Wave Fearless Accounting Guide

Fearless
accounting
with Wave
Master your accounting

and steer your business to
success with the world’s
most popular free
accounting software.
Copyright © 2018 Wave Financial Inc.
Unlimited copying, redistribution, and use of this guide in its original format is permitted for educational purposes, and for the purpose of assisting business
owners in their use of Wave within their business.
Sub-sections of this guide, and/or the concepts and explanations herein, may be reproduced and distributed subject to the condition that the original
source is attributed to Wave Financial Inc, and a link or reference provided to Wave at https://waveapps.com.
Notwithstanding the above, no part of this guide, nor the concepts or explanations herein, may be reproduced, repurposed, or redistributed in connection
with, or for the purpose of promoting the use of any other accounting or financial software or service.
Disclaimer
Wave Financial Inc. has provided this guide to assist business owners in maintaining and understanding their own management accounts using Wave’s
online financial tools and services. The activities and methods set out in this guide are not intended to be used for statutory financial reporting or tax
calculation and Wave Financial Inc. makes no representation as to their suitability for these purposes in any jurisdiction.
While Wave Financial Inc. has taken reasonable care to ensure the accuracy of information in this guide, it is provided as-is and without warranty as to the
suitability of the content for any individual business. Wave Financial Inc., together with its Directors, Officers and employees, accept no liability for any
direct or indirect financial or economic loss that may arise as a consequence of using this guide.
1
We’re glad you’re here!
Welcome to Wave’s Fearless Accounting guide, and congratulations on opening a

document that says “Accounting” on the front!
We know that accounting – like math – is a topic that most people were turned off
from before they even left school, but hopefully this guide will show you not just
how easy it is to look after your own accounting in Wave, but also how having a good
grasp of your numbers helps you understand and improve your business.
Of course, you can have someone else do your bookkeeping, but we firmly believe
that – at least until your business grows so successful you have no time for it – the
benefits that flow from looking after your own books more than justify the effort of
learning how!
The Wave Customer Success Team
2
About this guide
This guide is designed to be read Good accounting and bookkeeping practices “But I don’t know anything about
once, and referred to often. have a natural rhythm. accounting!”
You need to set up your accounts before If that’s you, don’t be concerned. We’ll
Seriously, you’ll get the most benefit you can use them. Once that’s done, there quickly cover the basic accounting concepts
if you read it all the way through, are some routine tasks you’ll probably want that will help you use Wave successfully.
starting at the beginning, and to perform daily; others weekly; and others
But goal is not just to show you how to use
continuing to the very end! monthly, or even quarterly.
Wave; we want to make you comfortable
Finally, once a year, you’ll need to complete using financial information to understand
Here’s the good news, though: you year-end tasks to be ready for tax time. your business, make better decisions, and
don’t need to read it all in one go! We’ve designed this Fearless Accounting
become more successful.
guide to follow a similar cycle. Start by So when you get to the Accounting coffee
reading just what you need to get set up break sections – grab a coffee! Give
correctly; then learn the simple tasks you’ll yourself a few minutes to gain true
perform daily or weekly in Wave. Later, you’ll understanding of accounting concepts and
discover best practices to follow monthly tools that help ensure your success in Wave,
and quarterly. Save learning about year-end and in your business!
tasks for, well, the end of the year!
If you jump to the end of this guide, you’ll Ready to do this? Let’s go!
find a comprehensive checklist of every task
covered here. Print it out and keep it
somewhere handy. It’s your to-do list for
staying in control of your accounting, and
your business.
3
Table of contents
The sections below cover a lot of content. To track where you are, refer to
the icon on the top right corner of each, and use the checkbox next to it to
record your progress.
page page page page page
5
Accounting coffee break:
16
Putting it into action:
24
29
43
The 10,000 foot view Getting set up Why the balance sheet Daily to weekly tasks Journals and ledgers
balances
page page page page page
48
55
62
Put it into action:
78
87
Analyzing your business:
Weekly to monthly tasks Monthly + quarterly tasks Understanding debits & Interpret your financial
Your business over time
credits statements
page page
97
Year-end accounting
111
Comprehensive
checklist
4
ACCOUNTING COFFEE BREAK #1
The 10,000
foot view
Chec
Three reasons to
k
your off
progr
es
you g s as
keep accounts o!
Compliance Account to owners Understand & grow your business
If you run a business, you need to You’re probably reading this guide to This is the main focus of our guide, and
report your income and pay taxes. tackle the accounting for your own we believe it is the best and most
Depending upon where you operate business, but another important reason compelling reason to gain a solid
your business, and what business many businesses need proper understanding of fundamental
structure you adopt, you may also need accounts is to account to owners. In accounting concepts, and to handle your
to file accounts that are available for any incorporated business with own management accounting.
official or even public inspection. The investors, in any partnership, and any
law requires you to keep appropriate private business where managers are Being in charge of your numbers means
accounts of your business transactions, employed to look after day-to-day being in charge of your business, and that
so that the man can get his piece of the operations, the owners need to know gives you the power to plan a path to
action. what is being done with their money, success.
and how it is generating profits.
6
Management Let’s repeat that. Financial accounting takes your
management accounting records and
The main focus of this guide is to
accounting,
re-purposes them to report your tax
provide you the accounting knowledge liabilities, and to file information and
you need to understand and grow your make reports to owners in compliance
not financial business, and the practical steps and

skills in Wave to handle your own
with applicable laws and standards. It
is about complying with local
accounting
management accounting. regulations where you operate your
This is super important. Management business.
accounting is mostly intuitive, easy to Financial accounting is not easy to
learn, and the same wherever in the learn, which is why your CPA spent so
world you run your business. long in school, and charges you so
Management accounting is about much!
documenting how your business Here’s the good news: just about
works, so you see early warning signs everything you need in order to
of problems, and clear insight into understand your business and be more
opportunities. successful falls under management
Every business owner can and should accounting. And not only is it fine to
master the basics of management leave your business’ financial reporting
accounting – it won’t be hard to learn, to your accountant (seriously - do
and it will make you more successful. this!), his or her services will be much
less expensive if you have your core
management accounting records in
good order.
7
The balance
sheet and income
statement
(aka “P&L”) If you were exposed to any accounting
classes at school or college, or have
At the risk of repeating ourselves, as a
small business owner you keep
dipped into other accounting books, accounts to better understand your
you may have painful memories of business, and the two most important
T accounts, journal transactions, and financial statements that you’ll rely on
debit-credit theory. - the ‘end’, or output of your work - are
your balance sheet and your income
Well, we may meet some of that along
statement (also known as your profit
the way, but let’s start in a more
and loss report).
sensible place: at the end!
So let’s dive straight in and take a look
at how these actually work, using just
one sheet of paper…
8
Imagine for a moment there are
no easy, free accounting systems
like Wave. Instead, we’re going to
give you one sheet of paper to
track your business.
To help you get started, though,

we’ll add a few headings:
On the left, we’ve made space to list out
“What I have.” That’s made up of three
sections:
1. What my business has
2. (take away) What my business owes
3. (equals) What’s left for me
On the right, we’ve made space to list
out “What I earn”. That’s also made up of
three sections:
1. What my business makes
2. (take away) What my business
spends
3. (equals) What’s left for me
Read on, and let’s see how these six
simple headings give us space to record
everything we need to keep track of our
business.
9
1. Initial investment
Let’s say we’re starting a web design
business. We have $5,000 of personal
start-up capital to get us going.
Whatever business you’re running, it’s a $

really good idea to set up a dedicated bank
account for everything to do with your
business, separate from your personal
spending. So let’s go ahead and deposit
our $5,000 start-up capital into our shiny
new business bank account. ,, ,,
How would we record this on our one-
sheet accounting system?
Well, the business now has $5,000 in the
bank, so we can write that in under What
my business has.
Bank: $5,000
$, $,
And we don’t owe anyone else any money,
so that means What’s left for me must also 0 , ,
be $5,000. And we know that $5,000 was
our original investment.
Owner’s Investment: $5,000

Here it is, written up in our notebook:
10
2. Rent payment
Next order of business – somewhere to
work and meet clients. We’re budget
minded, so we set up shop in a co-working
space that charges $800 a month in rent.
Look at the right side of the page. Rent is

an expense, so we’ll record it under ‘What
( 85 $
my business spends’:
Rent: $800
We haven’t made any money yet, so our
business is showing a loss. We’ll write that
down at the bottom on the right, under
‘What’s left for me’:
Profit (Loss): ($800) - 8=

Note: Parentheses (like this) are one way of
showing a negative number.
On the left side, we’ve paid the rent out of
our business bank account, so we’ll need to
go ahead and deduct $800 from there, : :
bringing the balance down to $4,200.
We still don’t owe any money, so ‘What’s 8 )8 = 8= $ , 24=
left for me’ should also total up to $4,200 –
and it does, so long as we remember that =) 8 0
our profit (or loss) on the right hand side
also belongs to us. So let’s finish up and
record:
What I’ve earned: ($800)

Here’s how our page looks now:
11
3. First sale
We’ve invested some cash into the
business; we have office space; and now we
have our first sale! Our first customer has
signed on the dotted line, and handed over
a check for $3,500.
It’s tempting to pin that first ever check to +3 ) 3:5 ) $

the wall as a memento, but let’s be smart
and stick it in the bank! (
We’ll add it to bank, bringing our running
$
balance up to $7,700.
We also now have some income to add :5 :5
under the ‘What my business makes’
section. 05 ) (
Sales: $3,500
As we saw when we paid Rent in Step 2,
this will also affect our profit/loss, and in
turn feed into ‘What’s left for me’ on the
left. 5 B3: 5 B3:
As you can see, our accounts are still
looking nice and logical: 5 , 5 5 ) = 8 -= ) (
• What my business has, less what it

273 , 5 53 54) ( $
owes, is what’s left for me
which is $
• My Owner’s Investment, plus what my
business has made, less what it has
spent.
12
4. Purchase on credit
We’ve worked with five of the six headings.
Let’s do one more transaction that will use
the sixth.
Let’s say we decide to commission a logo
for our new business. A local graphic
designer does this work, and invoices us
$500, due in 30 days.
- B 4 :
This is also an expense, so on the right
hand side of our notebook we’ll add it ) + $
under ‘What my business spends’:
Design Services: $500 + ((
As usual, when we make or spend money,

: :
our Profit changes, and that flows through
into the bottom of ‘What’s left for me’ on
,88 B 2 7: 3:B )
the left side.
We also need to note how we’ve paid for : B 4: I 8:
the logo design – except we haven’t paid!
Unlike when we paid for Rent from the
bank, we’ve been given 30 days to pay our
designer. This means our business :D :D
currently owes $500. This is a vendor
‘account’ that we’ll pay in the future, so we 1 B: L BI: A:B 2 0 )
can enter:
5= LI: : B: ) + $(
Accounts Payable: $500
Now the left side adds up again. What the + $( + $$
business has ($7,700 in the bank), less
what it owes ($500 ‘Accounts Payable’) + $$
equals what’s left for us: $7,200, made up
of our original $5,000 investment, and ($
$2,200 profit.
13
Up till now, we’ve recorded transactions
& . . . )B under six headings on just one sheet of
paper.
.. . D (E We’ve been calling the two sides “What I
have” and “What I earn”, but as you may
have guessed, these two sides are exactly
what go into creating the Balance Sheet
- A 5 :D and the Income Statement.
Here’s where we ended up a page ago, but
) + $ replacing our ‘business owner’ words with
‘accountant’ words:
+ ((
On the left, our ‘Balance Sheet’ comprises:
(. A: • Assets (what our business has)
• Liabilities (what it owes to other people)
,88B AED 3 I 7 : 4:AE )
• Owner’s equity (what’s left for us)*
:D= A 5: =8:D On the right, our ‘Income Statement’ shows:

