Bookkeeping in practice – cash-basis bookkeeping and financial statements

This guide walks through doing bookkeeping on a cash basis during the financial year, and the financial statement entries made when the financial year ends. This is the most common and simplest way to do bookkeeping in a small company.

Step 1 — Reconciling the bank account

Always start by checking that the bookkeeping bank account balance matches the opening balance on the bank statement. The opening balance is usually shown at the top of the first page of the bank statement. It should match the bank account value shown on NoCFO's balance sheet report (e.g. account 1910 Bank account).

If you have a bank connection in use, NoCFO retrieves transactions automatically and this reconciliation can be done directly in the program.

Step 2 — Recording transactions

Go through the transactions in the order they appear on the bank statement, from start to finish. In double-entry bookkeeping, the bank account itself always stays the same:

• When money comes into the account: bank account debit, offsetting entry to credit (e.g. a sales account)

• When money leaves the account: bank account credit, offsetting entry to debit (e.g. an expense account)

In NoCFO this is done conveniently by choosing Bank account as the transaction's payment method — the program handles the double entry automatically.

If the company has more than one bank account, each account must have its own bookkeeping account (e.g. 1910 Nordea and 1920 Handelsbanken).

Step 3 — Checking

Once all of the month's transactions have been recorded, check the closing balance on the bank statement. The closing balance is found on the last pages of the bank statement. It must match the bank account value in NoCFO's bookkeeping to the cent.

If the figures don't match, look for the error by going through the transactions again. A good way to narrow down the error is to first check the opening balance, then look for any interim balances on the bank statement (e.g. from the middle of the month), and use those to locate the incorrect transaction.

Step 4 — Reports

The most important interim check report is the balance sheet with account breakdown, which shows the current values of the bank accounts.

The income statement shows the financial year's income and expenses for the selected period. In NoCFO you can create a comparison period for the income statement, so you can see the figures for, for example, two months or two financial years side by side.

Step 5 — Financial statement entries

When the financial year ends, cash-basis entries are converted to accrual-basis entries. This means the entry is based on the receipt or delivery of the goods or service — not the payment date.

A practical example: the December electricity bill arrives for payment in January. The electricity was used in December though, so on an accrual basis it belongs to the previous financial year. The entry is made from the electricity account to accounts payable, dated 31 Dec.

Similarly, a sales invoice sent in December but due in January is recorded to accounts receivable for December. When the payment arrives in January, the income is recorded to the bank account and accounts receivable is zeroed out.

Step 6 — Closing the financial year

Before closing the financial year, make sure:

• All transactions have been recorded in the bookkeeping

• Every transaction has its voucher on file

• VAT periods have been reported to the Tax Administration

• The necessary depreciation entries have been made

• The balance sheet and income statement look correct

Once the bookkeeping has been checked, close the financial year and prepare the financial statements using NoCFO's financial statements tool. → See the guide: Closing the financial year and preparing the financial statements

After the financial statements, you can enter the tax return information in OmaVero, from where you can also submit the financial statements to PRH if needed.

More information

The limits of cash-basis bookkeeping and more information on the bookkeeping obligation can be found on the vero.fi website.