Documenting Money Flow
Just to review, we're going, tio enter those payments we've already done. The invoices were going to enter the payments as they come in first, then enter the deposits, then check that against our bank statements. So, uh, the balance sheet is a snapshot of one moment in time for your business. Um, unlike a, uh, profit and loss sheets, which I'll also show you, um, which shows you how profitable your business has been over a span of time. A balance. She shows you how much cash your business has at any given moment. Um, it does not stretch over a total amount of time, and it will show you for each account that you have. And in total, um, a couple of notes before we get started. Um, petty cash is also an account that you should have, um, if you ever pay for things in cash, I'm sure everybody uses cash now and again. Um, and I promise you that is going to show you this in an earlier segment. This is my my business wallet, the one that I made, where the pattern was, like an eighth of an inch...
too small so you can see the dollar bills stick out of the top a little bit, um, which you could see as a convenience like hey I always know how much money I have without even opening my wallet because it's all sticking out for everybody to see that's great um this thing is now at least eight years old but I was very proud of myself I sew this teeny tiny zipper pocket for the change and everything um it has interior pockets and this is how I keep all of my business uh finances separate um I have a whole other wallet with my personal credit cards personal cash etcetera uh and then the petty cash I keep in one pocket and then the receipts in my deposit slips I keep in another pocket and once a month when I do my bookkeeping is just empty them all out throw them in the pile, separate him out into my nice little folder step two folder system and then get going with thea ledger. So um I do recommend having separate cash especially because it's really easy to mix up cash from two different places some people just have like one pouch where they keep you know their business receipt it's um but maybe they mix up their business credit cards in the same wallet with their personal credit cards because one of them says business card and one of them says, you know nothing they don't say personal card on them um but I really like having all of it separate and in one place for your business, because petty cash is so easy to mix up, and you will need to reconcile that to, um, whatever cash you have left in your wallet at the end of the month should match the amount of cash that you spent or the amount that you've gotten paid if you were selling somewhere like a craft fair, for example, um, uh, you can also have deposits that go between accounts. So we're gonna look at depositing a standard deposit where you've gotten a check you deposited in the bank, and then it shows up in your bank statement. Um, but if, for example, you go to the bank, you deposit a check and you get forty dollars back. You've now basically made a deposit from your bank from your bank account into your petty cash account. Um, so we're also gonna look at that because you can have balances between accounts as well. Especially if, for example, um, you take money out of your paypal account, put it into your business account, right? Your business checking or savings? Um, because people I will just mention and I learned this because of a great article from abby glassberg, who I mentioned who has that nice bloggin newsletter, um paypal is not actually a bank account technically even though they will hold your money for you and you get a tiny tiny bits of interest sometimes um it's not fbi see insured the same way that a bank account is um so it's probably best to keep most of your money in an actual insured f d I c insured bank account as opposed to something like pay pal your etsy shop account where, you know god forbid the financial world comes to an end and everything goes belly up. Um, so very often you'll need to make deposits from something like pay pal in your bank account will cover that too. Um, you can also this is also where we will, uh, start to look at equity a little bit if you are taking money out for yourself or if you're putting money into your business that affects your cash, right? It doesn't affect your profit. We've talked about that already, but since we are going to be addressing your cash right now, the money that your business actually has to work with this is where that equity comes into play, so this has nothing to do with profitability just emphasize that this is just your cash on hand, all right, so um let's bring up that ledger and we'll take out uh, this is the switch to the we're done with the prophet calculator I think well let's just minimize it just in case we need to bring it up later for I don't know what what reason lets make this bigger so this is that profit and loss sheets that I mentioned I'm just showing you this briefly before we dive in um this will in the fancy spreadsheet calculate just bring in uh all of the things that you have labeled as sales consulting materials and supplies et cetera um I think like I mentioned earlier you need to keep this the same and consistent because it is actually looking this formula appear is actually looking for that term so here in other income it's looking for the words other income so if you called it miscellaneous income it won't pull in automatically. Um so you do need to keep, uh, the accounts that you assigned to things