• Income (what our business makes)
• Expenses (what it spends)
C B ( • Profit or Loss (what’s left for us)

Modern accounting software, such as Wave,
2 A: D 0A :DE :AE 3 B =E 1BDD ) will usually create a Balance Sheet and
Income Statement with a bit more detail
4:E =A: A=A D ) + $( than this, but fundamentally this is all there
is. If you’ve followed along this far, you
+ $( + $$ should now have the understanding to read
your financial statements with confidence!
+ $$
* Note that under Owner’s Equity, we’ve also changed ‘What
I’ve earned’ to ‘Retained Earnings’, because that’s what
($ accountants call it!
14
No, you can’t
As you’ve seen, there’s no magic about Today, of course, accounting software
the Balance Sheet or Income like Wave handles nearly all of this
really keep
Statement. automatically, but the fundamental
principles and methods remain the
The Balance Sheet details what the
same. The huge benefit that accounting
your accounts
business has, what it owes, and what’s
software offers (other than saving an
left for you and any other owners.
enormous amount of time recording and
on one page! The Income Statement records income,

expenses incurred to generate that
copying-out transactions), is that
everything is instant.
income, and the profit available to the
Whereas all the copying and
owners of the business.
summarizing meant that in the world of
They’re connected because profit paper accounts, you could only
available to the owners of the business reasonably produce financial
will end up in the Owners’ Equity statements once in a while, with Wave
section of the Balance Sheet. the Balance Sheet and Income
But seriously – with all those notes and Statement update every time you record
crossings-out, who could make sense a transaction.
of either report? If you are interested in really
That’s why, ever since modern understanding how your accounting
accounting practices developed at least works, this is a neat thing to do:
600 years ago, people have written the generate your Balance Sheet and
details of transactions as they’ve taken Income Statement in Wave; add one
place into stand-alone date-ordered transaction; and generate them again.
lists, called Journals; cross-posted You’ll see movements exactly like we
them into separate lists that are have illustrated in our one-page
organized by account, called Ledgers; examples above.
and then copied summarized totals
from the Ledgers into the Income
Statement and Balance Sheet.
15
PUTTING IT INTO ACTION
Getting set up
Putting it
into action
We’ve got our first Accounting coffee The next few sections lay out all the tasks You should find that, by the end of our time
you’ll ever have to perform in Wave, some together, you perform the tasks we’ve laid
break under our belt, but as with
financial metrics to help you better analyze out not because we’ve explicitly said that
learning anything, all the theory and your business, and a few more “accounting they should be performed, but because
coffee in the world isn’t going to do coffee breaks” sprinkled throughout. You’ll each task is a natural extension of your
us any good until we put it into be able to breeze through some of these understanding of accounting, and of your
coffee breaks in a single cup, while others business. Every step we’ll take is one step
practice. From here on in, we’re
might require a full pot. The bookkeeping closer to a set of meaningful books that will
going to be splitting our time tasks themselves are designed to be help you better understand your business,
between learning a few key cyclical; once you’ve set yourself up for and drive its growth!
accounting principles, and seeing success, you can continue to use what
you’ve learned on a day-to-day, week-to- Let’s get started…
how they all shake out in Wave. week, quarter-to-quarter, and year-to-year
basis.
17
Getting
started
Wave’s signup process is designed to Signing up for Wave is easy! If you haven’t Because we want to focus on organizing our
be as quick and easy as possible. In already, simply visit www.waveapps.com, and finances, let’s start there!
click Create your Free Account.
fact, you’ve likely signed up before
even reading this – so welcome! Sign up using your main business email Congratulations! You now have a
address, or you can sign up with your Google new Wave business. Let’s start filling
In this section, we’re going to go account if you have one. it with useful information!
beyond the initial signup, and help Next, tell Wave your Business Name, and
you get set up the right way, with the choose the Business Type that looks most like
bookkeeping processes that we’ll what you do. This will help Wave start you off
cover later in mind. with income and expense categories that
should cover most of your needs.
Tip: Have a dedicated business bank account! Your accounting is so much easier if you have a separate business bank account.
If your business is incorporated, or you need to write or receive checks in your business name, this will need to be an account that
your bank explicitly offers as a “Business bank account.” But if you’re a sole proprietor and don’t need to send or receive check
payments in your business’ name, then you can use a separate personal bank account. Follow this golden rule: do not mix personal
and business transactions in the same account.
Note: If you have more than one credit card, keep one just for business purchases, too.
18
Nine simple 1. Enter your bank accounts
Head over to the Chart of Accounts page,
setup steps which is under Accounting on the left menu

in Wave, and add your bank account(s) in the
Assets tab.
You’ll also want to add accounts for any

Credit Cards you’ll be using for your business,
which you’ll do on the Liabilities & Credit
Cards tab.
2. Get transaction data into Wave

If you bank with one of the 10,000+ banks
Wave connects to, go to Banking > Bank
Connections to import up to 3 months’
historic transactions. (This will also keep your
transactions up-to-date going forward!)
If your bank is not supported with a direct

connection, or you also need to import older
If you’re the kind of person who data, you can export transactions from your
online banking website and upload the into
likes to set up your workspace
Wave from the Transactions page.
before beginning, we’ll have you
up and running in no time. 3. Set Wave to suit your brand
If you’re not, don’t worry. You can Click on Sales > Invoices. If this is your first
skip these steps for now and time on the Invoice page, you can upload your
logo and pick an invoice layout and color that
complete them as you continue
suits your brand. You can update this any time
using Wave. under Settings > Invoice Customization.
19
4. Add sales taxes
If your business will charge or recover Sales
Taxes, go to Settings > Sales Taxes to
define any taxes you will use.
Important: Sales Taxes cannot be changed

after you’ve started to use them, so double-
check to be sure you’ve entered them right!
5. Add products & services

Go to Sales > Products & Services to create
a list of the Products / Services that you will
be supplying to customers. (You’ll use these
to create invoices.)
You’ll see that you can associate an Income

account (category) to each Product / Service,
and also set the default Sales Tax.
6. Add customers
Go to Sales > Customers to start entering
details of your customers.
Note that you can also bulk import customers

to save time.
Tip: If you decide to use Wave Payments, you

or your customers can also record payment
card information for repeat billing.
20
7. Set up online payments
Your new Wave business will automatically
provide your customers the ability to pay you
online for any invoices that you send. Once
you’ve received your first payment, you’ll be
asked to fill out a brief application so that
Wave knows a bit more about you, your
business, and – of course – where the money
should be deposited! You can fill this out
before sending your first invoice: head over to
Sales > Payments and click Finish Payments
Setup.
(For Canadian business owners, go to Sales >

Payments and click Turn on Payments
before accepting your first payment.)
8. Sign up for payroll

If your business has employees, click on the
Payroll menu to set up Wave Payroll. Answer
a few basic questions about your business
and setup will be customized to your
business’s needs.
Tip: Make sure you have all tax information for

your business on hand, as well as any
information for payrolls you’ve run earlier in
the year. This will streamline the setup
process,. You’ll be paying your employees
right alongside handling your invoicing and
bookkeeping in no time!
21
9. Enter starting balances
If you’re moving over to Wave from another
accounting system, you’ll want to enter your
account balances from the previous system:
1. Giving yourself a pat on the back for

choosing Wave
2. Entering a starting balance transaction
Get the starting balances from your previous

system in the form of a Trial Balances report.
Before adding your starting balances, go to

Accounting > Chart of Accounts, and add
any accounts from your previous system that
don’t yet exist in Wave.
Once this is done, all of your starting balances

can be added to the biggest journal
transaction that you’ll ever create in Wave.
Just recreate each line of the Trial Balances
report by clicking Add Debit or Add Credit
and selecting the appropriate account and
amount. After this monster journal transaction
has been saved, you’re good to go!
Tip: If you have any outstanding bills or invoices in the accounting system that you’re coming
from, recreate them in Wave and then delete them from the old system before generating a Trial
Balances report.
22
Setup
checklist
Sign up with Wave!
Set up a separate, business bank account with your bank
Enter your bank accounts
Get transaction data into Wave
Set Wave to suit your brand
Add sales taxes
Add products & services
Add customers
Sign up for online payments
Sign up for payroll
Enter starting balances
23
Why the
balance sheet
balances
The accounting
Rather than just telling you what ‘The Now, if you had a ‘magic’ business that
Accounting Equation’ is all about, let’s had no operating costs, all the money
equation
dig into Why the Balance Sheet that flowed in from these three
Balances. sources would be sitting in your bank
account (an Asset on your Balance
If you think about all the money and
Sheet), or perhaps turned into other
other assets in your business at any
Most accounting guides focus on point in time, they must have come
assets - things you had purchased and
helping you learn accounting rules. retained in the business. In the real
from somewhere. But where?
world, however, at least some of that
The problem with learning rules is The money in your business can money is going to have to flow back
that they are just as easy to forget. have come from only three places: out of the business.
That’s why our goal here is to help 1. Investment that you, the owner That outflow can only have gone to
you understand at a fundamental (and any other co- two places:
owners/investors), put into the
level how - and why - accounting 1. It has been spent on goods and
business.
“works.” Understanding is both services to operate the business*
2. Income that the business has
more useful, and harder to forget! (“Expenses”).
earned, right back from when it
2. It has been withdrawn by you, the
started.
owner.
3. Money or things that we’ve
So if we know the only three places
borrowed from other people - i.e.
money can have come from into your
what the business owes to others,
business, and the only two places it
which we call Liabilities.
can have gone, what can we do with
(Sometimes your business may receive that information? Let’s take a look…
gifts, in the form of government
grants; let’s keep it simple and just
* Note: Tax is also an Expense, even though it
include these as ‘income!’)
might not feel like it directly helps you operate
your business!
25
Let’s stop the clock and think about the source of the Assets in your business right now. Can we
agree that all the money that has ever come into the business is still in the business right now as
Assets in one form or another, or it has gone out of the business to pay for expenses, or been
withdrawn by the owners?
Awesome! Let’s start turning this into some ‘math’…
Owner’s Lifetime Lifetime Owner’s

Assets = + + Liabilities - -
Investment Income Expense Withdrawals
What other
What the
All the money What owners people have All the
All the income owners have
and value of have put into the provided to the expenses the
the business has taken out of
‘things’ in the business since it business, and business has
ever earned the business
business today started are owed right ever incurred
since it started
now
Still with us? OK. Let’s reorganize this a bit:
Owner’s Owner’s Lifetime Lifetime

Assets = Liabilities + { Investment
-
Withdrawals } + { Income
-
Expense }
What other
All the money
people have
and value of What owners have put into the
put into the All the income the business has
‘things’ in the business since it started, less what
business, and ever earned, less all its expenses
business they’ve taken out
are owed
today
right now
Nearly there! Let’s simplify this some more...
26
Let’s just call all the Owner’s Investment less all the Owner’s Withdrawals “Owner’s Net
Investment”.
And, of course, all the Income the business has earned less all its Expenses is, simply, the
business’s total Lifetime Profit up to today.
So here’s the equation once again, with these changes:
Owner’s Net
Assets = Liabilities + + Lifetime Profit
Investment
What owners
What other
have put into
All the money people have put All the income
the business
and value of into the the business has
since it started,
‘things’ in the business, and ever earned, less
less what
business today are owed right all its expenses
they’ve taken
now
out.
Take a look back, now, at the simple ‘one page’ financial statements starting on page 9. Do you see
how each time we recorded a Profit in the Profit & Loss Report, we added it to ‘Retained Earnings’
over at the bottom of the Balance Sheet? “Retained Earnings” is simply accountant-speak for
Lifetime Profit, from when the business started right up to the date of the Balance Sheet. So we
can rewrite our equation again:
Owner’s Net Retained

