1. Bookkeeper Business Blueprint
Welcome!
Bookkeeper Business Blueprint
Bookkeeping Knowledge - Module 3
Introduction & Recap & Preview

2. Knowledge Module 2 Recap
Chart of Accounts
Bookkeeping Principles
Accrual v. Cash Basis Bookkeeping
Debits & Credits Introduction

3. Knowledge Module 3 Preview
Debits & Credits Deep Dive
Balance Sheet: Current Assets
Professional Ethics
Application: Bank (Cash) Reconciliation (Module 3.5)

4. Bookkeeper Business Blueprint
Welcome!
Bookkeeper Business Blueprint
Bookkeeping Knowledge - Module 3
Lesson 1: Debits & Credits Deep Dive

5. Debits & Credits -- T-Account
Debits ALWAYS go on the LEFT
Credits ALWAYS go on the RIGHT
To help visualize this, this profession has developed T-accounts: ACCOUNT NAME
DEBITS CREDITS

6. Debits & Credits
Banks have us thinking backward because to them a debit it good and to us it’s bad
Just the opposite a credit to them is bad while it’s good to us
However, we are not looking at it from their point of view

7. Normal Debits & Credits

8. Debit & Credit Quick Tips
Cash received; debit cash
Cash paid-out; credit cash
Revenue earned; credit revenue
Expenses incurred; debit expense

9. Think of DRs & CRs as...
Every transaction has at least one debit and one credit. The totals of the debits and credits to every single transaction MUST BALANCE to the penny.

10. Debits and Credits in Action
Rosemary’s Transactions:
Deposits money in her bank for seed $
Purchases a computer
Collects money for providing dietary advice
Pays the first electric bill for the store
Orders more herbal supplies inventory
Pays a one year insurance premium in full

11. Rosemary’s Trx #1: Deposit Seed $
Money deposited INCREASES Assets (cash) DEBITS cash
Deposits from owners are Equity contributions / Paid In Capital
Assets = Liabilities + S/H Equity
(Cash) (Paid-In Capital)
+$10,000 = $10,000

12. Cash (Asset) Account
Debit
Credit
$10,000

13. Paid In Capital (Equity) Account
Debit
Credit
$10,000

14. Rosemary’s Trx #2: Purchase Computer
Money going out DECREASES Cash (asset)
Computer is an asset and INCREASES Equipment (asset)
In essence, move from one asset to another (one-side of the AE)
Assets = Liabilities + S/H Equity
(Cash)
-$1,000
(Equipment)
+$1,000

15. Cash (Asset) Account
Debit
Credit
$1,000

16. Equipment (Asset) Account
Debit
Credit
$1,000

17. Rosemary’s Trx #3: $ For Service Provided to Patient
Revenues INCREASE Equity
Revenues INCREASE Assets (Cash or Accounts Receivable A/R)
Assets = Liabilities + S/H Equity
(Cash) (Revenue)
+$100 = $100

18. Cash (Asset) Account
Debit
Credit
$100

19. Revenue Account
Debit
Credit
$100

20. If in Journal Entry Form:
debit: Cash $100
credit: Revenue $100

21. Rosemary’s Trx #4: Pays Electric Bill
Assets = Liabilities + S/H Equity
(Cash) (Expense)
-$240 = $240

22. Cash Account
Debit
Credit
$240

23. Utilities (Expense) Account
Debit
Credit
$240

24. Rosemary’s Trx #5: Orders Herbal Supplies
Assets = Liabilities + S/H Equity
(Cash)
-$800 =
+$800

25. Cash Account
Debit
Credit
$800

26. Inventory (Asset) Account
Debit
Credit
$800

27. If in Journal Entry Form:
debit: Inventory $800
credit: Cash $800

28. Rosemary’s Trx #6: Pays Insurance Premium for Entire Year
Assets = Liabilities + S/H Equity
(Cash)
-$1,200 =
(Prepaid Expenses)
+$1, (Expense)
$100

29. If in Journal Entry Form:
debit: Prepaid Expense $1,100
credit: Cash $1,200
debit: Insurance (Exp) $100

30. Bookkeeper Business Blueprint
Welcome!
Bookkeeper Business Blueprint
Bookkeeping Knowledge - Module 3
Lesson 2: Balance Sheet - Current Assets

31. Assets = Liabilities + Stockholder’s Equity
The Balance Sheet
Assets = Liabilities + Stockholder’s Equity
One of the ‘Big 3’ financial statements
Measures financial situation at a specific point in time (e.g. October 31st)
Indicates: what you Own (assets) / who you Owe (liabilities) / what’s left Over (equity)
Count the cost (historical cost principle) is heavily employed here
We will focus on assets in module 3 and liabilities and equity in module 4
Indicates the financial health of your client