in your spreadsheet very consistent in order for this to work uh gonna magically otherwise, uh I recommend either using the simple spreadsheet or learning a little bit more about excel in orderto adjust things the way that you want them to be uh but this poles uh your profit over a certain period of time so right now this is set up to pull in your profit for the year to date so this will show your profit so far since january first of any given year this is my twenty fourteen example but there's also a blank one that will pull in for twenty fifteen once you start entering stuff into your twenty fifteen income and expense sheets so if I were to enter something into the income detail over here um you know just for examples sake if I were to have sales um and the subtitle was four hundred dollars then he should show up in my profit and loss for twenty fifteen oops. Well that's still labeled twenty fourteen huh should fix that too. I will correct that. Well, I didn't assign it in account yet that's why it's not pulling in you have to assign an account to everything uh account sales well let's make this consulting maybe all right and let's go back and take a look now we've got four hundred dollars in consulting like it's supposed to be uh okay so moving on to the balance cheat it's close to the end here second toe last sheet just zoom out for a minute so you can see all the columns uh you've got the date of course, because everything has the data on every single sheet you have uh the payment type where it came from the amount of the payment what account income or expense account um and then the balance which in your fancy ledger will automatically update you need to start with your opening balance and this is by account so the cash. This is my petty cash account. The opening balance in my wallet is one whole dollar. Hallelujah, which I could tell without even opening it. Um, so one dollar is my opening balance. You put that in there, uh, and then we're going to add in lines after that. So you have notes that you can make again? This is good for check numbers. Um, that sort of thing, or if you want to track stuff by product, although on account basis, like petty cash versus credit card, you probably not that interested in how often you pay cash for supplies that you know our for this product versus that other product. But the option is there. Um, okay. So let's do an example. I have sent out an invoice, and I have received a payment. Pull out a good payment slip here. And by the way, this is payments that you are both making and payments that you are receiving. So all right, we gotta check that came in from my distributor. It had one of those nifty tear off slips. So most of the information is already on here. The check numbers already on here, the amount is already on here, um, it does not say, you know, bye item. What was on here? That was part of my invoice so I should have added that already when we did the income section um you know, he bought three of these toys he did sold four of these toys five of these other toys uhm presumably that's already in there. So uh, what we would want to do then is go back to our income for twenty fourteen the income detail let's put this in february so let's assume that I've already sent the invoice for this I'm not gonna be able to figure out what it was that he actually bought but let's uh let's see, it was one hundred and seventy six dollars worth, so we'll pretend it was all small hams and let's see what's one seventy six one seventy six divided by I will say ten so we'll assume he bought ten of these for one hundred and seventy six dollars. So now I have this in here. Um I've sent the what line was us fourteen I sent in the invoice maybe on january twenty second and now I've received the payment. So this is now where you're going to put the date for this payment that you got remember dates always first so I got this payment on well, this says I actually got it on january twelfth but let's assume that it was, uh, february first because he doesn't have a time machine and then in the notes I can put the check number that I got so check number you know one two three four five six seven in case I need to look that up later so now I don't have a blank space there one of the things you want to do when you're done entering in your payments for the month is to look at uh these columns here this due date and this paid date and if you have blank spaces here and you are past that due date you've got people who owe you money right that's what that means uh so that means you need to start chasing people down and you should be able to see some of the stuff in your calendar to um obviously when you're going in and you're entering things that are due in your calendar you're also looking for stuff that that week that has already come due and that you need to collect on uh but of course as you get farther and farther out in your calendar if someone still hasn't paid you you're going to stop being able to see that uh so this is a good way when you start entering in your payments for the month or the week or however often you do this to make sure that you're not missing any money so the first thing you need to do is reconcile your payments with your invoice is did you get paid on time the full amount if yes great continue to step to where we deposit this so that's where we will go back to our balance sheet and so on february first lets make this bigger so everybody can see on february first I received a check from my distributor in the amount of