Assets = Liabilities + +
Investment Earnings
What owners
What other
have put into
All the money people have put
the business Accountant-
and value of into the
since it started, speak for lifetime
‘things’ in the business, and
less what profit*
business today are owed right
they’ve taken
now
out.
* Technically, in an incorporated business, Owners’ withdrawals normally are made from Retained Earnings, rather than
reduction of Owner’s Investment. That’s what the ‘Retained” in “Retained Earnings” means: “Retained” as opposed to
“Paid Out”. Mathematically, however, this distinction is unimportant, so let’s not get hung up on it for now.
27
In formal accounting terms, Owner’s Investment and Retained Earnings are both components of
Owner’s Equity (“OE”). This is an unfortunate choice of words, and confuses many business
owners because of its similarity to “Equity”, which is a class of capital within the funding structure
of an incorporated business. However, we are stuck with it, so let’s make a final simplification to our
formula:
Owner’s
Assets = Liabilities +
Equity
What other
All the money people have put Owner’s
and value of into the Investment,
‘things’ in the business, and together with
business today are owed right Retained Profits
now
Accountants call this “The Accounting Equation”, and as you can see it exactly maps on to the
Balance Sheets that we have been working with so far:
What my business has What my business has

is equal to less
What my business owes What my business owes
or, more intuitively:
plus is equal to
What belongs to me What’s left for me
(the owner)
Remember, we haven’t learned the Accounting Equation as a ‘law’ here. We’ve worked it out
together from first principles, by thinking about all the places money can come from in a business,
and all the places it can go. There’s nowhere else money can come from or go to, so the Accounting
Equation has to be correct, and Balance Sheets must always balance!
28
Daily to
weekly tasks
By the end of this
section you’ll know
how to…
Capture receipts Upload photos of your receipts and store them in Wave.
Invoice clients Use Wave’s Invoicing feature to send invoices to your clients and get
paid.
Record and categorize transactions Track your transactions and categorize them appropriately.
Record business mileage Log business use of your vehicle outside of Wave.
Record invoice payments Record payments received for your invoices.
Record bills Record any owing bills.
Record non-income and non-expense transactions Account for any deposit and withdrawal transactions that aren’t strictly
income and expenses.
30
Capture
receipts
Whenever you incur a business Keeping digital copies of your receipts goes Wave provides three options for uploading
beyond simply accounting for the expenses your receipts: direct upload, email, and
expense and receive a receipt, it’s a
that they represent. Receipts provide a real- mobile upload. As long as the receipt is in a
great habit to snap a picture of it world document of your purchases. If you supported image file format, Wave will
immediately and upload it to Wave want to claim something as a business attempt to read the receipt and pre-fill as
so that it can be accounted for expense, it’s good practice to have the many of its fields as possible.
related receipt on hand.
properly. Once the receipt is verified, a transaction
In the interest of planning for the worst (the recording the associated expense will be
Wave provides free mobile Receipts worst being an audit come tax time), posted to your Transactions page.
apps for Android and iOS devices, receipts act as a control to keep your
accounts as air-tight as possible. Once a Tip: Use the Notes field to record any
which you can download from the details about the receipt. If you took a
receipt is uploaded and verified, Wave will
relevant app store. automatically bookkeep the purchase for
client to dinner and uploaded the receipt,
be sure to make a note of the business
you. purpose of the meeting, as well as who was
there.
31
Invoice
clients
Now to the bread and butter of your Once you’ve pre-filled your account with Now all you have left to do is Approve and
your Customers, Sales Taxes, and Send the invoice to your customer.
business: getting paid for your work!
Products and Services, you’ll find the
Remember to enable online payments so
To bill a customer for a service or process of creating and sending invoices just
your customers can pay you directly from
about as straightforward as it gets. Go to
product, you’ll need to create an the emailed invoice that they receive!
Sales > Invoices and click on Create an
invoice. Creating and sending an Invoice.
invoice in Wave takes just a few Select Add a Customer at the top of the
Tip: When you first Save an invoice, Wave will
clicks, either online or in the Invoicing page to choose from one of your saved create it as a Draft. This means it is not yet
mobile app. customer profiles. You can also add a new recorded as part of your income.
one if needed directly from the page.
As long as you have Payments by The moment you click Approve on a draft
The same goes for your products and invoice, Wave will take care of the necessary
Wave enabled, credit card payments services; just click on Add an Item to choose bookkeeping automatically: Accounts
can be in your bank account within from one of your saved products and Receivable will be debited by the full invoice
services or create a new one. amount, and Sales will be credited. If there is
just a couple of business days. any Sales Tax on the invoice, Wave will credit
Apply sales taxes to any items that need your Sales Tax account the correct portion of
Everything integrates with your
them; set the payment terms for your invoice the Invoice.
Wave accounting, and designed to at the top of the page; and click Save.
be as effortless as possible.
32
Categorize
transactions
Spend some time every time you log The categorization process consists of 3. Review: Once a transaction has been
these steps: categorized and tax has applied,
in to Wave to make sure that each
review it to make sure everything
and every transaction in the 1. Categorize: Apply a category to the
checks out before marking it as
transaction that most appropriately
Transactions page is categorized. describes the real-world transaction
reviewed. (You can un-mark or edit
your reviewed transactions at any
When you categorize a transaction, that took place. If you spent $200 on a
point.)
meal with a client, then when the
you’re telling Wave how to bookkeep transaction for that meal is imported
your income and expenses, so that into Wave, it should be categorized Adding Categories:
you get useful reports to understand under Meals & Entertainment. The ‘Categories’ you’re offered when
your business. 2. Apply a Sales Tax: After a transaction categorizing transactions are simply
has been categorized, it may then be accounts that Wave has created for your
An uncategorized transaction should necessary to add a sales tax. If your use, based upon the business type you
be seen as incomplete; it needs to be business is registered to charge and chose when getting started.
categorized and reviewed if it is recover sales taxes, make sure that the If you want to add more Categories, go to
correct sales tax is applied to each
going to accurately contribute to Accounting > Chart of Accounts, and
transaction.
create your own in the relevant sections.
your reporting.
33
Log business 0
3 5 , 0
5 3 3
06
mileage .5 5 3
6 0
173
13 @
Logging mileage is not a feature of ,1 6

Wave, but it’s an important daily ,5 3 5 5 3
task to keep your business records in ,
good order, so we’re calling it out
here.
If you own a vehicle and use it in

While logging business mileage is not It’s a great idea to check with your
both your business and your personal essential for your management accounting accountant, or Google for local rules, what
life (whether you or the business (you could simply estimate your business vs the minimum required information is to
technically owns the vehicle), then personal mileage, and apply whatever split keep, but you can’t be wrong for keeping too
you feel is right in your management detailed records, so if in doubt, keep a
while some of its costs should be
accounts), when it comes to tax time, notebook in your car and record the
recorded as a business expense, it’s having good records of business and following for every trip:
unrealistic to consider the whole cost personal mileage is essential.
§ Date
a business operating expense. Different countries and regions have § Trip details (from/to)
different rules for how you calculate and § Starting mileage
The most logical way to decide how deduct driving expenses for tax purposes, § Miles driven (or Kilometers!)
much cost relates to the business but just about everywhere, if a vehicle is § Ending Mileage
and how much to you personally is used for Business and Personal purposes, § Purpose of trip
you’ll need to be able to evidence the two § Business or Personal
usually on the basis of business vs
categories of mileage. § Customer (if applicable)
personal mileage.
34
Record invoice
payments
If you receive payment for your To record payment directly to an invoice: To record an invoice payment using an
already-imported income transaction:
invoice by check, or a payments 1. Go to Sales > Invoices. You’ll be greeted
by a list of your unpaid or partially paid 1. Locate the uncategorized payment
processor other than Payments by
invoices. transaction in the Transactions page.
Wave, you’ll need to record the
2. Locate the invoice that you are 2. Open the Category dropdown menu
payment manually in your recording payment for; click the arrow and select Payment Received for an
bookkeeping. to its right, and select Record a Invoice in Wave. This will bring up a list
Payment. of any outstanding invoice amounts.
When a payment has been recorded
3. Enter the Payment date, Amount, 3. Select the related invoice from the
correctly, you will be left with a
Method, and Account. Click Save. dropdown menu. This will link the
Deposit transaction in the transaction to the invoice, and mark the
These steps will create a new Deposit
Transactions page that is linked to transaction linked to the invoice, so if you
invoice as paid.
the invoice itself, marking it as paid. have connected a bank account, or have
uploaded transactions, you could find
yourself with duplicate payments in your Tip: What happens if you get paid by check
on a Friday, but the check doesn’t clear until
Transactions.
Monday? You can prevent this delay from
Simply go to Accounting > Transactions throwing your books off by using a Money in
Transit Account. You can check out the
and delete the duplicate transaction. (Note:
process here: http://bit.ly/transitpayment
be careful to delete the ‘unconnected’
duplicate transaction; not the transaction
linked to the Invoice that you have just
added!). 35
Receive invoice
payments When your customers pay invoices Automatic bookkeeping with Payments
by Wave:
via Payments by Wave, you receive
automatically
Remember – this process is automatic; you
payment quickly straight into your
don’t have to do anything. But if you’d like to
bank, and all the bookkeeping is keep an eye on things, here’s what you’ll see
taken care of automatically! on your Transactions page as Wave ”does its
thing”:
Here are some of the things that Wave takes
care of, so you don’t have to: 1. When your customer pays an invoice
online, you’ll receive a notification email,
• The invoice is marked ‘paid’.
and see a deposit transaction on your
• The payment transaction is recorded, and Transactions page. The account will
booked to a dedicated Payments by be set to Payments by Wave.
Wave holding account. 2. If you have a bank account connected or
• The Accounts Receivable balance is are uploading transactions, a deposit
reduced. transaction will be imported once the
payment hits your bank account.
• Card processing fees are accurately
accounted for. 3. Wave will automatically detect the
deposit transaction and create a
• When funds are deposited into your bank transfer from Payments by Wave to
and appear in your automated your bank account. This will appear on
transaction import (for connected bank the Transactions page as a transfer
accounts) or upload, they’re matched transaction.
with a transfer from the holding account.
You might receive several invoice payments
This process was designed to keep your in a single funds transfer from Wave. No
bookkeeping as accurate as possible, while problem – Wave knows how to match the
taking the work out of recording invoice deposit against multiple individual
payments via Payments by Wave. payments.
36
Record bills
Record any expenditures that you’ve Creating a Bill in Wave will correctly account Here’s a simple rule of thumb:
for any expense that does not have to be
been billed for, but have not yet paid, • If you pay for a service at the time you
paid right away.
as Bills in Wave. consume it, you might as well record it
Is rent coming due? Have you been billed for then and there as an expense transaction
Short term liabilities related to your internet? Has a contractor sent you an in Wave (or, of course, just wait for it to
Bills will be reflected on your reports invoice? It’s probably time to create a Bill! import, assuming you have your bank
connected to import transactions).
in your Accounts Payable. The benefit of properly recording Bills is that
you will have a better idea of how much • If you are consuming a service now, but
Adding a bill will increase the money your business really has at any time: won’t pay until later, it’s good practice to
balance of your Accounts Payable, you’re accounting for a payment out of your create a bill - even if your supplier
business that you know has to happen, so doesn’t actually give you a physical ‘bill’
and paying it off will clear it.
you’re prepared when it comes time to pay. until later.
Keeping this in mind will help when trying to By recording the bill, you recognize the
figure out when to add a Bill, and when to expense as it is incurred, which gives you a
simply record an Expense transaction. truer understanding of your business’
financial position, and how expenses match
It’s not as simple as just recording anything
against the income that they contribute to
with the word “bill” in its name - for
earning.
example, if your business owns a vehicle
and you take it in for service, the garage will
likely write you a service bill… but you’ll need
to pay it before picking the vehicle up! You Tip: All of your overdue Bills will appear on
your Dashboard when you log in to Wave.
wouldn’t need to bookkeep this in Wave as a
bill.
37
Recording Purchasing assets Vendor prepayments
transactions Things you buy that help your business

