Part 3 - Experimentation Time

Sections Include:

1) Bookkeeping, Cash flow, Income Statement and Balance Sheet Understanding all in one short Experience

2) Understanding Equity Transactions (Paid in Equity and Owner Draws), comparing Owner Draws to Payroll for an Owner and Business Entity Benefits from Tax Perspective

3) Force Balance Sheet Errors (transaction categorization errors)

4) Force Statement Worksheet Errors (post date related errors)

1) Bookkeeping, Cash Flow, Income Statement and Balance Sheet Understanding
all in one Short Experience

Two videos that will change everything you believed about Bookkeeping and Software, lickety split!

Watch these videos a few times.

Then Congratulate yourself for taking the time to become far more financially literate.

Below you will find a Rules Based Mental Model for Small Business Bookkeeping followed by a few simulation exercises that will establish a Sound Understanding of Bookkeeping, Cash Flow, and the TWO Reports you need to understand the most with ease. Keep this webpage bookmarked, and you will always be able to handle bookkeeping, even if you take large breaks between practicing it.

A Rules Based, Mental Model for Small Business Bookkeeping

  1. Income by category (by account) is NOT typically tracked here. They are tracked in things like a carbon copy receipt book, a point of sale system, or an invoicing system. Your bookkeeping template/module should NOT be connected to Sales Systems and the sales details should not be included in this system..

  2. Expenses by category (by account) ARE are tracked here. Who you paid, how much you paid and when are included in the Bookkeeping Template, but purchase details are not included here and may only be moderately relevant.

  3. Expenses for most should be tracked by credit card use with as little as possible by checking account use. This reduces time spent worrying about and managing cashflow.

  4. Transfers from Checking to Credit Card to pay off the Credit Cards are recorded as references to EACH OTHER not references to Income and Expenses. This sounds intuitive, but this is the first hurdle most make errors on with transaction categorization

** -- This video was originally filmed as part of the Net Income Section....

11:19

This next video conveys more about the Power of a Bookkeeper's or Federal Banker's Pen than any other video on this website.

The message isn't conveyed in the notes below. You'll have to watch it to get it...

  1. Change Income and Expense Transaction amounts to discover this creates changes on the Income Statement and on both sections of the Balance Sheet (Incremental and Absolute) as well as on the Balance Sheet report total.

  2. Change Transfer Transaction amounts to discover transfers have no effect on the Income Statement which means they also have no affect on the Incremental Section of the Balance Sheet. These changes will have an affect on the Absolute Section of the Balance Sheet, but the changes will offset each other resulting in no change to the Balance Sheet totals top or bottom either. In summary, transfers from one asset or liability account to another asset or liability account have no affect on the report totals for either the Income Statement or the Balance Sheet.


19:04

2) Understanding Equity Transactions (Paid in Equity and Owner Draws), comparing Owner Draws to Payroll for an Owner and Business Entity Benefits from Tax Perspective

These videos were done without scripts and without clear outlines. These can be nuanced topics that are better discussed with some visuals and more outlines but wanted to get something out there with basic information for now to help with dialogue, vocabulary and broader general understanding ( 2/22/2021).

What are Equity Transactions (Paid in Equity and Owner Draws)

How do they affect the Income Statement and the Balance Sheet


18:16

Clarification is made about the on the prior video with regards to removing equity and income from sales by replacing it with debt is introduced to help explain how money moves in and out of a company freely and to reinforce the idea that Bookkeeping is about leaving a crumb trail for auditors for the Business Owners Best Interest.

What is the Difference Between and Owner Draw and Payroll Check for an Owner.

How do those affect the Income Statement (in summary)

A conversation about Sole Proprietorships, LLC's, LLC's taxed like S-Corps, S-Corps and Non Profits

24:29

3) Force Balance Sheet Errors (transaction categorization errors)

10:11

Force Balance Sheet Errors related to Transaction Categorization Process

  1. Uncategorized Transaction

  2. Self Categorized Transaction

  3. Transfer that should have been an expense or visa-versa

NOTE: Dates that are outside of their proper Statement Ranges will NOT be seen on the balance Sheet as an error no matter if they are inside of or outside of the Balance Sheet Start and End Dates This may not be the same as with other Software. This was a design choice.

5:21

Balance Sheet Error for Transfer with two different dates

!! This is an extremely important video !!

When paying off a credit card with a transfer from checking, the amount may leave the checking account on the 18th, but not show up in the credit card account until several days later. A Balance Sheet Report that ends during that transitory time window will show an error. This is not a big deal. you will just need to note it properly if it happens on 12/31 balance sheet, for example.

4) Force Statement Worksheet Errors (date related errors)

9:56

Force Errors Related to errant Transaction Dates to cause Statement Worksheet Errors (note: no balance sheet errors will show up)

  1. A transaction that was in its proper statement ranged is moved out of its range to another valid range.

  2. A transaction that was in its proper range is moved to a range prior to the opening balance for the account.

NOTE: Dates that are outside of their proper Statement Ranges will NOT be seen on the balance Sheet as an error no matter if they are inside of or outside of the Balance Sheet Start and End Dates This may not be the same as with other Software. This was a design choice.

more coming...

xxxxx