one hundred seventy six dollars uh from sales or product sales or whoever you're labeling this uh so then my bank balance went up to one hundred seventy seven dollars I haven't been here okay this should be bigger and on the next page this is confusing to people including myself. Okay ah and then the notes I can put in groups where am I here also I put this in my petty cash account should not have done that I should go in my checking account because I did not deposit it to my petty cash again. Okay oh and it doesn't like what I did with the formula. All right, well just retype it for now. Payment type check distributor make sure you're always depositing to the right account here one hundred and seventy six dollars sales uh say the opening balance in my checking account was I don't know one, two, three, four and then notes I can put in the check number one two three four five six seven remember what it was and so you should have where's a good deposit slip okay, so whatever is on your deposit slip you know from your bank should match what's going in here so you'll go through all of your payments first. Did you get the payment? Yes. Great. And then did you deposit that payment in the bank if you are seeing things if you are seeing payments that you received that are not in your balance sheet that's gonna come up in your reconciliation so after we have, uh, gotten paid and deposited that at the end of the month, you're going to get a bank statement, right? Um it will show you how many deposits and additions you've had. It will show you the number of checks you paid and in what amounts? Uh at tm and, uh, debit card withdrawals, electronic payments thos e f t s that I talked about earlier um and then any other fees or other withdrawals that you made and, uh, what I like to do is I like to actually print out my bank statement. You can see it's on the back of, like, random recycled scrap paper uh, because they don't hang on to them for that long and then I like to actually go down the list and with a pen check everything off in my statement against what I have here in my balance sheet so I would go down my balance sheet and I would find okay here's the deposit for one hundred seventy six dollars yep. Check here is thie um you know, credit card payment that came in through my website for sixty dollars and ninety nine cents yep and check it all off um if you have something missing on your uh bank statement that you have a receipt for that you deposited then you need to call up the bank right because you deposited something and it never got credited to your account um if it's the other way around which is much more typical where you have things that you didn't get to check off on your bank statement it's because you didn't put it down in your ledger somewhere, right? So this is the process by which you make sure that everything that you've billed for you got paid everything that you got paid you deposited and everything you deposited ended up in the bank account where it was supposed to go um and that's similar for paypal and for your petty cash etcetera anytime you make a payment or you receive a payment that you get updated in your balance sheet um so at the end of the month you will have in your bank statement will see you're uh total deposits you'll see your, uh, total payments and you'll see your ending balance this is usually on the very first part of your statement, it's always at the bottom it's like a big, bold number. Um, in this case, the ending balance was twelve thousand nine hundred forty seven dollars and twenty six cents. So if you get to the end of your january dates in here or whatever month it is, uh, and you see that your balance your bank balance is not equal to this something's fishy, right? If your bank balance is the same as what's on your statement as what's in your balance sheet, then you can feel pretty confident when you open it up that you're gonna be able to check off all of those things and it will all be matchy matchy and all is right with the world in your business. I will tell you most of the time it doesn't match for me. I've been doing this for years now, and I even teach bookkeeping classes and most of the time, at the end of the month, my bank balance on my statement does not match what I have in my balance sheet and it's because I made a mistake somewhere I put a period in the wrong place or a marked a transaction twice. Or I forgot to enter something you know, maybe, uh a friend of mine came over to my house and they bought something. You know, they bought one of my products with cash and I just like stuff it in my pocket and walked away. Um but it's really important to reconcile all of that stuff not just for your own mistakes but because as I mentioned earlier financial institutions will make mistakes too. And, um, if we could go back to the key note I would like to show you an example of, uh some of the things that have happened to me. I have, uh this is one of my favorite charts. Uh financial institution snafu who's by year these are real things that happened to me as a business in these years. Uh, in june of two thousand eight, the bank that I was using got bought by a much bigger bank and I had closed my account with them. Um but because of all of the technology issues they ran into emerging the two companies uh they marked my account unclos dde and started charging me fees for like having no money in it. Um not making minimum payments, not having direct deposit and so one day I got a letter in the mail that I owed them like