operate ‘right now’ are Expenses. Things
Sometimes, vendors may require you to pay
for products or services in advance. In this
that aren’t
you’ll use in your business for many months, case, the pre-payment is an Asset: you have
or even years, are ‘Assets’. not received the service, but you have
acquired the right to receive it in the future.
income or When you purchase an Asset – for example
a new truck for your business – you’ll
Jump ahead to Page 106 if you have a vendor
pre-payment to categorize right now.
expenses
usually want to add a new account in the
‘Assets’ section of your Chart of Accounts Customer prepayments
for the asset (Go to Accounting > Chart of
Customer pre-payments are the opposite of
Accounts to create it.), and categorize the
vendor pre-payments. A customer pays you
Most of the transactions you purchase transaction to the asset account.
for a product or service you haven’t delivered
categorize will be Income or yet – and may not deliver for some time.
Expenses. And you know that your
This isn’t ‘Income’, yet: you’ve got the money
income, less your expenses, is equal in the bank, but your business hasn’t earned it.
to your profit. It actually creates a Liability – an obligation to
your customer that you’ll satisfy in the future.
Every once in a while, though, you’ll
See Page 104 to learn more.
find that you have money flowing Purchasing inventory
‘Income’ that reverses an expense
into or out of your account that Depending upon the business you’re in, you
doesn’t really feel right categorized may purchase items for resale, or to use in If you purchased an item and categorized it as
delivering services over time. It may make an Expense, but later returned it for a refund,
as a normal income or expense
sense to treat these as purchases of it’s not income! Simply categorize the deposit
transaction. These require a little as a Refund for Expense and select the same
Inventory rather then directly as Expenses.
extra thought when categorizing. Jump ahead to Page 74 to learn more. expense category as the original purchase.
We’ll go into detail on how to handle
these later, but we’ll touch on them Tip: If you get stuck categorizing something that doesn’t feel right as Income or Expense, don’t get
hung up on it. Write yourself a note and come back to it when you sit down to tackle your Monthly to
here in case they come up for you. Quarterly bookkeeping.
38
Automations that
save you time
39
Connect your bank
to automatically
import transactions
Once you have connected a bank account If you have changed your online banking Should you find that your bank is not
to Wave, your transactions will continue to information, or the bank connection does supported, you can still quickly and easily
pour into your account for as long as the not appear to be importing, try refreshing upload transactions by downloading them
connection is active. As much as bank the account by clicking on Banking, from your bank in Microsoft Money, Quicken,
connections are completely automated, selecting Bank Connections and entering Quickbooks or Simply Accounting format
changes to your online banking your online banking credentials in the Edit and heading over to the Transactions page,
information or your bank’s webpage can your Credentials page. clicking More, and clicking Upload a bank
result in an interrupted connection. statement.
Whenever you’re checking in on Wave to
categorize transactions or create an
invoice, it’s a good idea to make a note of Tip: Wave works with a third-party data integration partner to provide secure bank connections
for transaction imports. Wave does not access your bank directly. Instead, when you connect
whether or not the connection is importing
your bank account to import transactions into Wave, our data integration partner makes the
properly (bank reconciliation is another connection to your bank.
surefire way to check in on your
connection!).
40
Set up
recurring
invoices
If you bill for anything on a recurring To save time – and make your business’ Monthly payments on contracts, web-
basis, you can save yourself a lot of income more stable and predictable – try to hosting fees, and most other services over a
find ways to make the goods and services consistent basis with the same customer
manual entry by scheduling a
that you sell repeat at regular intervals. can be handled through recurring invoices,
recurring invoice. To add a recurring saving you valuable time that can be spent
If you sell a subscription-based service,
invoice, click on Sales and select elsewhere.
recurring invoices are by default your best
Recurring Invoices. Create an invoice option for billing customers, but there are a Look around, and you’ll find people selling
as you normally would, and set a number of other services that can be billed products as diverse as groceries, office
schedule. on a recurring cycle. supplies, and razors on a recurring basis!
That’s it! A recurring invoice will be

automatically generated and sent
Tip: If you want to send an invoice just once on a specific date in the future, Recurring Invoices
with each scheduled date. can help with that too! Click on Sales > Recurring Invoices; create your invoice; then schedule
it to repeat Daily; Create the first invoice on your chosen date; and choose end After 1
invoice. Wave will send your invoice on the date you have selected – and no more, as you have
selected to send 1 invoice only.
41
Credit card,
bank,
& recurring
payments
Any time you can accept payment for your Even better, when your customers pay Credit card payments work together with
invoices online, you save yourself the online, some will choose to save their credit recurring invoices in Wave. Any recurring
trouble of chasing payments in the real card details, and give you permission to invoices that you create can be paid
world. charge their account directly for future through recurring billing, a feature that
invoices! automatically bills a customer from their
If you have credit card and bank payments
saved credit card information each time an
enabled in Wave, then every time a Wave provides your customers with the
invoice is generated. Once this feature is
customer receives an invoice, they will have option to do this every time they make a
enabled (either by you or your customer),
the option to pay directly from the invoice. card payment.
neither of you will have to do anything to
record a payment. With each invoice that
goes out, your customer will receive a
receipt, and you will collect payment
immediately.
42
Journals &
ledgers
What you really
If you glance back at the one-page As early as the mid-15th Century,
financial statements from Accounting merchants had evolved methods of
need to know
Coffee Break #1, you may notice that accounting built on this fundamental
every transaction we recorded directly double-entry concept, listing each
affected two accounts. For example transaction in a day-book, or ‘journal’,
about journals, when we paid rent, we used (reduced)

money from our bank account (an
and cross-posting the same
transactions into two separate
ledgers, and asset account) and recorded the

payment to Rent (an expense
Accounts within a Ledger. Given how
well this method stood the test of time,
double-entry (and account).
In every business, money - or value,

when accounting began to move from
paper to computers, software makers
what you don’t!)

adopted exactly the same principles
more generally - doesn’t just appear or
and methods.
disappear. It must come from
somewhere (you, the owner; loans; or With easy-to-use and free modern
revenue), and be used or invested financial accounting systems like Wave
somewhere (in bank accounts and available, there’s no reason you’ll ever
other assets; back to you, the owner; need to be able to perform double-
to settle liabilities; or to pay expenses). entry bookkeeping by hand, on paper;
This leads very naturally to the but it’s good to know the ingredients of
practice of recording every transaction a traditional bookkeeping system, so
as an exchange between two accounts you can understand what Wave is
- just as we did in our simple examples. doing behind the scenes.
So, to that purpose, let’s take a look at

the traditional accounting process…
44
Source records Journals
Invoices, Purchase Orders, Books of daily record (just
Bills, Receipts, Petty Cash like a personal journal that
Slips, Bank Transaction Journalize transactions you write in every day),
histories, and other possible where each transaction is
data provide the original Each transaction of the business is listed in recorded in chronological
source records of the chronological order in the Journals order, with a note of which
financial activities of the account received value in
business. the transaction, and which
provided value.
Post transactions to the

ledgers (double entry)
Transactions in the Journals are ‘posted’
(copied out) into the relevant Ledger
Accounts. Note that every Journal entry
records an Account that receives value, and
an Account that provides value, so every
Journal entry contributes to two postings, to
the two affected Ledger Accounts: a “double
entry”.
Ledgers Financial statements

Books of summary record, Prepare financial reports The Balance Sheet shows
usually with a page for each totals at the Balance Date
Account. Transactions first As at the reporting date, a Trial Balance is from the Asset, Liability,
entered in the Journals are conducted to ensure there have been no and Owner’s Equity-type
re-listed in the Ledgers, errors in postings to the Ledger. Ledger Ledger Accounts.
where they are organized balances are extracted and re-presented in
the Financial Statements. The P&L comprises totals
and summarized by
for the reporting period
Account, rather than by
from the Income and
Date.
Expense-type accounts.
45
In traditional paper-based accounting, While Wave can handle (almost) all your
the first step was always to take the accounting by simply working from the
Source Documents, and list ‘Source Documents’ such as Invoices,
transactions into the day-book, or Bills, Receipts and categorized bank
Journal. Transactions, there are other
exchanges of value for which there
With Wave, however, you mostly either
may be no source document – or not
create the Source Documents directly
one that you can create in Wave. An
in Wave, or easily capture their details
example of this would be applying a
from elsewhere.
depreciation or amortization expense,
For example, when you send an invoice which we shall meet on page 65.
in Wave, the system automatically:
For these transactions that Wave
• Creates a transaction in the Sales cannot create automatically, you will
Journal, recording the transfer of directly create a Journal Transaction,
value between Sales and Accounts much as accountants have done for
Receivable. centuries. Of course, unlike in the
paper-based past, your Journal
Wave looks
• Posts two copies of the transaction:
one to the correct Income Account Transaction will automatically be
and one to the Accounts Receivable posted to the correct Ledgers, and
after (almost) all account in your General Ledger. immediately be reflected in updated
Financial Statements.
of this for you!

