Bookkeeping involves managing and recording financial transactions, ensuring that accounts are accurate and balanced. Here's an overview of essential math concepts and formulas used in bookkeeping:
The foundation of bookkeeping and accounting:
[
{Assets} = {Liabilities} + {Equity}
]
- This equation ensures that every transaction is balanced.
- If assets increase, either liabilities or equity must also increase (or vice versa).
Each account in bookkeeping has a debit and credit side. Totals for each side are calculated to ensure balances are correct:
[
{Account Balance} = {Total Debits} - {Total Credits}
]
To ensure that all accounts balance:
[
{Total Debits} = {Total Credits}
]
If they don't match, there's an error in recording transactions.
Bookkeepers often calculate the net income for a business:
[
{Net Income} = {Total Revenue} - {Total Expenses}
]
For tracking the depreciation of fixed assets:
[
{Annual Depreciation Expense} = \frac{{Cost of Asset} - {Salvage Value}} / {{Useful Life (Years)}}
]
This is recorded annually to adjust the book value of an asset.
Ensures that the company’s books match the bank’s records:
[
{Adjusted Bank Balance} = {Bank Statement Balance} + {Deposits in Transit} - {Outstanding Checks}
]
To calculate the tax on a sale:
[
{Sales Tax Amount} = {Sale Price} * {Tax Rate}
]
- The total amount collected:
[
{Total Amount} = {Sale Price} + {Sales Tax Amount}
]
Bookkeepers handle payroll and need to compute gross and net pay:
- Gross Pay:
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{Gross Pay} = {Hourly Rate} * {Hours Worked}
]
- Net Pay (after deductions):
[
{Net Pay} = {Gross Pay} - {Deductions (e.g., taxes, insurance, etc.)}
]
To track overdue payments:
- Days Overdue:
[
{Days Overdue} = {Today’s Date} - {Invoice Date}
]
Bookkeepers track inventory using methods like FIFO (First In, First Out):
- FIFO Cost of Goods Sold (COGS):
[
{COGS} = {Cost of Oldest Inventory Items Sold}
]
For recording loans and repayments:
- Monthly Payment (using simple interest):
[
{Payment} = \frac{{Loan Amount} * (1 + {Rate} * {Time})}{{Number of Payments}}
]
Bookkeepers track percentage increases or decreases in accounts:
[
{Percentage Change} = \frac{{New Value} - {Old Value}} / {{Old Value}} * 100
]
Track petty cash usage:
[
{Petty Cash Remaining} = {Petty Cash Total} - {Total Receipts}
]
Net Income:
[
{Net Income} = 50,000 - 30,000 = 20,000
]
Sales Tax: Sale = $100, Tax Rate = 5%
[
{Sales Tax} = 100 * 0.05 = 5
]
[
{Total Amount} = 100 + 5 = 105
]
These formulas help bookkeepers ensure accurate records and assist in maintaining the financial health of businesses.