three hundred dollars in fees for this account that I thought I hadn't had for literally years uh and it was such a mess to untangle that, um, in two thousand and nine uh, I deposited a check that they counted as an expense, so I deposited a hundred fifty dollars they debited one hundred fifty dollars from my account. So not only did I lose one hundred fifty that I was trying to deposit, I lost another hundred fifty off of my balance that I never spent. So another three hundred dollars. I lost there. Um in twenty ten, I've had so many issues with tax payments and my bank in the irs in twenty ten. Um, the irs deposited my tax payment, they deposited my check. I had the canceled check with a little number on the back. Um but then they sent me a letter claiming I never paid my taxes. And by the way, here, all the fees and penalties and interest that you've incurred for not paying your taxes. That was another mess. Twenty eight hundred dollars, uh, taxes plus one hundred twenty dollars in like penalties. I never incurred twenty eleven. Uh, yet again, we have a problem with the irs and tax payment. This one was even better this time I did the payment cause I was like, okay, clearly there's a problem when I send them paper checks, right? So I'm going to pay my taxes this year just with the electron ix funds transfer the ft they debated it twice they took the money out of my bank account twice, so not only have I know I lost three thousand dollars out of my bank account, I'm now getting all kinds of fees for checks bouncing because I'm overdrawn on my account because there's suddenly three thousand more dollars missing that I never planned on it's a mess. Luckily the bank fix that one for me I didn't have to be on the phone with the irs for hours like I had to do in twenty ten but still not fun um april of two thousand twelve, I was still dealing with this in twenty fourteen um I had signed up for a podcast subscription for like a dollar ninety eight per month that podcast ceased to exist. Um the person closed it down great fine, I kept getting charged the dollar ninety eight every month it's not a big deal, but it was annoying because I had to make it part of my book keeping every month and I wasn't paying for I wasn't listening to the thing anymore it didn't exist, I had the credit card company, you know, stopped the charges and then uh block the monthly payment and the next month it came back in again I had to call the credit card company like three times to try and get them to turn this off before it actually stopped getting it was literally like two years worth of monthly payments before it finally went away. Um and then in twenty thirteen when I shut down that sweetmeats business show the chart only went to twenty thirteen I stopped paying for credit card processing cause I didn't need it anymore um you know, when I do need occasional credit card processing, I go through square or something like that, but I was paying these monthly charges for all kinds of stuff I closed my martian servants account they kept billing me for stuff that I wasn't using anymore um and then in twenty fourteen the bank made new rules about account balance minimums and like when you get charged fees versus when you don't and it turned out that, uh the last banker that I had worked with didn't link my accounts properly so he's getting charged all these fees for balances that they said I did don't have when I actually had him I got that fixed in december finally, um so this is just to show you that even though it happens rarely it only happened once a year that stuff adds up that's seven thousand and fifteen dollars worth of money that I would have lost had I not found and corrected these problems that's nothing to sneeze at um more often than not the problems on my end I'm putting in periods in the wrong places, et cetera but it's always good teo check against the banks to cause even though they're you know too big to feel on whatever they're they're not too big to make mistakes um they may use all kinds of fancy systems but it's still people working there and it's still people programming the computers and we're all human we make errors as humans uh and so it's it's good to check against these things um so uh I would like tio uh move on tio what should we do next? Well, let me stop and ask him if he has any questions first because we did look at the ledger again. We did look at the, um payments on the record styling. We have a question from brianna news asking how how do I replenish petty cash from what account? Because it is that they're she's seen this is what they call it in and out accounting system. Yes. So let's, go back to the ledger, please, and I will get right into the deposits between accounts that I mentioned early because this is what that question is addressing um so let's just dive right into that good timing ran in so if you want to replenish your petty cash because as, uh you can see down here I only have a balance of a dollar in my petty cash that's very sad um what we need to do is mean to make a deposit between accounts, so that will be a payment out and a payment in la I said in and out, so from my checking account, which is where I'm going to take the money from I am going tio uh, payment type we will say that this is a debit because we're taking it out in cash, but it's affecting the electronic balance of the account from checking in the amount of let's say it's forty dollars and for a count I'm going to put owners equity in here because I'm just moving money