5 Steps - In Prose (no images)
5 Steps - In Prose (no images)
Bookkeeping is a 5 Step Process
Review Prior Work
Record Transactions "Accurately"
Categorize Transactions
Review the Income Statement
Review the Balance Sheet
The Bookkeeping Process without a Review of Prior work consists of 2) Recording Transactions, 3) Categorizing Transactions and 4 and 5) reviewing two reports for information and crosschecking functionality.
If the crosschecking report (the Balance Sheet) is in Balance, the work is considered to be complete.
However, between the point at which time the work is complete and the next time you are ready to enter data, you or others may come into the file to run other reports or make minor notes or categorization changes.
To ensure nothing negative transpired since the last reconciliations (the last dates the work was considered "complete") you will want to check the Statement Reconciliation Page and the Balance Sheet to ensure everything is still in balance. To check the Balance Sheet, you will need to know the last transaction dates for all accounts in the system as you should only check it for validity through the last date in which all accounts had categorized transactions.
Recording transactions happens one of three ways.
You manually type in each transaction. You look at your bank console, a paper statement or a PDF statement and type that information into software. This is the slowest and most prone to errors. There has be no reason to do it this way for several decades yet many bookkeepers who know the automated downloads are too cumbersome will tell you this is the only other way to do it. (not recommended)
You manually download transactions from your bank and you manually import those into software (the recommended method)
You allow your software to call out to your bank to get the transactions from them on a regular basis (not recommended).
In this case, semi-automated is best. The fully automated download processes between software and banks are great until they burp or fart, at which point in time you might spend hours or days trying to clean up the mess. Stick with the manual download and import process and it might take you 30 seconds for each account each time you do it but you will never lose control or get tied into knots.
What does "Accurately" mean?
"Accurately" was added to bring attention to a "crosschecking" process referred to as "Statement Reconciliation".
With "statement reconciliation" you look at a paper or pdf statement and then you find the matching statement in your software and mark it as "cleared" with a checkmark, an X, a c or some other market specified by the software. As you do this, the software totals the increases and the deceases that you marked, and then compares that to the summary bank statement you also entered into the software to provide a comparative target. This system works if you were to use the transaction dates instead of the post dates for transactions (the dates the banks shows for the transactions). Unfortunately if you are using the transaction dates instead of the post dates, preparing a Balance Sheet becomes almost impossible. An odd fact that takes many years to figure out.
An alternative method for Statement reconciliation involves keeping and comparing a running balance for the statement end date with the statement end date balance. ZAP uses this methodology. It eliminates all the item by item stuff and is a huge time saver.
For each transaction, select a value from a list that best categorizes the transaction. It's just that simple. In proper bookkeeping software, the categorization list is actually the "Chart of Accounts". Some software helps speed his up with a "memorized transaction list". ZAP Accounting Software relies in inherent spreadsheet column sorting technology to speed up the categorization process much faster. The transactions are sorted by Payee and then payees are all grouped together and you can visually see how you categorized items prior and just drag the categories down from previously categorized transactions, across multiple transactions at a time.
This report reduces a bunch of numbers in two sections and those two sections then create a single value. The resulting value on the report is referred to as "Net Income" or "Profit" if it's positive and "Net Loss" or just "Loss" if it's negative. The process of creating this report is simple. Click a button. When doing this in a company you are familiar with you would look for obvious errors or omissions. When doing this for a company you are not familiar with, it may be difficult or impossible to recognize problems or errors from reviewing the report.
This report reduces a bunch of numbers in two sections and those two sections then create a single value. You want that value to equal ZERO. You get that value by subtracting one setion subtotal from the other. But you don't even need to do that really. If both section totals are the same, the difference will be zero and you will see that easily too, and the bookkeeping is said to be "in balance".