33. Before We Start the Party, We need to discuss...
The Balance Sheet
Before We Start the Party, We need to discuss...
Current v. non-current assets and liabilities:
Current asset: turned into cash or used within one year of the balance sheet date (October 31st)
Current liability: must be paid back within one year of the balance sheet date (October 31st)
Non-current asset: not expected to be turned into cash or used within one year of the balance sheet date
Non-current liability: not required or expected to be paid back within one year of the balance sheet date

34. Before We Start the Party, We need to discuss...
The Balance Sheet
Before We Start the Party, We need to discuss...
Permanent v. temporary accounts (chart of accounts)
Permanent accounts: do not close...balance continues into perpetuity (balance sheet accounts except owner’s draws / dividends)
Temporary accounts: close...typically at year-end (income statement accounts: this is how it flows into equity on the balance sheet and accounting equation)
Savings account example (principal & interest earned)

35. The Balance Sheet: Current Assets
Most common current assets include:
Cash: checking, savings, petty
Accounts receivable (A/R)
Inventory
Supplies
Prepaid Insurance

36. Balance Sheet: Current Assets / Cash
don’t think this needs too much detail
it’s king and the lifeblood of every business
vast majority of every transaction will involve
help your client to manage its flow
bank reconciliation in next lesson

37. Balance Sheet: Current Assets A/R
who owes your client
manage it well or the biz dies
subsidiary ledger
aging / collections
allowance for doubtful accounts / bad debt association on the income statement

38. Accounts Receivable / Bad Debt Expense & Allowance for Doubtful Accounts
A/R is used in the accrual (preferred) method of accounting
A/R and the associated sale / revenue is recorded when the transaction is complete opposed to when cash is collected
Not used under the cash basis and typically not used for income tax reporting
A/R is your client extending credit to their customers for services or goods they provide
Is “normal” in a lot of business settings

39. Accounts Receivable / Bad Debt Expense & Allowance for Doubtful Accounts
Bad Debt Expense is the account used to show “write-offs” of customers who do NOT pay
Most of your clients will use the specific identification method of writing off bad debt
This means you write off the bad debt when it’s know that your client’s customer will not pay
(As a total aside: using the word “client”) relationship vs transaction based

40. Accounts Receivable / Bad Debt Expense & Allowance for Doubtful Accounts
Allowance for doubtful accounts is an estimate of bad debt expense
Based on historical bad debt write-off as a % of accounts receivable
You will not see this account used real often unless you’re in specific industries OR when full-blown accrual financial statements are required
(As a total aside: using the word “client”) relationship vs transaction based

41. Balance Sheet: Current Assets:Inventory
merchandise bought by your client for the purpose of being sold to customers
is an asset presented on the balance sheet under “current assets”
like fixed assets, inventory is reported based on its cost - NOT the retail value
clients tow the line between having too much inventory (cash-suck) and too little inventory (lost sales)

42. What is Cost of Goods Sold (COGS)?
this is the cost of merchandise that was actually sold to a customer (it’s no longer inventory)
a direct cost presented on the Income Statement
total cost of goods sold is the inventory cost + any other costs to get merchandise in/out of inventory (shipping)
cost of goods and inventory are linked through the sales process

43. Inventory / Cost of Goods Sold
cost of goods sold method you will use (most likely) is “first-in / first-out” or FIFO as we call it in the “biz”
there are other cost methods including: last-in / last-out or LIFO and Average cost.
in order to make inventory and cost of goods sold 100% accurate this requires a physical inventory count at predetermined intervals
if your client is inventory-intensive, you will be more involved helping manage inventory and COGS

44. Inventory / Cost of Goods Sold
inventory management is critical in these types of businesses as it typically is one of the largest assets and costs
theft of inventory
obsolescence of inventory
efficiency in managing inventory levels is critical

45. Balance Sheet: Prepaid Expenses
pre-pay for an expense that lasts longer than 1 month
goes along with the matching principle
most common is insurance
can be any expense that’s paid in advance

46. Bookkeeper Business Blueprint
Welcome!
Bookkeeper Business Blueprint
Bookkeeping Knowledge - Module 3
Lesson 3: Professional Ethics

47. Professional Ethics Confidentiality Security of client data Competency
Duty of care
Integrity

48. Ethical Considerations
Situation:
Your client, Robin Banks, is trying to get a loan from the bank. The financial statements are a bit “iffy”. To fix the problem, Robin Banks client wants you to post-date some payment transactions. After all, these payments won’t be cashed until after the close, so what’s the harm?

49. If You Do What Robin wants, does that present complete & accurate financial statements?

50. Ben Robinson, CPA ben@learntobeabookkeeper.com 1-800-616-1790
Summary / Get In Touch
Ben Robinson, CPA