In the same way, whenever you
categorize a transaction in your bank
Account, Wave is actually journalizing a
transfer of value between bank, and
the Account into which you chose to
categorize it.
46
So, what’s relevant to you?
Know how to record a Know a little about the Know that you’ll never in Know that there were
Journal Transaction in General Ledger your life have to Post a other Journals and
Wave Journal Transaction to a Ledgers, but that you
Ledger don’t care!
Most individual transactions in Although it’s no longer pages in Unlike the old days of paper- Way back in the day, big
Wave are recorded a big, leather-bound book, based, manual accounting – businesses with tons of sales
automatically. For example, there’s still the General Ledger when transactions were and purchases would use
when you send an invoice, – which is simply a listing of all literally written in to Journals, journals like the Sales Journal
record a bill, or categorize an the transactions you’ve ever then copied into Ledgers, then to record Sales, and then post
expense transaction from your made, organized by Account – checked and aggregated into them to special Ledgers, like
bank account, Wave uses these right at the heart of Wave. financial statements that you the Sales Ledger. Periodically,
source records and does all the could use – everything now sits the transactions in these
The list of all the accounts in
bookkeeping for you. in a big database, ready for you ledgers would be totaled and
your General Ledger is referred
to look at it from whichever posted to the General Ledger
But sometimes you’ll want to to as your Chart of Accounts,
angle you need. as a single amount for the
directly record a transaction and you’ll want to know how to
period.
between two Accounts, and add new Accounts to your Unless you’re a member of a
you’ll do that using a Journal Chart of Accounts, so you can Period Accounting Re- You don’t need to bother with
Transaction (we’ll encounter use them in your bookkeeping. enactment Society, you’ll never any of this, but if your
journal transactions for the need to manually post a accountant is talking to you
first time on page 65). Journal Transaction to a about your Sales Ledger or
Ledger in your life! Purchases Ledger, now you’ll
know what they’re talking
about!
47
Weekly to
monthly tasks
By the end of this
section you’ll
know
how to…
Pay and record payment of bills Record payments for any bills that were recorded earlier in
the period.
Run payroll Review payroll and pay your employees.
Review aged receivables Manage your overdue invoices to turn Accounts Receivable
into cash
Reconcile bank account(s) Reconcile your Wave transactions against those in your
bank statement.
49
Record bill
payments
As you sit down each week or month There are two ways to record a bill
Why not use ‘Money in Transit’?
payment in Wave:
to tackle paying bills, make sure that If you checked out the Help Center article
the same bills that you created 1. Locate the imported payment linked on page 35 (how to use a Money in
transaction that your bank connection Transit account to track checks), you may
earlier in the month are marked as be wondering why not do the same when
or transaction upload creates, and
‘paid’ in Wave. you pay a bill? The answer is simply to be
categorize it: Payment Sent for a Bill in
conservative:
Your Dashboard page will remind Wave. This will bring up a list of any
When you receive a payment that will take
you of any overdue bills that still outstanding bills in Wave, from which
time to reach your bank account, record it
you can select the appropriate one.
have to be paid. via Money in Transit so you don’t
2. Record payment for the bill directly. Go temporarily over-state your bank balance.
Recording bill payments as soon as to Purchases > Bills; identify the Bill When you send payment, it’s best to
they occur will keep your Accounts you want to pay; and use the drop-down assume it’s gone from your bank right
away, so you don’t forget about it if your
Payable correct and up-to-date, and to the right of the Bill to select ‘Add a
vendor sits on your check for a few days or
payment’. (Tip: Remember to delete any
ensure you know what’s available in weeks.
duplicate transaction that your bank
your bank.
connection or imports may add later.)
50
Run
payroll
Depending on the frequency with If you are using Wave’s Payroll Direct Payroll to-do list:
which you run payroll, find time a few Deposit service to pay your employees, set
1. Complete timesheets for any hourly
aside time to review and approve payroll
days before your scheduled pay day several days before your actual scheduled
employees.
to make any changes to your pay day. This will give you sufficient time to 2. Add to or deduct from pay if you need to
add any bonuses, commissions,
employees’ hours, add to or deduct make any changes and approve the payroll
while leaving time for the Direct Deposit benefits, or deductions.
from pay, and review the payroll 3. Review each line of the period’s Payroll
process to withdraw from your account and
details before clicking Approve this deposit into your employees’ on the Details and Pay Stubs.
payroll. scheduled pay day. 4. Click Approve this Payroll.
When you approve a payroll with Direct 5. Provide employees with pay stubs if
Once a payroll is approved, a journal
Deposit in Wave, the system will they have not been invited to Wave.
transaction will automatically be automatically withhold local, state, and 6. When the payroll withdrawal transaction
created to bookkeep the expense of federal taxes from your employees’ pay, is imported, categorize it to Payroll
the wages paid, as well as any record employer remittance amounts, and Liabilities to show that the funds
employee reimbursements and calculate any remittance amounts owed to successfully went to your employees.
the government.
payroll liabilities.
Wave will also automatically bookkeep the Tip: Go paperless by inviting your Employees
expenses and liabilities from the payrolls to access their pay stubs and year-end
that you run, so that they can contribute paperwork directly in Wave. Just add their
email address to their employee profile and
towards meaningful reports. click Invite to Wave.
51
Review aged
receivables, and
chase payments
early
Set up your invoices so there’s less Nobody wants to feel like they’re hassling clients. Wave provides
chance of them becoming overdue,
two convenient tools to help you face this challenge less often:
and make reviewing your Aged
Receivables Report a part of your
weekly routine. Invoice reminders Saved cards and recurring payments
When you send an invoice in Wave, click the When your customer pays an invoice online
Reaching out to important clients for Payment Due field to set the due date. via Payments by Wave, they’re invited to
money can feel awkward, but your save their payment card and authorize you
After clicking Save and Continue, you’ll see
business’s success and survival relies a menu with options to send reminders
to charge it for future invoices.
on cash coming in. Chasing before, on, and after the invoice due date. If a customer is overdue, check if they’ve
payments the moment they become Set reminders now, so you don’t forget later. saved a card – and don’t be afraid to use it.
It’s there because they gave you permission!
due trains your customers to pay on You can also send a reminder at any time
time, and keeps your cash flowing! after an invoice has been sent by navigating If your business provides a repeating
to your Invoices page, and clicking the service, you can set up automated recurring
Regularly reviewing your Aged Send Reminder link next to any overdue invoices and ask customers to save their
Receivables Report is key to invoices. cards to enable automated recurring billing.
ensuring that you’re on top of your Go to Sales > Recurring Invoices to get
started.
due and overdue payments.
52
If you do let a couple of invoices
get away from you and they
become overdue. As soon as you
sign in to Wave, a list of all of your
overdue invoices will appear in the
Dashboard page. The option to
send a reminder will appear right
next to any overdue amounts.
You can also get a better idea of
how much money is expected to
come in by generating an Aged
Receivables report in the
Reports page.
Your Aged Receivables report will
give you a breakdown of the
How to chase payments like a pro • Whatever date your customer promises to
payments that are expected to
make payment, confirm your discussion by
come in per customer, as well as Many business owners struggle with chasing
email, and re-send your invoice from Wave.
the overdue amounts for each payments. Here are some tips to help you
customer, organized by the chase payments like a pro: • If a customer tells you a check’s in the
number of days by which they are mail, ask for the check number as well as
• Use Wave automated reminders for a first
overdue. when it was sent so you can look out for it.
reminder, but as soon as a payment is
overdue, use the phone. • Enable Payments by Wave, and ask your
customer to pay online – right now. Try
Tip: Before getting a hold of any • Call earlier in the week; it’s easy for
saying:
customers with outstanding customers to ‘forget’ a promised check as
payments, be sure to check the they head off for the weekend! “You can pay this invoice online with a
customer’s profile to see if you
credit card. In fact, why don’t I stay on the
have their saved credit card • You are calling for a specific commitment
information. If so, go ahead and line now to make sure it goes through and
to pay on a particular date – ideally today!
apply a payment! you don’t have any problems?”
53
Reconcile your
bank
account(s)
On a monthly basis, reconcile your Reconciliation comes down to checking the If not, well, we’ve got some reconciling to
bank account against the numbers in your accounting against your do. Click Reconcile to reveal a list of the
bank statement to make sure they match. If month’s transactions. You’re going to want
transactions that have been
a transaction was recorded incorrectly, if to take a closer look at your bank statement
recorded in Wave. Reconciling your you have a duplicate payment for an for the month, checking each transaction
bank accounts regularly is the single invoice, or if any other number of that appears there against the transactions
best way to ensure that what’s inconsistencies has occurred in your books, that appear in Wave, and making edits as
bank reconciliation is how you’ll find out. needed. By the end of the reconciliation
happening in Wave matches what’s
process, the closing balances of your bank
happening in the real world. To reconcile a bank account in Wave, click
statement should match with Wave’s
Accounting, select the Reconciliation
exactly.
feature, and select an account at the top of
It’s also a key control that will quickly the page. This will reveal a list of every
alert you if there are any unapproved month for which you have transactions with Tip: When you upload a receipt or apply a
charges being taken from your a status of either Reconciled or payment to an invoice or bill, Wave will create an
associated transaction on the Transactions
accounts! Unreconciled. Log in to your online banking
page.
page in a separate tab, and generate a
statement for the month that you want to If you’re importing transactions, you’ll likely
reconcile. Click Start and enter in the wind up with duplicate transactions. Go ahead
and delete the bank-imported transaction, as
closing balance for the month. If the closing
the one created by Wave will contain more
balance matches Wave’s then you’re all detail!
good!
54
Your
business
over time
Profit & loss:
Understanding
your business
over time
As we explored the Accounting If we turn our focus to the Income Whereas the Balance Sheet reports what
Statement (aka the Profit & Loss Report), we the business has, what it owes, and what’s
Equation, we saw that the Balance
aren’t interested in just the total of our left over for owners at a specific date, the
Sheet always balances, because it income and expenses from when the our P&L reports the income earned during a
captures all the assets, all the business started. We want to see profit for a chosen period, and the expenses incurred
liabilities, all the funding from specific period: last month; last year; the during that same period.
first quarter.
owners and all the income and
Perhaps we also want to compare our profit
expenses from when the business
this month to our profit last month. Let’s see how these two views
started until right now.
connect.
56
← Profit & Loss →
Business ...and keeps
Income - Expenses
starts… going
in this period
Balance Balance
Sheet 0 Sheet 1 Balance Sheet 1 includes
Balance Sheet 0 includes
lifetime income less expenses lifetime income less expenses
to here to here
As you can see, the P&L for any period reflects all the Obviously, it is good to know that we are making
income less all the expenses for that period, and profits, but often what you really want to know is how
‘bridges the gap’ between a Balance Sheet at the your profits are changing over time. This is why -
start of the period, and a Balance Sheet as at the end. although your tax authority only requires you to
calculate and tell them your profit once each fiscal
This is of course what we should expect: the profit in
year - most business owners like to look at their P&L
the business belongs to the owners, so it adds to
report on a regular monthly basis (or even more often)
Retained Earnings within the Owners Equity section,
to see if things are getting better or worse.
i.e. the part of the Balance Sheet that belongs to the
owners. This means running regular P&L reports, and
comparing them over time.
Assuming the owners didn’t make any withdrawals,
then this increase in Retained Earnings will have
funded either an increase in Assets or reduction in
Liabilities, or both.
57
← P&L → ← P&L → ← P&L → ← P&L → ← P&L → ← P&L →
Balance Balance Balance Balance Balance Balance Balance

Sheet Sheet Sheet Sheet Sheet Sheet Sheet
Profit
Tip: Tracking profit month-to-month is a great thing to do (and who

doesn’t like a profit line that goes up and to the right?), but you can
get much more out of regularly comparing your P&L reports than
this.
In the section on Interpreting your Financial Statements (which

starts on page 87), we’ll go through some really helpful techniques
that you can use with your P&L reports from Wave.
58
Accounting basis: If you only look at your Income
Statement once a year, it is pretty
which month any transaction relates to
may require a bit more care.
Accrual for clear which financial transactions

relate to that year. But as you narrow
There are two main, accepted methods
of assigning transactions to periods:
understanding;
the time period of your accounting
the Accrual method, and the Cash
down to monthly - and as you hope to
method.
cash for taxes

gain useful under-standing of how
your business is changing month-to- Let’s look at the differences, using a
month, determining simple example:
Jenny is a successful marketing consultant. In March, she completed a major

project for a long-standing client. The project started and completed during
March, and all the work was done in that period.
On March 31st, she invoiced her client her $35,000 fee.
The opening stages of the project had required some graphic design work
that Jenny didn’t have time to do herself, so she had contracted Max to
handle that part of the project. Max completed the work really quickly, and
invoiced Jenny his $8,000 fee on March 10th. Jenny paid it one week later -
on March 17th.
Jenny’s client was delighted with the project, and paid her promptly within 1
week, on April 5th.
Let’s look at this on a timeline,

and explore the accounting…
59
March 31st: Jenny invoices
Client $35,000
Jenny works on project April 5th: Client pays Jenny’s

throughout March fee: $35,000
February March April
Max completes
Subcontracted
design work
March 17th: Jenny pays Max
$8,000
March 10th: Max Invoices

