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The plant nursery purchases inventory for $10,000. The plant nursery paid cash for the invoice. Shareholders invest $60,000 cash into the businessCash is an asset, so assets go up by $60,000Because they received stock in return, equity also goes up by $60,000The nursery uses $10,000 cash to buy $10,000 of inventoryCash decreases by $10,000Inventory increases by $10,000Cash = $60,000Cash = $50,000Inventory = $10,000
What are the different types of income generated by the products or services they sell?What are the expenses that they pay regularly? How many checking accounts, credit card accounts, and loans do they have?Make sure to catch any easy-to-miss accounts, like reserve or savings accounts, that are also under the business.
Intuit Bookkeeping Certification
Bookkeeping Basics
What is Bookkeeping?
“Giving a financial compass to help owners make their dreams a reality.”
I enjoy organizing information, creating systems, and helping people feel less overwhelmed. I’m drawn to work that is practical, detail-oriented, and genuinely useful. Bookkeeping allows me to support small businesses while building a flexible career for myself.
I have a strong eye for detail, value accuracy and confidentiality, and enjoy creating simple, clear systems that make financial management easier and less stressful for clients.
TERMS
Profit & Loss
Income - Expenses = Profit (or loss) / Net Income
Accounts = Categories
Balance Sheet
Assets: things you own
Liabilities: things you owe
Equity: what’s left over
Assets - Liabilities = Networth
RESPONSIBILITES
Record Financial Transactions — systematically documenting financial events in a business's accounting system.
Reconcile — find mistakes: ensures accuracy and identifies any discrepancies, simply making sure that what's in the books matches what's on the bank/credit card statements, catching our, our clients', and the bank's mistakes. Happens at the end of the month as the last step before sending reports.
Audit Log — fix mistakes: shows us exactly what changed so we can fix it.
Managing Accounts Receivable & Accounts Payable — entails efficiently tracking and handling the money owed to the business by customers and the money owed by the business to suppliers and creditors.
Accounts Receivable — Invoices | Money that is owed to a business for providing a good or service.
Accounts Payable — Bills | Money a business owes to others for goods or services.
Working with Tax Preparers & Assisting with Tax Compliance — collaborating with professionals, such as CPAs and tax advisors, to ensure accurate tax reporting and adherence to tax regulations for the business.
Generating Financial Statements — involves preparing core financial documents that summarize a business's financial activities, performance, and position, providing valuable insights for decision-making and financial analysis.
ETHICAL RESPONSIBILITIES
Honesty: Act with integrity
• Report financial data in an accurate and timely manner
• Own any mistakes and do everything you can to fix them
• Be open and transparent with your client about the state of their finances
Objectivity: Achieve accuracy
• Never take a job that might pose a conflict of interest (when a person's individual interests raise a question about their ability to act or make decisions or judgments objectively)
• Never allow another party to influence your findings
• Never let personal bias get in the way of performing your duties
Professionalism: Being courteous and considerate
• Avoid any activity, personal or professional, that could bring shame to the profession or business
• Maintain proper credentials and keep skills through continuing education
Confidentiality: Treat data with the utmost care
• Never discuss anything with a client outside of the job
• Never using inside information of a client for personal gain
Accounting Basics
TERMS REMINDER
Accounting Equation:
Assets = Liabilities + Equity
Explains why events happen the way they do in the accounting proccess, communicates the reasons behind financial decisions or discrepancies, and spots errors or inconsistencies in accounting software.
Assets — things you own
Liabilities — things you owe
Equity — what’s left over: the owner's stake in the business, or how much they have invested into the business or withdrawn from the business.
Assets - Liabilities = Networth, the shield protecting the business from financial turmoil
Balance Sheet — shows the relationship between what the business owns, what it owes, and how much the owners have invested. It is the accounting equation displayed as a financial statement.
Categorize Transactions
Accurately allow businesses to track their income, expenses, and assets, providing valuable insights for decision-making and financial reporting.
Revenue represents the income your client earns through their business operations. It's their gross proceeds from sales, whether that's products, services, rentals, or anything else that brings money into the business.
Expenses represent the costs of doing business, such as labor costs like salaries and employee benefits, operating costs like utilities, rent, and insurance, and other essential expenses like taxes and advertising, or anything else that keeps their business moving.
Revenue and expenses come together on the income statement, a document that summarizes a client's financial performance through the calculation of revenue minus expenses.
Income - Expenses = Profit [Net Income] (or loss [Net Loss])
Note: In accounting you will often find negative values noted by being shown in parentheses, for example: ($6,000.)
Debits — an increase in assets or expenses, or a decrease in liabilities, owner’s equity, or revenue.
Credits — a decrease in assets, or expenses, or an increase in liabilities, owner's equity, or revenue.
Note: The cardinal rule of bookkeeping: debits and credits need to be equal. It's like a balancing act where the numbers on both sides of the stage should always match up.
Examples:
Credit the accounts payable ( liability) when recording the purchase of office supplies on account.
Debit the salary expense (expense) and credit the cash (asset) when recording the payment of salaries to employees.
You're the bookkeeper for a plant nursery, a newly formed corporation. The plant nursery had the following transactions for their business:
Four shareholders contributed $60,000 ($15,000 each) in exchange for the plant nursery's common stock.
What are the effects on the plant nursery's accounting equation?
