the business. Expenses can include wage salaries, cost of goods sold (COGS), or marketing costs.
Expense accounts are typically increased with debits, while income and asset accounts are usually increased with credits. Liability accounts are lowered with credits and raised with debits.
Click here to download a free Expense Report to keep track of income and expenses.
The term “credit” has a precise meaning when it comes to bookkeeping. In short, a credit is an entry on the right side of a ledger account.
This means when you make a credit entry, you increase the balance of that account. The key thing to remember is that Credits always increase balances.
In contrast, debits are entries on the left side of an account that decrease the account’s balance. Debits always decrease balances.
An invoice is a document businesses send to their customers to request payments for goods or services.
The invoice includes how much the customer owes for those goods or services. An invoice can be created in various ways but typically includes:
- The date of transaction.
- The name and contact information of the vendor.
- A description of the goods or services provided.
The invoice should also list the agreed-upon price for these goods or services and any applicable taxes or fees. Finally, the invoice should include payment terms.
A journal entry is a record of all transactions affecting the company’s financial position. It is like a journal recording the debits and credits of the business to ensure accounts are balanced.
Journal entries are used to track both revenue and expenses and assets and liabilities.
They form the basis for preparing financial statements such as balance sheets and income statements.
Now that we’ve got the important bookkeeping terminologies out the way let’s look into some best practices for your bookkeeping cheat sheet.
Best Practices Also Known as Bookkeeping Hacks
Despite what some may think, bookkeeping isn’t that bad. Yes, it can be downright tedious; But it’s a vital task that you shouldn’t ignore.
Fortunately, a few simple tricks can make bookkeeping a bit easier – and even a little bit fun.
By following the below best practices, you can streamline your bookkeeping process and keep your finances in check.
Connect Bank Feed to Accounting Software
Tracking your finances can be time-consuming and error-prone. If you want to save time and ensure accuracy in your accounting, it’s a good idea to connect your bank feed to your accounting software.
This way, all of your transactions will be imported automatically, and you won’t have to worry about manually entering them. Plus, you can avoid mistakes that can come from manual data entry.
Once you have connected your bank account to your accounting software, you need to categorize each transaction.
To simplify it, you can create rules to help automate part of the tedious task.
Integrate relevant Apps to Accounting Software
As a business owner, you want to make sure you’re using the most efficient tools available to streamline your workflow.
By integrating relevant apps into your accounting software, you can create a customized system that works for you and your business.
When selecting apps to integrate, be sure to consider those that will offer the most significant benefit for your business.
The following are some key considerations:
- The app must be compatible with your accounting software.
- The app should offer features that compliment your current workflow.
- Ease of use is essential—the app should be intuitive and easy to navigate.
- The app should have a good reputation and positive user reviews.
- It’s essential to consider pricing when selecting an app, as some can be pretty expensive and may hurt your bottom line.
Reconcile transactions every month
An important bookkeeping hack is to reconcile your transactions. Bank reconciliation helps you identify any errors or discrepancies and correct them.
It’s essential to keep up with your bank reconciliations regularly, preferably monthly, to avoid any problems down the road.
There are several reasons why accurate bank reconciliations are essential:
- They can help companies identify errors on their bank statements
- Ensure that all transactions have been appropriately recorded, and
- Uncover fraud.
In addition, reconciling your bank account can help you keep track of your expenses and ensure you’re not spending more than you should be.
Review Financial Statements
Reviewing your company’s financial statements is an essential part of your job as a business owner.
By examining these documents, you can track your progress and performance over time, identify areas where you need to make changes, and measure your success.
The four primary financial statements are:
- Balance Sheet
- Income Statement which is also known as Profit and Loss (P&L)
- Statement of Cash Flow
- Statement of change in equity
Outsource a Bookkeeper
This one may seem awkward at first glance, but it is one of the best hacks to consider.
Sometimes business owners want to do it all themselves; however, it can cost in the long run.
We all have a specialty, and to avoid hefty and costly mistakes, consider handing the bookkeeping task to a professional.
While it may be tempting to save money by handling your bookkeeping in-house, this is usually not a good idea.
Unless you have a trained accountant on staff, your books may not be as accurate or efficient as they could be.
Usually, this happens because you juggle many tasks at once and are unable to focus your attention on one specific department.
Outsourcing your bookkeeping to a professional can save you time and money in the long run.
For those who are just learning how to do bookkeeping, you may be pulling your hair out. You might not even know where to start or don’t know the meanings of certain terms.
We have created this easy-to-follow Bookkeeping Cheat Sheet for any business owner or student to follow.
Feel free to print out my article and highlight important information that you can reference back.
If you need assistance with bookkeeping tasks, visit our service page or schedule a free consultation.