Jenny for his work
On a Cash basis, Jenny would recognize the revenue from the project in April, when her client
paid. She would recognize the cost of Max’s sub-contracted design in March, however, because
that’s when she paid him. If this were her only project, the top of her P&L would look like this:
ACCOUNTS MARCH APRIL
Income
Project Sales $35,000
Cost of Goods Sold
Subcontracted Design $8,000
Gross Profit (Loss) ($8,000) $35,000
Gross Profit Margin N/A N/A
60
Clearly, something’s not quite right. Jenny’s business hasn’t swung from tragic loss to glorious
profit in the space of a month: there’s just a confusion created by splitting the income and expense
into separate months.
By comparison, on an Accrual basis, Jenny would recognize the revenue from the project in March,
when it was done and invoiced; and the expense to Max in March as well, when she incurred that
expense. If this were her only project, the top of her P&L would look like this:
* Gross Profit
ACCOUNTS MARCH APRIL
Margin
Income measures the
proportion of
Project Sales $35,000 Sales that
remain after
Cost of Goods Sold paying for Cost
of Goods Sold to
Subcontracted Design $8,000 cover general
business
Gross Profit (Loss) $27,000 expenses and
provide profit to
Gross Profit Margin* 77% owners.
As this demonstrates, the Accrual basis better This leads many small businesses owners to
shows what really happened in Jenny’s believe they should run their accounting on a
business: she completed a $35,000 project in Cash basis, but this is not the case. Accounting
March with $8,000 of costs, resulting in a on an Accrual basis gives a much clearer and
$27,000 profit. Her Gross Profit Margin was 77%. more actionable understanding of your business
Pretty good! throughout the whole year, and adjusting your
Year-end numbers to Cash basis to file taxes is
In general, accounting on an Accrual Basis
quick and easy. The reverse is not the case.
provides a much better platform to understand,
and better manage your business. The vast The primary purpose of accounting is to
majority of business owners in North America, understand your business and be more
however, are required to report and pay taxes on successful every day, not to file taxes once
the Cash Basis, which has the advantage that a year!
the government isn’t asking you to pay tax on
work you have not yet been paid for.
61
Monthly to
quarterly tasks
By the end of this
how to…
Report & remit sales tax Identify any taxes owed and correctly account for their payment.
Record depreciation/amortization Accurately recognize how your assets contribute to your business
over time.
Expense business use of home Record and account for office space and services that you provide
within your home.
Re-phase income Match income made over time with the work and materials that
went into it.
Write off bad debt Record bad debt when customers don’t pay.
Track inventory Record the value of your inventory as it’s purchased and sold.
63
Report & remit
sales tax
If your business collects sales tax, Depending on where you’re doing business, Once the payment has been made outside
the size of your business, and other of Wave, it can be accounted for through a
one regular task you’ll need to
considerations, you may report and remit simple transaction in the Transactions
perform is calculating the net sales taxes on an accrual or a cash-basis. page.
amount of sales tax you have The Sales Tax Report can be adjusted to Categorize the tax payment transaction
collected on behalf of the display your taxes owed on an accrual or under the name of the sales tax. The system
government, and paying it. cash basis by setting the Report Type at will take into account if the transaction is a
the top of the page, so either way, Wave’s withdrawal or deposit in order to determine
Wave’s Sales Tax Report will give got you covered! whether sales tax account’s balance should
you a breakdown of the tax you have be credited or debited.
collected, the tax you have paid on
purchases, and the balance that you Important: Sales Tax rules and reporting processes vary widely from country to country, and
even within countries. Check with your tax authority, or consult an accountant where you do
owe (or are owed). business, to make sure you understand your local requirements correctly.
64
Apply
depreciation or
amortization
To get the best picture of the true In the last Accounting Coffee Break, we saw rental expense every month. If, instead, you
how taking care that expenses and the are able to buy a vehicle for cash and “rent it
profitability of your business, you’ll
related income that they contribute to from yourself”, the profitability of your
want to spread out the cost of high- earning were grouped together in the business isn’t fundamentally different:
value fixed assets such as vehicles or correct time period ensured Jenny’s Income you’re still using a delivery vehicle every
equipment over their useful life, so Statement (P&L) made sense and properly month, and should still charge the expense.
showed how her business was performing.
that you recognize a part of their Here’s an example: Let’s say you bought a
When a business acquires high-value assets truck for $34,000. You plan to keep it for 2
cost against each month’s income
that will contribute to help the business years, and estimate you’ll be able to sell it
and see what it really costs to earn revenues over a long period, it wouldn’t for $10,000 at the end of that time. That
operate your business. make sense to take all the cost as an means that over 24 months, the business
expense when the asset is acquired. will ‘use up’ $24,000 of value in the truck. If
The technical term for this is Instead, the purchase is originally you’re ‘using up’ $24,000 in value over 24
applying depreciation, or accounted as buying an asset, and a portion months, it seems to make sense that you’d
amortization. (Strictly, depreciation of its value is charged as being ‘used up’ recognize $1,000 in expense each month.
each month.
applies to tangible assets, and Let’s take a look at how this can be
amortization to intangible, but you’ll Think of it like this: if your business rented a accomplished in Wave…
delivery vehicle, you’d obviously record the
see the terms used interchangeably.)
65
How to record depreciation or 3. Each month, create a Journal
Important: Depreciation is a
amortization in Wave: Transaction to Debit an account called management accounting concept,
1. If you haven’t done so already, record Depreciation Expense and Credit the designed to fairly spread the cost of an
the purchase of the asset. (Follow the appropriate Depreciation and asset across its useful life. Your
instructions on page 38 for how to Amortization account. depreciation calculations are ‘correct’
categorize an asset purchase.) when they faithfully reflect what really
Here it is for our Truck example:
2. Next, we’ll want to add a Depreciation happens in your business.
Contra Asset account. This depreciation is not what you
use to claim deductions for your tax.
Go to Accounting > Chart of
Accounts. On the Assets tab, scroll Governments also understand that
down to Depreciation and assets should be expensed over their
Amortization, and click the Add a New useful life, but rather than leaving it to
Depreciation and Amortization you to calculate what’s realistic, they
Account link. create long and complex lists of rules.
In the US, tax depreciation rules are
Sticking with our $34,000 truck defined under the Modified
example, we might call this new Accelerated Cost Recovery System
account Depreciation - Truck. (MACRS). In Canada, businesses claim
Capital Cost Allowances.
Tip: In general, if you only have a few
assets to depreciate, it can be easiest Deciphering all the rules and
to have an account for each; if you calculating your deductions under
have a great many, you’ll probably be MACRS / CCA is one area where it is
better off tracking their depreciation on Note: to create a Journal Transaction, go wise to consult a CPA in the tax
a spreadsheet, and just recording a to Accounting > Transactions, and jurisdiction where your business
total for depreciation across all assets click the ‘More’ button at the top-right operates.
in one account. of the page.
66
Expense business
use of home
If you’ve run your own business for Imagine your business operates from a There are two methods to recognize use of
rented office, costing $1,000 per month. your home for business in your
some time, you may be accustomed
That feels like a pretty obvious business bookkeeping:
to claiming a deduction for Business expense.
- If you actually reimburse yourself each
Use of Home in your tax returns. But Imagine now that you had signed the lease month from your business account, simply
have you considered that this is personally, and that you pay the rent out of categorize the expense as Office Expense;
about more than just tax? your own pocket. Is it still an expense of the or
business? Surely, yes. You would record this
- If you don’t reimburse yourself, post a
In Management Accounting, the goal as an expense of the business, and either be
monthly Journal Transaction to debit Office
is to document and understand the reimbursed, or add the cost to your Owner’s
Expense; credit Owner’s Investment /
Investment balance to take out later, when
true performance of your business. If Drawings.
your business can afford it.
your business relies on office space How much should you charge?
When your business occupies space in your
or other services that you provide In your management accounts, you can
home, the situation is really not much
within your home, then that resource different: you are paying personally for a charge whatever feels right. Using the same
calculation that you apply for tax, however,
is part of how your business resource that your business consumes to
will save time later.
operates, whether you document the operate; you should record the expense, and
Talk to your accountant, or research your
be reimbursed, or credited for your Owner’s
cost or not. We suggest you Investment.
local rules, to figure out what is allowed for
tax where you are.
document it.
67
Expense
business
mileage
When you use your personal vehicle For management accounting purposes, There are two ways to bookkeep shared
there are three commonly used approaches vehicle expenses:
for business travel (just like when you
to calculating and sharing vehicle expenses:
use your home for business purposes, - If you/your business are directly
1. For a vehicle that your business owns or reimbursing the other, categorize the
as we’ve just explored), it’s a good leases: directly record as expense all lease transaction in your bank account as Vehicle
idea to recognize this expense in or depreciation costs, together with Expense (which should be categorized as a
your bookkeeping – whether or not insurance; fuel; servicing; etc. Reimburse refund if you are reimbursing your
your business for personal use of the business.)
you actually get reimbursed by your
vehicle, based upon your share of mileage;
business at the time. - If there is no reimbursement, post a
2. For a vehicle that you own or lease: monthly Journal Transaction between
Of course, it could also be that your record all your expenses of operating the Vehicle Expense; and Owner’s Investment /
business directly owns or leases a vehicle, and assign a proportionate cost to Drawings.
your business based on mileage share; or
vehicle, and you make some use of it How much should you charge?
in your personal life. In this case, you 3. Alternatively, for a vehicle that you own For a vehicle you own, the simplest way is to
or lease: charge your business a flat rate per charge a cost-per-mile that matches the tax
should again be bookkeeping in such mile, consistent with tax allowances where deduction for business use of your vehicle.
a way that you and your business you are. For a vehicle your business owns, go with the
properly share the cost. Pick one – don’t mix methods!
actual expenses and pro-rate according to
mileage. Just know that come tax time,
different rules may apply.
68
Re-phase
“lumpy” December December
income Work spans a full year
December 2018: Customer is

