Chapter 7 – Keeping Score

Overview

This chapter is about keeping financial records and physically controlling spending. These are the nuts and bolts of managing the numbers. The analysis comes later. To make it easy to introduce bookkeeping, I have approached it from the angle of an entrepreneur starting a new business. This is probably where you are if you have an overwhelming interest in posting your own transactions. However, even if you are working in a big corporation supported by teams of beanies, I hope you will at least skim the bookkeeping section and gain an understanding of debits and credits, double entry accounting, and the chart of accounts. Please take particular note of comments about passing transactions through the bank account – a topic to which I will return in the next chapter.

Mastering bookkeeping basics

After reading this chapter, you should be able to answer the following questions:

• What are debits and credits? Why do they infer the opposite to what you might expect?
• What is double entry accounting? Why is it important?
• What is a chart of accounts?
• What are assets, liabilities, and equity?
• What are income and revenue accounts?
• How do you classify spending and receipts?
• What are balance sheets and profit and loss accounts/income statements?
• What is a trial balance? When would it be useful?
• How would you select PC-based accounting system?
• How would you set up an electronic accounting system?