Assets = Liabilities + Equity
A: Based on the two transactions, assets increased by $60,000, and shareholder equity increased by $60,000.
So after transaction 1:
Assets = +$60,000
Liabilities = $0
Equity = +$60,000
Then the second transaction:
Both cash and inventory are assets, so total assets do not change.
Before purchase:
After purchase:
Total assets are still $60,000.
So the final accounting equation is:
Assets = $60,000
Liabilities = $0
Equity = $60,000
That is why the answer says assets increased by $60,000 and equity increased by $60,000. The inventory purchase did not increase or decrease total assets — it just moved money from one asset account (cash) to another asset account (inventory).
Accounting Principles
Maintain financial integrity and ensure accurate reporting in business, and provide a standardized framework that guides financial information recording, analysis, and communication.
By adhering to these principles, businesses can:
• Make informed decisions
• Build trust with stakeholders
• Maintain transparency in their financial operations
Economic Entity Assumption— This assumption means that the business is its own separate entity, distinct from its owners. It reminds us that we must keep the business's financial activities completely separate from any personal finances.
Business and personal expenses are like oil and water—they should never mix!
Reliability Assumption — This principle ensures that the information you record in your client's financial documents is verifiable and backed by proper documentation. If your client can't provide an invoice, receipt, or bank statement to support a transaction, it is not a reliable transaction and can't be recorded.
Full Disclosure Principle — This principle states that any information lenders or investors might need to make informed decisions should be disclosed in the financial statements or accompanying notes.
For example, if a worker files a workers’ compensation claim, it's essential to include that information in the notes of the financial statements.
Conservatism Assumption — When you are not sure if or how to record an item, this principle guides us to err on the side of caution. It means we choose options that show less income or asset benefit. Potential losses can be recorded, while potential gains cannot.
For instance, if your client is facing a potential lawsuit, you can consider it a loss and note it. But if your client is expecting increased foot traffic to their business due to a new business opening nearby, you can't record a potential gain until it actually happens. Better to be cautious than overly optimistic.
Materiality Principle — This principle allows you to focus on what really matters. It states that if an accounting standard has such a small impact on the financial statements that it wouldn't mislead anyone, you can ignore it.
Take rounding, for example. When recording documentation, we often round amounts to the nearest whole dollar instead of fussing over cents.
Use caution when applying this principle. Determining materiality can be highly subjective. When in doubt, seek advice from colleagues or an accountant who can provide valuable insights.
Consistency Principle — Once a business adopts a specific accounting method for recording certain items, it commits to entering all similar items in the same way in the future. This principle applies to line items on all financial statements and reports.
Imagine a business owner hires you to take over for a previous bookkeeper who handled depreciation calculations differently than you typically do. If you were to introduce a new method, the expense figures might look different on the statements even though there wasn't an actual change in the client's financial situation.
Instead, by adhering to the consistency principle, you maintain continuity and comparability in your client's financial records. You would only change an accounting method if the new version improves the accuracy of reporting.
Monetary Unit Assumption — This assumption brings simplicity and uniformity to your accounting practices. It states that you use one currency throughout all of your accounting activities. In the United States, that currency is the US dollar.
You don't need to worry about inflation or changes in currency values when recording your client's finances. For instance, if your client purchased a piece of land and the value has increased over time, you don't need to adjust the recorded value based on the current market price. Just stick to the price paid at the time of purchase. This assumption keeps records straightforward and avoids the complication of fluctuating values.
Going Concern Assumption — This principle assures us that the business is stable enough to operate and meet its obligations for the foreseeable future. The business acts and makes decisions with the intention of continuing to operate rather than liquidating it.
If and when a business is at risk of failing and is no longer considered a going concern, it's essential to report the issues it is facing, such as ongoing losses, credit denials, or lawsuits. Transparency is critical in these situations.
Accounting Cycle
Step 1: Collect & Analyze Transactions
Collect and analyze events to see if they are transactions that impact the business. (Transactions can be things like business purchases, paying off debts, or earning revenue from sales.) Then gather the source documents that back up those transactions.
Also, get a list of the business's relevant accounts for recording transactions, called the chart of accounts — a list of all of the accounts and sub-accounts used to categorize transactions.
Starting the Accounting Cycle
When I first meet with a client, I use a checklist to guide our discussion about their business finances.
Help clients understand their finances. When finding mistakes in their books, take on a teaching role and approach these moments with care. Gently guide them to identify any overlooked information, ensuring accurate records without making them feel overwhelmed.
Step 2: Record and Post Transactions
Thanks to point-of-sale systems, online banking, and dedicated accounting software, most transactions are automatically recorded in real time, which is ideal. However, some transactions still need to be manually entered into the system.
It’s important to ensure that transactions are correctly categorized and assigned to the right accounts. Imagine spending a lot of time analyzing incorrect data due to miscategorization—it’s not fun. Journal entries should be organized and grouped based on the different accounts.
In double-entry accounting, every transaction is recorded as both a debit and a credit in two or more subledger accounts.
Once these journal entries are written and approved, they are transferred as summary entries, or “posted,” to the general ledger (GL), which is a master record that summarizes all financial transactions of the business. It contains all the accounts and financial records needed to prepare financial statements. After posting, all transactions should be reconciled against source documents, such as bank statements.
Step 3: Prepare unadjusted trial balance
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