Bookkeeping 101

Basic bookkeeping rules

You keep books so you know:
  • how you are doing financially:
    • can you still pay your bills;
    • do you have money to invest or repay loans;
    • will you make some money yourself.
  • who owes you money; 
  • who you owe money;
  • how much taxes you must pay. 
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

Bookkeeping 101 ‎(10 min)‎

Watch on Youtube