www.hookhead.

net

BOOKKEEPING
Richard O’Callaghan Hook Head Training and Consulting Limited

Why Bookkeeping
 

www.hookhead.ne t

 

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

You and the Revenue

www.hookhead.ne t

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

www.hookhead.net

TYPES OF BOOKKEEPING
Manual or Computerised

Question

www.hookhead.ne t

In what ways can you keep your business records?

Important

www.hookhead.ne t

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

www.hookhead.net

THE BASIC RECORDS

“The Books”

www.hookhead.ne t

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

Purchases Daybook
Date Inv. No. 1 2 3 4 5 Total s Supplier Total VAT Purchases Purchase Returns 100.00 200.00

www.hookhead.ne t

8.10 9.10 9.10

James Kirkpatrick ESB Mary Smith James Kirkpatrick Cash Purchases

121.00 242.00 10.00

21.00 42.00 0 (4.20)

20.00 50 350.00 (20.00)

60.5 433.50

10.50 69.3

Sales Daybook
Date Inv. No. Customer Total

www.hookhead.ne t

VAT

Sales

Sales Returns

11.10 1 12.10 2 15.10 3 4 5 Total s

McGrath & Daley Grant Holdings Grant Holdings

363.0 0 121.0 0

63.00 21.00 (10.5)

300.00 100.00 50.00

484.0 0

73.50

400.00

(50.00 )

Use of the Purchases and Sales Daybook
  

www.hookhead.ne t

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

www.hookhead.ne t

Cash Book
Cash Book
Date Foli o C ash B ank Date Foli o C ash B ank

1/10 9/10 9/10 15/1 0

Capital J McCarth y Cash Cash Sales SL2 C GL5 800 500

2 000

3/10 9/10 25/1 0 31/1 0

Rent Bank Wages ESB Bal C/D

GL3 C GL6 PL2

500 300 750 300 500 1 300 1 250 2 300

300

1/11

Bal B/D

1 300 500

2 300 1 250

www.hookhead.ne t

Cash Book
Cash In
Date Foli o C ash

Cash Book
B ank Date

Cash Out
Foli o C ash B ank

1/10 9/10 9/10 15/1 0

Capital J McCarth y Cash Cash Sales SL2 C GL5 800 500

2 000

3/10 9/10 25/1 0 31/1 0

Rent Bank Wages ESB Bal C/D

GL3 C GL6 PL2

500 300 750 300 500 1 300 1 250 2 300

300

1/11

Bal B/D

1 300 500

2 300 1 250

The Cash Book
  Cash 

www.hookhead.ne t

Shows payments and receipts
out and cash in

Payments analysed as
 Total,

Purchase Ledger, VAT, Other Expenses (columns as required). Sales Ledger, VAT, Other Income (columns as required)

Receipts analysed as
 Total,

The Journal

www.hookhead.ne t

 

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

www.hookhead.net

THE DOUBLE ENTRY SYSTEM
Debits and Credits

The Double Entry System DR CR

www.hookhead.ne t

Asset Expense

Liability Income

Reductions in value are entered on the opposite side of the account

The Double Entry System

www.hookhead.ne t

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

Asset

www.hookhead.ne t

An asset is something owned by the business
 Stocks  Debtors  Bank

and cash  Buildings  Vehicles  Machinery  Investments

Liability

www.hookhead.ne t

A liability is something we owe
 Creditors  Bank

Loans  Overdraft  Capital

Income

www.hookhead.ne t

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

Expense

www.hookhead.ne t

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

Purchases/Sales Ledgers

www.hookhead.ne t

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

Entering Transactions

www.hookhead.ne t

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

www.hookhead.net

RECONCILIATIONS
Purchase and Sales Ledger Cash and Bank

Purchase and Sales Ledger

www.hookhead.ne t

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)

Bank Reconciliation

www.hookhead.ne t

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

Causes of Difference
 Lodgements

www.hookhead.ne t

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

The Bank Reconciliation Process

www.hookhead.ne t

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

Undertaking a Reconciliation

www.hookhead.ne t

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

www.hookhead.net

COMPUTERISED ACCOUNTING SYSTEMS
Using IT to keep the books

Accounting and IT

www.hookhead.ne t

   

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

Basic Accounts System
     

www.hookhead.ne t

Customers and sales ledger Suppliers and purchasers ledger Accounts and nominal ledger Cash and bank VAT Minimum Reports

Other Software Requirements

www.hookhead.ne t

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 ………………………

www.hookhead.net

WHERE TO NEXT?

The Books are Done, Now What?

www.hookhead.ne t

The books are done, we are now moving to the creation of the accounts

Assets Expenditure Receipts

Liabilities Income Payments

Balance Sheet Profit and Loss Account Cash Flow Statement

End of Period Procedures

www.hookhead.ne t

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

Operating Statement

www.hookhead.ne t

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

Basic Profit and Loss Account

Income Pay expenses Non-Pay expenses Net Surplus/(Deficit) Previous surplus/(deficit) b/f Retained Surplus To Balance Sheet X (X) (X) X X X

www.hookhead.ne t

The Balance Sheet

www.hookhead.ne t

 

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

The Balance Sheet

www.hookhead.ne t

Fixed Assets Current Assets Stock Debtors Cash 150 250 600

1000

200

Current Liabilities Creditors 150 Overdraft 250 Net Working Capital Capital Employed Long Term Loans Capital Original Owners Retained surplus

(400) 1200 (300) 900 700 200 900

200

Cash Flow Statement

www.hookhead.ne t

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

www.hookhead.net

CONCLUSION

Conclusion
 

www.hookhead.ne t

Finance is the language of business Bookkeeping is the first step in the communications process Need to keep minimum records