1 Bookkeeping

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BOOKKEEPING Richard O’Callaghan Hook 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  o f  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

8.10

1

James

121.00

21.00

100.00

9.10

2

Kirkpatrick  ESB

242.00

42.00

200.00

9.10

3

Mary Smith

10.00

0

4

James Kirkpatrick 

5

Cash Purchases

Total s

VAT

Purchases Purchase Returns

(4.20)

20.00

60.5

10.50

50

433.50

69.3

350.00

(20.00)

 

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Sales Daybook Date

Inv. No.

Customer

Total

VAT

Sales

11.10 1

McGrath & Daley

363.0 0

63.00

300.00

12.10 2

Grant Holdings

121.0 0

21.00

100.00

15.10 3

Grant Holdings

(10.5)

Sales Returns

50.00

4 5 Total s

484.0 0

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

Foli o

1/10

Capital

9/10

SL2

9/10

J McCarth y Cash

15/1 0

Cash Sales

GL5

1/11

Bal B/D

C ash

500

C

B ank 

Date

2 000

3/10

300 800

1 300 500

2 300 1 250

Foli o

C ash

Rent

GL3

500

9/10

Bank

C

300

25/1

Wages

GL6

750

0

ESB

PL2

300

31/1 0

Bal C/D

500 1 300

B ank 

1 250 2 300

 

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Cash Book Cash Book

Cash In Date

Foli o

1/10

Capital

9/10

9/10

J McCarth y Cash

15/1 0

Cash Sales

1/11

Bal B/D

SL2

C ash

500

C GL5

B ank 

Date

2 000

3/10

300 800

1 300 5 00

2 300 1 250

Cash Out Foli o

C ash

Rent

GL3

500

9/10

Bank

C

300

25/1

Wages

GL6

750

0

ESB

PL2

300

31/1 0

Bal C/D

500 1 300

B ank 

1 250 2 300

 

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 The Cash Book 

Shows payments and receipts  Cash

out and cash in



Payments analysed as VAT, Other Expenses  Total, Purchase Ledger, (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

Income

Reductions 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 value ofmust the debits for atotal transaction alwaysand be credits 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 expenses and Salaries  Travel  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 tran saction 

Can require an amount of professional  judgment in the real world 

 You have transactions to ask your accountant how to dealmight with some

 

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RECONCILIATIONS Purchase and Sales Ledger

Cash 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 balance  Amended 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

Payments

Cash Flow Statement

Receipts

 

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End of Period Procedures 

Trial Balance 

a listing of all general ledger accounts,

 with totalbalance 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 Pay expenses Non-Pay expenses Net Surplus/(Deficit) Prev Pr evio ious us su surpl rplus/ us/(d (def efic icit it)) b/f Retained Surplus To Balance Sheet

X (X) (X) X X X

 

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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) Fixed liabilities Current

Liabilities  

Current

  Loans   Owners capital

 

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 The Balance Sheet

Fixed Assets Current Assets Stock Debtors Cash

1000

200

Current Liabilities Creditors 150 Overdraft 250 Net Working Capital

  150 250 600

(400) 200

Capital Employed

1200

Long Term Loans

(300)  900

apital   Owners C Capital apital  Original

700

Retained surplus

200   900

 

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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 b usiness Bookkeeping is the first step in the communications process Need to keep minimum records

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