between accounts I'm not actually receiving a payment from anyone I'm not actually making a payment to anyone other than myself or rather I should say my business is not making any payments to or from anyone other than itself, so this will reduce the balance in my checking account by forty dollars hopes I'm sorry this should be negative forty because this is a payment out this will reduce what you put the negative this will reduce my balance by forty dollars, and then I will do the opposite in the petty cash account on february second we have a payment type cash from checking again in the amount of positive forty dollars, owners equity groups, and I'm just putting owners equity because this is neither an owner's draw nor an owner's investment. I'm not putting money in or out of of my own. I'm just moving it around, and now my balance should be forty one dollars, so that's a deposit between accounts and again that we'll all be reflected in your monthly statements. When you look at that, you should see forty dollars of cash withdrawn. It should have get your balance and your end of the month balance or what's left in your wallet should match, uh, the last line in your balance sheet. Any questions about that? About deposits between accounts? No, a very straightforward explanations. So thanks for that long, and I just want to take this opportunity to remind people as well, who, downloading the documents to follow along. They are created in two thousand, microsoft two thousand seven, but they do actually working google docks, and they also work in numbers, so if you're not actually using it so you will be able to open them in google or excel as well, thank you for that, and they do also work in more recent versions of office as well, um, okay, so I want to also look at um reconcile in your inventory because that's also an area where you need to make sure that the numbers match up right again if I sell a sweetmeat to a friend of mine who comes over for dinner and they say, hey, can I have one of those for my aunt um ten years later he's still doing that? Uh I need to make sure that I account for that right otherwise stuff goes missing and um then I'm in trouble so let's go back and look at our inventory again so in my inventory summary I should have a quantity in stock in addition to my beginning and ending quantities right? The beginning and ending quantities are what's useful at tax time that's what we're going teo need to have at the end of the year when we put everything together uh in the meantime there should be a particular quantity in stock so in your inventory detail you've been adding in uh every time that you so these air all inventory purchases but when you, uh get paid you should also be entering these things into your inventory so let's go back to my income in february I sold ten small hands so that needs to be reflected in my inventory detail so on remember what I said the date was but um I sold small hands I sold ten of them and now the cost of this is not what I sold them for it's what I paid for them um so I don't remember offhand what I paid for them and let's say it was like two dollars in sixty nine cents um and these were sold so when I uh put this in my inventory detail I should update I will you will have a line in here you should put a line in here small hams um that will adjust so if I had at the beginning of twenty fifteen if I had two hundred of these left um I have sold ten of them now my quantity is one hundred and ninety remaining so I don't know how often you generally take inventory of what you have now obviously it's easier with some businesses than with others if you have a jewelry business and you have thousands of pieces um it may be difficult to follow your inventory on a you know, weekly or monthly basis when you're doing your bookkeeping but you do need to make it a regular part of the bookkeeping and you need to reconcile that somehow regularly um it's why stores shut down for like, a whole day or two days to take inventory right? You'll see like a sign upon it like clothes for inventory um and so you know nobody likes to close their store uh it takes a lot of time but uh it does need to happen somewhat regularly so even if that's only once a quarter or twice a year um as often as you can make it happen the best because you don't the better because you don't want to get to the end of the year and have ah, you know, your current quantity and you're ending quantity for the year be off by like forty and then figure out where the heck did those go? Did I actually legitimately lose them, in which case I have to take that loss for my business? Um, or did I just not account for them? Did I might just missing an invoice from somewhere? Did someone just not pay me for something? Um did they get lost in shipping and they never arrived to the customer, these air, all things that can happen um and they're all things that are worth looking out for. So, um, you know, the inventory, unfortunately, because I don't know what everybody carries, I don't have this set up to pull in stuff automatically. So I will emphasize that if you have a lot of complicated inventory, especially if it's inventory with lots of little parts making up a larger whole er that you may want to consider once you're comfortable using a spreadsheet to graduating teo bookkeeping software that has inventory management built into it um and there are several examples of that on that resource is sheet that I mentioned earlier. That are part of the bonus materials for this class.