invoiced $120,000
December 2019: Work is
completed
When you create an invoice for work Heads up: the word “lumpy” isn’t This can also work the other way around.
accountant-speak for anything! We’re using Suppose you have a good customer whose
that will take place (or has taken
it here to describe income that is invoiced all credit-worthiness you trust, and you deliver
place) over an extended period, it’s at once but earned across several periods. a project for them over two months,
good practice to spread the income Let’s say you invoice a customer $120,000
invoicing at the end.
out over the months in which the for a project in December, that will take a full Suppose also this project is a large chunk of
work is done. year to complete. In this scenario, your your total work in those two months.
profit and loss statement for December is
In this case, taking all the income into
This will allow you to match the going to look pretty darn impressive, but
Month 2, when you write the invoice, would
income with the work and materials really, the work will be ongoing until the
distort your accounting: much lower income
following December.
that go into it. in Month 1 than you really earned; much
Common sense tells us that, if we want our higher in Month 2.
accounting to show us what’s really
So, just as we might re-phase income
happening with our businesses, we need to
forward when it is billed all at the beginning
take this ‘December-this-year’ income and
of a long project, we might re-phase back
spread it out over the period we’ll actually
when it is billed at the end.
be delivering the project.
69
Re-phase income forward in Wave 2. Right now, your December income 3. We’ve successfully removed the
includes $120,000 for this project. You $110,000 income that didn’t ‘belong’ in
Let’s get the scenario clear: you have
know that only $10,000 really relates to December. Now we need to put it back in
invoiced your customer $120,000 in
work that you will complete in December the next January through November.
December. Wave has recorded $120,000 of
– the rest is going to spread out over the Add another journal transaction, this time
Sales, and balanced this with $120,000 of
next 11 months. More formally, $110,000 for January:
Accounts Receivable – an Asset in your
is unearned as at the end of December,
balance sheet.
so that’s what we’ll record. Debit Unearned Income $10,000
(Perhaps your customer has actually paid Credit Sales the same amount.
for a year’s work in advance, which would Go to Accounting > Transactions and
click the More button on the top-right Repeat this step for each month of the
be awesome. From an accounting
to add a journal transaction (dated in year.
perspective, however, that just means
you’d have the $120,000 in the bank asset December): You’re done! You’ve spread the
on your Balance Sheet, instead of Debit Sales $110,000 December income to reflect when it is
Accounts Receivable.) Credit Unearned Income the same actually earned. On your Income
Now, you haven’t actually earned the amount. Statements, you’ll see a true picture of
Income yet, so how can you reasonably how your business is performing!
have this Asset? The answer is that it is
offset by an obligation – to deliver
$120,000 worth of service or products.
And we record obligations as Liabilities.
Let’s go ahead and do this…
1. We’ll need a liability account to track
the obligation arising from the
unearned income. Go to Accounting >
Chart of Accounts and switch to the
Liabilities & Credit Cards tab. Scroll
down to Customer Prepayments and
Customer Credits and click the ‘add’
link. Name the account “Unearned
Income”.
70
Re-phase income backwards in Wave 2. The easiest way to think about this is 3. We’ve successfully recorded that
probably to imagine our way back into $10,000 was earned in March, but Wave
Let’s work this through, using the example
March (the prior month – before the recorded $20,000 Sales when you
of a $20,000 project, with the work done
project was completed and invoiced). invoiced your client. We’re double-
equally in March and April, and invoiced on
counting $10,000!
April 30th. As at the end of March, you had
When you create the invoice, Wave records delivered $10,000 of services and/or Let’s fix this. Add another Journal
$20,000 to April Sales, balanced by products; you had earned this income. transaction, dated April:
$20,000 of Accounts Receivable. But we But because you hadn’t yet asked the
Debit Sales $10,000
know that $10,000 of the income ‘belongs customer for the money, it wasn’t an
Credit Un-invoiced Income the same
to’ March. Account Receivable, it was simply Un-
amount.
invoiced Income.
Re-phasing income ‘backwards’ is – no You’re done! You have carried $10,000
surprise – the opposite process of re- Let’s record that now; go to Accounting income from April back into March when
phasing ‘forwards’. But what accounts > Transactions and click the ‘More’ it was actually earned. Your March and
should we use? button to add a Journal transaction April Income Statements should now be
dated March: much more realistic.
When we recorded income that wasn’t yet
earned, we used a liability account that we Debit Un-invoiced Income $10,000
called ‘Unearned Income’. In this case, we Credit Sales the same amount.
are dealing with income that has been
earned in an earlier period, but invoiced in
this period.
So if it is income that was earned but not
invoiced, why not call it ‘Un-invoiced
Income’? And because this is something
that will ultimately turn into cash in the
bank, it must be an Asset.
1. Go to Accounting > Chart of
Accounts. Scroll down to Expected
Payments from Customers and click
the ‘add’ link. Name the account “Un-
invoiced Income”.
71
Write off
bad debt
Even if you’ve been keeping on top You might guess that writing off a bad debt OK – perhaps you’re thinking:
is as simple as posting a Journal
of your sent invoices, inevitably there “So… the way to handle an invoice that I
Transaction to reduce Accounts know is never going to be paid, is to mark it
will come a time when it’s necessary Receivable and record a Bad Debt ‘paid’?!”
to write off bad debt. expense.
Yes it is.
Go through your overdue invoices on In a sense, that’s perfectly correct, but we
also want to make sure that the written-off But bear with us, and in a moment this will
a monthly or quarterly basis and be invoice doesn’t keep showing up in unpaid all make a lot more sense…
honest with yourself about which invoices.
payments you can reasonably expect In Wave, the only way to remove an invoice
to receive. from the unpaid invoices listing is to record
a payment, so that’s what we’re going to
If you realize a customer is never need to do.
going to pay, bite the bullet and
write off the invoice.
72
Write off bad debt in Wave: 3. When you know that you will not receive 4. Now, head over to the Transactions
payment for a particular invoice, page and add a new expense
1. Because we’re going to ‘pretend’ that
navigate to your Invoices page and transaction equal to value of the invoice
the invoice we’re writing off is paid,
apply a full payment to the unpaid that you are writing off. Set the account
you’ll need a ‘pretend’ bank account to
invoice. Use Undeposited Funds as the to Undeposited Funds and the
deposit the payment.
payment account. Now the invoice is category to Bad Debt Expense. You’ve
Accountants often use an ‘Undeposited removed from your Overdue Invoices now balanced out your Undeposited
Funds’ account as an intermediate step list, and its value is deducted from Funds account from the earlier invoice
in recording transactions. We’ll do the Accounts Receivable. payment, and successfully recorded the
same. bad debt expense!
Navigate to Accounting > Chart of
Accounts. Click the Add a New Cash
and Bank Account link, and call your
new Account ‘Undeposited Funds’ (or
any other name that you’ll recognize as
just a ‘pretend’ bank account for special
transactions).
2. Let’s also create an expense account for

your bad debt. Go back to the Chart of
Accounts page and switch to the
Expenses tab. Scroll to the bottom of
the Operating Expense section, and click
the ‘Add’ link to create a new expense
account named Bad Debt.
Tip: You can also apply this method to write off small differences – for example if a good customer paid the dollar amount of a
large invoice, but missed the cents off their check. You’re probably not going to chase the customer for the odd few cents, but
you also don’t want the invoice appearing forever on your Dashboard and in your Aged Receivables Report.
73
Track
inventory
If you’re running a service-based It is common practice, when creating an Sometimes, you’ll incur direct Cost of Goods
Income Statement, to report direct Cost of Sold expenses just as you need them. If you
business, then you may not need to are drop-shipping, for example, every time
Goods Sold (CoGS) right underneath your
worry about tracking your inventory. Sales. Wave does this automatically. you sell one item, you buy one item. The
For product-based businesses, CoGS is a special category of Expenses. It
expenses and income match in the same
period, and everything is clear and simple.
however, it’s important to consider includes only direct costs, which go up and
whether purchases of raw materials down with the level of your sales – things Other times, you may make a purchase that
like the buy-in cost of an item you resell, or will enable many sales over months to come,
and goods for resale are direct costs and it no longer makes sense to record the
charges from sub-contractors that work on
of sales in the same period, or ‘piece-rate’. whole purchase as a CoGS expense right at
whether they represent building up the time. In these cases you’ll need to
Sales less CoGS equals your Gross Profit, record the purchase as creating Inventory
Inventory – an Asset on your Balance which is available to pay general business (an Asset on your Balance Sheet) and then
Sheet. overheads, and you! cycle the Inventory asset into CoGS expense
as it is used up.
Let’s see how to deal with this in Wave.
74
Track inventory in Wave 3. Each time you purchase any inventory, 4. Every time you make a sale, create a
Method 1 – “Perpetual”: such as finished goods for re-sale, or Journal Transaction that debits your
materials that you will use to deliver Cost of Goods Sold account, and
There are two common methods to
your service, categorize the transaction credits your Inventory account by the
account for Inventory: ‘Perpetual’ and
that appears in your Transactions page
‘Periodic’. The Perpetual method is most value* of the inventory you have sold or
under the Inventory category that you
suitable if your business makes relatively used up in delivering your service. Your
just created. You are categorizing the
few, larger sales, where the inputs used up purchase as an Asset; not an expense! Balance Sheet will reflect the decrease
to deliver a sale are clearly identifiable. in your Inventory asset, and the Gross
The Periodic basis is more suitable when Profit on your Profit & Loss Statement
your business makes many individual will reflect the cost applied to the sale.
sales, and it is not practicable to track the
inputs used for each individual sale.
Let’s look at the Perpetual method – but if
‘Periodic’ sounds more like your business,
feel free to skip to the next page!
1. We’re going to need at least one
Inventory account. Go to Accounting
> Chart of Accounts; scroll down to
the Inventory section, and click the
‘Add’ link to add an account. For this
discussion, we’ll name it ‘Inventory’,
but you may create specific accounts
for different types of inventory.
2. Switch to the Expenses tab in your
Chart of Accounts; scroll down to Cost
of Goods Sold; and click the ‘Add’ link.
* Always record the value of Inventory at the purchase cost to your business; not the price
We’ll just call this ‘Cost of Goods
you will sell it. If you purchase many different items, you will probably want to have multiple
Sold’, but again you may want to use a Inventory accounts, and/or keep a record of your purchases, the cost per unit purchased,
more meaningful name in your and the inventory used for each sale, in a spreadsheet.
business.
75
Track inventory in Wave 3. Each time you purchase any inventory, 6. Now we can post a month-end Journal.
Method 2 – “Periodic”: categorize the transaction that appears Let’s say we calculated that our CoGS
in your Transactions page under the for Fidget Spinner Sales in January was
Imagine you jumped on the Fidget
Purchases category. Again, you are $1,602; here’s our Journal entry:
Spinner bandwagon. You got a great deal
categorizing the purchase as an Asset!
on 5,000 fidget spinners for $10,000 ($2
each) – enough for 6 months’ sales.
Under the Perpetual method, we’d be
recording this purchase to Inventory,
then posting a Journal Transaction to
record CoGS on every sale – all 5,000 of
them! That would be a ridiculous amount
of bookkeeping, so instead let’s use the
Periodic method.
1. Just like before, we’re going to need
at least one Inventory account, and
at least one Cost of Goods Sold
account. Refer back to Steps 1 and 2
on the previous page for a reminder
4. At the end of each month, it’s time to
how to create these.
count what inventory you physically
2. To apply the Periodic method, we’re have left. You need to know what you
going to want one more account: This is the first Journal Transaction
have, and what it cost you to buy.
another Asset account, which we’ll we’ve seen with three entries. What’s
5. Now it’s calculator time: happening here?
call ‘Purchases’. This account is
most like Inventory, so go to i. We record $1,602 of CoGS
Closing inventory from last month
Accounting > Chart of Accounts; ii. We reduce the value of Purchases to
scroll down to the Inventory section; + Purchases made during this month zero – do this every month
and click the ‘Add’ link to add this
- Closing inventory from this month iii. The difference represents an
new Purchases account.
increase in Inventory since last
= CoGS during this month month.
76
Seriously. Before you spend a lot of And if you answer “No”, then simply
A third way to track time tracking and making adjustments categorize your purchases of items for
for Inventory, consider how much this resale and other direct costs straight
inventory in Wave… will impact your accounting. to Cost of Goods Sold.
We haven’t talked about “materiality” Does this mean we’re saying don’t
Don’t bother! yet, but we have stressed the idea that
you keep accounts primarily to
bother with Inventory at all? Not quite
– but if the fluctuations month-to-
understand your business. So if the month aren’t at all significant, then
costs of things you sell or combine into you’ll probably be just as well off
your services are small, or even if the adjusting your inventory once each
costs are large, but you buy and sell a year – i.e. make sure your Inventory
consistent amount each month so that account is correct for your year-end
your inventory levels don’t change Balance Sheet (reduce CoGS for any
much, then ask yourself: “Does increase in Inventory, and vice versa),
tracking inventory every month really but otherwise save yourself the work.
help me better understand my
Remember – you’re accounting for
business?”
your benefit, and time spent on
accounting precision that is not
material to your business is time
wasted!
77
Understanding
debits and
credits
Understanding
debits & credits
When you run your business with

Debit/Credit theory is not a Your bank Isn’t trying to confuse
Wave, most basic bookkeeping is
theory! you!
handled for you. For example,
when you send an Invoice, Wave Right off the bat, let’s get one thing OK. We credit the account that gives
automatically updates your out of the way: Debit/Credit theory is value, and debit the account that
not a ‘theory’. It is simply a naming receives value. So when a customer
Income and Accounts Receivable
convention. pays us $1,000 and we deposit the
accounts. money into the bank, we debit bank.
As we discussed in Accounting Coffee
In the previous section, we looked Break #2, every transaction with or But when we see our bank statement,
at special cases where you need inside your business is an exchange it shows a Credit. What’s going on?
between two accounts: one account
to record an exchange between gives value; one receives value.
This is actually key to a really
important understanding: all your
two accounts yourself, using a
In recording the transaction, we credit bookkeeping is performed from the
Journal Transaction to debit one the account that gives value, and perspective of your business. So, when
account and credit another. debit the account that receives value! your business deposits money into the
bank - i.e. ‘bank’ receives value - you
This brings us to the nemesis of debit bank.
By convention, ‘Credit’ is abbreviated to
so many fledgling bookkeepers: ‘Cr’; ‘Debit’ is abbreviated to ‘Dr’. But how does this transaction look
Debit/Credit theory! from the bank’s perspective?
Don’t be afraid... Stick with us.

