Bookkeeping Tutorial with Photos and Time Saving Tips

 
bookkeeping tutorial with photos and time saving tips - stacy kessler.001 copy.jpeg
 

Learning bookkeeping basics

When I first started doing bookkeeping for my business I had a million questions. Accounting software and it’s how-to guides seemed setup for professional bookkeepers and accountants, not novice business owners like myself.

I spent a ton of time learning the basics and finding answers to simple questions. It’s no wonder that so many of us avoid being financially organized (and I did for several years).

However, you need to be a good financial manager in your business to be setup for success, so I want to save you the steep learning curve I experienced with a simple tutorial that’ll help beginners learn the basics of keeping their books using an online software.

We’ll cover:

  1. What it means to reconcile transactions

  2. How to reconcile bank transactions

  3. What to do if you make a mistake

  4. Three tips for making this process simpler and saving time

Bookkeeping setup

If you’re not yet setup to start bookkeeping, read my article Easy Bookkeeping Setup first for five easy steps to getting setup, then continue reading this article for practical tips on what to do next.

Note: I use Xero to manage my books, so that’s what the screenshots are below, but the process should be similar for other accounting tools and the concepts still apply no matter what method or software you’re using.

What does it mean to reconcile my transactions?

If you’re just getting started, you’re probably wondering what they heck reconciling means and how to do it.

Bank reconciliation or reconciling transactions is an accounting term essentially meaning that you are going to categorize the money coming into and going out of your business.

If you’ve linked your business bank account to an accounting program (which I highly recommend), all money received and spent by your business through this account will automatically show up in your accounting software.

Here’s a screen shot example of my dashboard in Xero showing that it’s recognized a number of transactions from my bank account that need to be reconciled, or categorized, so they show up properly in my financial statements. This enables me to analyze what’s going on with the money in my business and be ready to go for tax time.

Bank Reconciliation Dashboard in Xero - stacy kessler

Once everything is reconciled and up to date, my balance in Xero should equal my statement balance (what’s in my bank account).

How do I do bank reconciliation?

Once you click on the button to reconcile your transactions, you’ll see a number of side-by-side boxes like the one below. The left side is the information coming in from the bank. You’ll need to fill in the information on the right-hand side so your accounting program knows how to categorize the transaction.

Bank Reconciliation Dashboard in Xero - stacy kessler

You can fill in the basics here or click on Add details in the bottom right-hand corner to see more options like attaching a receipt (the paper or file icon on the right-hand side.

Bank Reconciliation Details in Xero - stacy kessler

Click More Details to see the Merchant for a reminder of what this transaction was and then complete the information:

  1. To (who the money went to - choose to add as a new contact if they aren’t already in the system)

  2. Description (what transaction was for)

  3. Account (chart of accounts category - see my bookkeeping setup article for details)

  4. Paper Icon (attach receipt)

xero transaction reconciliation example - stacy kessler

Once I’ve filled in the information I hit Save Transaction at the bottom, and then the screen will change to below. You can select OK at the top or Reconcile at the bottom to complete it.

xero transaction reconciliation example 2 - stacy kessler

What if I make a mistake when I’m reconciling?

If you make a mistake, go into the Account Transactions for that bank account, select the transaction you reconciled that you need to fix and select the Remove and Redo button.

The bank transaction will show back up in the line items you need to reconcile and delete the information you created about what that transaction was for so you can start over.

Xero bank reconciliation mess up remove and redo - stacy kessler

How can I make the bank reconciliation process faster and simpler?

Email your receipts

It’s a pain to hold onto paper receipts and digging through emails and computer files to find them can be a nightmare.

The solution?

Email your receipts to your accounting software to keep them all in one place and attach them to the actual transactions.

Your Xero account has a unique email that you can send attachments to (PDF or image files only, so if the receipt is in the body of the email you’ll need to export/print it to a pdf first). It’ll hold them all in your program’s file repository for safe keeping.

When you reconcile, you can attach the right receipt to each transaction for easy finding.

