accounting-bookkeeping

Accounting & Bookkeeping (double-entry, close, statements)

The invariant everything hangs on

Assets = Liabilities + Equity                (must hold after EVERY entry)
Debits = Credits                              (per entry and in the trial balance)
Debit increases:  assets, expenses
Credit increases: liabilities, equity, revenue

Every transaction is a journal entry with at least one debit and one credit, a date, and a description that names the source document (invoice #, receipt, bank line). An entry you can't trace to a document is an entry you can't defend.

Chart of accounts

Keep it small and stable: assets (1xxx), liabilities (2xxx), equity (3xxx), revenue (4xxx), COGS (5xxx), operating expenses (6xxx) is the common numbering convention. Add accounts when a category needs its own line on a statement, not for every vendor. Renaming or merging accounts mid-year breaks comparability — map, don't mutate.

Accrual vs cash basis — pick one and label it

• Cash basis: record when money moves. Simple, matches the bank, distorts months with big prepayments or late-paying customers.
• Accrual basis: record when earned/incurred. Revenue when invoiced/delivered, expense when consumed — with accounts receivable/payable, prepaid expenses, and accrued liabilities carrying the timing difference.

Mixing them (accrual revenue, cash expenses is the classic) overstates profit. Statements must state their basis.

Bank reconciliation — the truth test

Monthly, per account: start from the bank statement balance, tick off every book entry against a bank line, and explain every difference (deposits in transit, uncleared checks, bank fees not yet booked, errors). The reconciliation is done when bank balance ± reconciling items = book balance to the cent. Unreconciled differences "written off to misc expense" are how fraud and duplicate payments hide.

Month-end close, in order

1. Post all transactions; chase missing invoices/receipts.
2. Reconcile every bank, card, and loan account.
3. Book accruals/deferrals: earned-not-invoiced, invoiced-not-earned, prepaid amortization, depreciation, payroll accrued to the cut-off.
4. Run the trial balance — total debits must equal total credits; investigate, never plug.
5. Review P&L and balance sheet against prior month; explain every large swing before publishing.
6. Lock the period. Post-lock changes go in the next period with a note, never edited in place.