To create a predictable outcome of your bookkeeping process you need to abide by some rules. Especially for would be entrepreneurs with no financial experience I will explain some very basic rules (the video below is also very good)
Basically we use three types of accounts. Cash-flow, Profit & Loss and Balance Sheet.
Cash-flow:
Based on real money coming in and going out of the company;
Follows bank account;
Over a period;
Includes investments, loans and VAT payments.
Profit & Loss:
Based on invoices;
Over a period;
Includes periodic payments like salaries and rent (no invoices);
Includes depreciation, amortization and income tax payments;
Excludes VAT and capital investments;
Excludes interest payments, loan payments and investors capital.
Balance Sheet
Describes what you have (assets) and how you paid for it (liabilities)
Snapshot of the situation of the company at a specific time
Includes capital goods, orders, cash and debtors at the asset side
Includes equity, invested capital, loans and creditors at the liability site
“I do not teach anyone I only provide the environment in which they can learn”