Xero attaching receipt to reconciliation transaction - stacy kessler

Voila! No more shoeboxes and file folders of receipts!

set up bank rules

If you plan to do a certain kind of transaction regularly, set up a bank rule to save time. This is useful for things you pay a monthly subscription to, a commonly used supplier, or a coffee shop you have business meetings at frequently.

When you set up a bank rule, each time a transaction comes through with matching information, the accounting program will automatically fill in the blanks on the reconciliation for you so all you have to do is double check it and hit okay (and attach a receipt if you want).

To do that, hit Options (above the transaction) and select Create Bank Rule from the drop-down. This is what shows up.

Bank rules xero - stacy kessler

You’ll then need to fill in some of the blanks. Because the transactions can sometimes come in slightly different and because your card numbers will change over time, I delete everything in the Reference row in #1 except the merchant name and change the condition from equals to contains.

The main goal is to set these parameters to what you know will be consistent with each bank transaction.

For example, I used to write a $100 check for my business’s cleaning woman every few weeks. Because I never had to write a check out for exactly $100 for anything else and the transaction would show up as a deposited check and not as a transaction with my cleaning woman, this was something consistent the program could recognize. In that case, I changed the conditions from Reference to Amount and set it to equal with the amount $100.

Here is an example for Audible, since it’s a monthly subscription I pay for to get audio versions of business books.

Screenshot 2019-04-16 17.00.29.png

Invoice through your accounting program

When you invoice through your accounting program, the software knows what money to expect will come in through your bank and suggest it as a match. If it’s correct, all you have to do is hit OK.

Xero+reconciling+invoices+-+stacy+kessler

If your clients pay with credit card and your credit card processor takes a cut, your accounting software will guess that a closely matched invoice should be matched and assume the difference is a credit card processing fee (this is what shows up when I click on the suggested invoice match).

Note: sometimes you need to select this option when you setup the invoices so the accounting software will do this.

Xero reconciling invoices with credit card processing fee - stacy kessler

Bookkeeping tutorial in a nutshell

  1. Bank reconciliation or reconciling transactions is an accounting term essentially meaning that you are going to categorize the money coming into and going out of your business.

  2. To reconcile a transaction in your accounting software, click More Details to see the Merchant for a reminder of what this transaction was and then complete the information:

    1. To (who the money went to - choose to add as a new contact if they aren’t already in the system)

    2. Description (what transaction was for)

    3. Account (chart of accounts category - see my bookkeeping setup article for details)

    4. Paper Icon (attach receipt)

  3. If you make a mistake, go into the Account Transactions for that bank account, select the transaction you reconciled that you need to fix and select the Remove and Redo button.

  4. Tips for making this process simpler and saving time

    1. Email your receipts to the accounting program

    2. Set up bank rules for recurring transactions with consistent information

    3. Invoice through your accounting software to easily match incoming revenue

Commonly asked bookkeeping questions

Now that you understand the basics of reconciling transactions in your accounting software, stay tuned for next week’s article answering commonly asked bookkeeping questions such as:

  1. What do I do if I accidentally put a business purchase on my personal card or vice versa?

  2. How do I account for barters in my financials?

  3. How do I pay myself?

  4. Can I get reimbursed from my business for mileage, cell phone, internet, etc?

Stay tuned!

Set your business up for success in other ways too

If you found this helpful you should also download my free Step-by-Step Checklist to Set Your Business up for Success below. I walk you through my Foundational Five™, the essentials I believe every entrepreneur should have figured out in order to be set up to succeed.

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stacy kessler - pathfinding strategist

Hey There!

I’m Stacy, an entrepreneur, strategist, and adventurer dedicated to helping you craft your dream business out of your skills & passions. Why? Because I think you should love your life and that’s kind of hard to do if you don’t love your work.

You are meant to do important and amazing things in this world and I’m here to help you do just that.

A Note About Financial Advice

*Please note that I am not a professional tax preparer, accountant, or bookkeeper. I am an entrepreneur and business owner sharing what I’ve learned about managing the finances for my businesses. You are still responsible for ensuring you are properly managing your business’s finances and complying with tax laws. This article is for informational purposes only and is not intended to replace the need for a financial professional or to provide official accounting or tax advice.

 

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