Summary and Wrap-Up
Episode #10 of the course Basics of bookkeeping by Kaitlin Kirk, CPA
Hello!
Welcome to the last day of your course, the basics of bookkeeping. Let’s go back over the important parts of each lesson. This will serve as a cheat sheet for you.
Chart of accounts: This is the listing of all the categories your business uses in the books. Remember to create accounts in a way that makes sense to you and the way you run your business. These accounts are then split out into the income statement and balance sheet.
Expense mapping: Mapping expenses is a great way to stay consistent with your bookkeeping. I recommend keeping your map at your desk or on your phone. Make sure you update it as new accounts are created. Also, keep a listing of your chart of accounts with descriptions so you remember what each account is for.
Receipt management: This is one of the trickiest pieces for small business owners because you always need to file a receipt at the most inopportune time. Remember, you can take a picture of it and store it digitally. Spend time setting up folders in the beginning, and it will make things much easier when you get a receipt—as you’re driving away from the gas station, for example.
Income: This is what you earn from the work you do. Record your sales when you invoice your clients, not when you receive the cash. Any deposits need to go into the Unearned Revenue account because you haven’t completed the work yet, so you technically still owe your client.
Cost of goods sold: This relates to the materials and supplies that are directly attributable to a job or a sale. These costs are subtracted from income to get gross profit, which is a number you should keep an eye on. Divide Gross Profit by Income, and aim to keep that number consistent over multiple periods.
Expenses: These are the resources required to run your business. Make sure to be consistent with how you classify your expenses, and it will make your income statement much easier to read.
Income statement: This is a listing of all your income, cost of goods sold, and expenses. This is a periodic statement that shows you where you’re spending money and where you’re getting money from. Look at your income statement at least once a quarter, and compare amounts over multiple periods.
Assets: These are what your company owns. They are also one half of the balance sheet and should be compared to other numbers on the balance sheet to get great insights into your business.
Liabilities: The opposite of an asset, liabilities are what your company owes. Keep an eye on these, as you don’t want them to get too high. Make sure to keep comparing them to your Shareholders’ Equity to understand how leveraged your company is.
Shareholders’ equity: This is the difference between your assets and liabilities—how many of the assets you actually own versus what’s owned by the bank or other lenders. It’s also the section for the accumulation of income over the life of the company.
Congratulations! You are now well on your way to being able to do your own bookkeeping and to use that information to help you make better business decisions. Make sure to keep your bookkeeping up to date so your financial statements are always the most recent information you can get.
All the best on your business journey!
Kaitlin
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