We’ll get through this together!
79
If we flip things around and look at the your bank, it will not only cease to be
same transaction from the bank’s confusing - it will actually help understand
perspective, everything is reversed. When and remember the difference between debits
your business deposits funds, the bank and credits.
sees your business as giving value (literally,
Let’s summarize it this way:
you are lending the bank money!).
When the bank receives value from your
In any transaction, we credit the account
business (a deposit into your account with
that gives value, so the bank - in its
the bank), they credit your business’
bookkeeping - credits your business. And account. In your bookkeeping, you debit the
that’s what shows on your statement. bank’s account with your business.
This is the source of much confusion for When the bank returns value to your business
business owners as they try to get their (a withdrawal from your account with the
heads around bookkeeping for the first bank, or issuing your business a loan), they
time, but hopefully once you understand debit your business’ account. In your
the difference in perspective between your bookkeeping, you credit the bank’s account
business and with your business.
80
Why some At this point in explaining Debits and
Credits, most accounting texts will
Most of the time – i.e. “normally” – in a
well-functioning business, we’d expect
accounts get
present you with a table listing a set of to make Sales, which ultimately flow
account types that you debit to into Bank. Each time we make a sale,
increase their value in a journal bank receives value (so we debit it); our
bigger with debits, transaction, and a set that you credit

to increase their value. They may offer
Sales account gives value (we credit it).
So, the normal direction of bank is
and others With a handy mnemonic that you are

supposed to remember so that you will
debit; the normal direction of Sales is
credit. (Think back to the difference
credits
be able to recall these rules and get
between your business’ perspective of
your journal transactions the right way
your bank account, and the bank’s. The
around.
normal direction of your account from
Let’s skip that, and continue the work the bank’s perspective, which shows
of actually understanding the core up on your bank statement is hopefully
concepts, so that you’ll never need to credit!)
go look up a table, or remember what
Let’s generalize this:
each letter in your ‘easy-to-remember’
mnemonic stood for! Bank is an Asset account:
Let’s talk, instead, about normal The normal direction of all Asset
direction, which reveals the accounts is Debit.
underlying common sense (Can we say
‘beauty’? No? OK, let’s stick to Sales is an Income account:
‘common sense!’) of the double entry
method of capturing the exchange of The normal direction of all
value between two accounts in every Income accounts is Credit.
transaction.
81
Another source of funds into your OK. That’s Assets, Income and Owner’s Lastly, Liability. Let’s say our business
business’ bank – or other Asset Equity. What types of account are we purchases a vehicle on finance. Our
accounts – will very likely be your left with? Expense and Liability. Let’s Motor Vehicles (asset) account receives
original investment of Owner’s Equity. think about Expense. value, so we debit Motor Vehicles
We already know that the normal (which is the normal balance direction
In the normal course of things, we buy
direction of Asset accounts is debit, and for all asset accounts). The account
goods and services to consume in our
indeed bank receives value in this that gives value in this transaction is
business, and pay for them ultimately
original investment. the Detroit Motor Vehicle Finance Corp
with money from our business’ bank
(DMVFC), which is a Liability account in
account. So, bank gives value (we credit
The account that gives value – from our business’ accounts. So we credit
your business’ perspective: you are not bank); the relevant Expense account
DMVFC.
your business! – is you, i.e. Owner’s receives value, and we debit it.
Equity. So we credit Owner’s Equity. Any time we create or increase a liability
The longer we are in business, the more
in our accounts, we credit it.
in total we will have spent on each type
The normal direction of Owner’s Equity
is Credit of expense, so the more we will debit it. The normal direction of a Liability
is Credit.
The normal direction of an Expense
is Debit.
Whenever we record a transaction that increases the numeric value of any Account in our bookkeeping, we are increasing the value
of that account further in its normal direction. Here’s why:
§ when we increase the value of an Asset or Expense account - that account receives value – so we Debit it.
§ when we increase the value of an Income, Liability or Owner’s Equity account - that account gives value – so we Credit it.
This explains why some accounts get bigger with debits, and others with credits. This is not an accounting ‘rule’ that you need to
learn; it simply emerges from following the logic of tracking how accounts give and receive value always from the perspective of
your business.
Accountants also refer to Normal Balance. If you perform a series of transactions in an account’s normal direction, then it’s
balance will – naturally enough – lie in that direction. So, we can also say that the Normal Balance of Asset and Expense Accounts
is Debit; the Normal Balance of Income, Liability and Owner’s Equity accounts is Credit.
82
Why total debits must equal total credits
Hopefully we’ve already cemented in your mind the But we’re just geeky enough at Wave to think the way
idea that none of this debit / credit business is accounting works is actually kind of cool, so if you
anything more than applying labels to the very obvious have a spare few minutes, stay with us to explore - at a
and logical process of recording which account gives deeper level - why this works, and why the accounting
value in each transaction (credit it!), and which ‘rule’ that total debits must equal total credits in every
account receives value (debit it!). transaction has to be true.
If you remember back to Coffee Break #2, we spent some time thinking about all the places money could come
from in your business, and all the places it could go to. We started with this…
Owner’s Lifetime Lifetime Owner’s

Assets = + + Liabilities - -
Investment Income Expense Withdrawals
What other
What the
All the money What owners people have All the
All the income owners have
and value of have put into the provided to the expenses the
the business has taken out of
‘things’ in the business since it business, and business has
ever earned the business
business today started are owed right ever incurred
since it started
now
…and worked our way through to discovering for ourselves the simple principle that accountants call the
Accounting Equation:
Owner’s
Assets = Liabilities +
Equity
All the money and What other people Owner’s
value of ‘things’ in have put into the Investment,
the business business, and are together with
today owed right now Retained Profits
83
Let’s go back to that simple first observation, and rearrange the formula in a slightly different way
by adding Lifetime Expense to both sides, and grouping Owner’s Investment less Owner’s
Withdrawals together as we did before:
Lifetime Owner’s Owner’s Lifetime

Assets +
Expense
= Liabilities + { Investment
-
Withdrawal }+ Income
What other All the income
All the money
All the people have the business
and value of What owners have put into the
expenses the put into the has ever
‘things’ in the business since it started, less what
business has business, and earned, less
business they’ve taken out
ever incurred are owed right all its
today
now expenses
As we did last time, let’s simplify Owner’s Investment less Owner’s Withdrawals simply to Owner’s
Net Investment, so we have this - let’s call it the Accounting Flows Equation:
Lifetime Owner’s Net Lifetime

Assets + = Liabilities + +
Expense Investment Income
What owners
What other
have put into All the income
All the money All the people have put
the business the business
and value of expenses the into the
since it started, has ever
‘things’ in the business has business, and
less what earned, less all
business today ever incurred are owed right
they’ve taken its expenses
now
out
84
Cool. But what does it all mean?
Let’s look at that again:
Debited
Lifetime Owner’s Net Lifetime

Assets + = Liabilities + +
Expense Investment Income
What owners
What other
have put into All the income
All the money All the people have put
the business the business
and value of expenses the into the
since it started, has ever
‘things’ in the business has business, and
less what earned, less all
business today ever incurred are owed right
they’ve taken its expenses
now
out
Credited
As you can see, we have Asset and Expense terms on the Conversely, a transaction that reduces the value of an Asset
left; Liability, Owner’s Equity and Income terms on the right. or Expense (credit), must be matched by an equal increase
(debit) to another Asset or Expense account, or by reducing
Now, this equation is like any equation: to keep it in balance,
(debit) a Liability, Owner’s Equity or Income account.
changes on the left of the equal sign must be matched with
changes on the right. We know that every accounting transaction involves an
exchange of value, expressed as a Debit and a Credit. Having
So, if a transaction increases an Asset account by, say, $100
worked through the logic of where money can possibly flow
(the Asset account receives value and is therefore debited)
into, through or out of a business, it hopefully becomes clear
this must be matched either by a reduction on the left -
that to keep our formula in balance, total Debits must equal
reducing (crediting) another Asset account, or reversing a
total Credits in every transaction. This is not an arbitrary
charge to an Expense account – or more commonly by a
accounting ‘rule’; just the natural consequence of a realization
matching $100 increase on the right, crediting the ‘giving’
that money, like energy, is neither created nor destroyed –
account(s), which will be a Liability, Owner’s Equity, or Income
only transformed.
account.
85
The least
When accounting journals were Well, accountants are a fairly logical
updated by hand, accountants bunch, so adding in our
developed a convention to always understanding of Normal Direction /
important thing write the two sides of the transaction
in a particular order.
Normal Balance, you might guess the
solution they arrived at: place the
to know about Looking at the equation on the

previous page, perhaps you might
account that is Debited on the left,
and the account that is Credited on
debits and credits

the right. In other words, for a ‘normal’
guess they would always write the
transaction, involving one account
side of the transaction that deals with
from either side of the “Accounting
Assets or Expenses on the left, and
Flows Equation”, where each is
the side that deals with Liabilities,
Now that you know everything increased, the Debited account will be
Owner’s Equity or Income on the
you need to know about Debits right.
from the left side of the equation, and
the Credited account from the right.
and Credits, let’s take a look at That would work for many, or even
something you don’t! This gives rise to…
most, transactions, but what about a
transaction that transfers value The least important thing to know
between two accounts on the same about debits and credits
‘side’ – for example receiving a
… but something that many
customer payment that reduces
accounting texts stress as the key
(credits) the Accounts Receivable
take-away: in a Journal Transaction,
asset account and increases (debits)
Debit written is on the left; Credit on
the bank asset account?
the right.
Which would go first?
Of course, using an accounting
software such as Wave, you can enter
your debits and credits in whatever
order you please: Wave will sort out
displaying these in your reports in a
way that makes your Accountant
happy!
86
ANALYZING YOUR BUSINESS
Interpret your
financial
statements 87
By the end of this
how to…
Analyze your financial statements Read and interpret your Balance Sheet and Income Statement
(Profit & Loss Report) to get meaningful insights for your
business.
Calculate the quick ratio Can your business pay off its current liabilities with its current
liquid assets?
Calculate break even sales Determine the exact point at which your business will make
neither a profit nor a loss.
Explore trends in your numbers Note trends month-over-month to give you the information you
need to continue driving your business forward.
Make forecasts Use previous periods’ numbers to forecast your business’ cash
flow and help anticipate its financial needs.
88
Analyzing your
financial
statements
Right from the beginning of this Over the next few pages, we’re going to dig Balance Sheet
into the Financial Statements – your Go to Reports > Balance Sheet and set the
guide, we have stressed that the
Balance Sheet and Income Statement (P&L) date picker to the last day of the period you
primary purpose of keeping accounts – and see how with a few simple are analyzing. Click Update Report, and
is to understand your business and calculations, they can yield useful switch the ‘toggle’ from Summary to
be more successful. information about how your business is Details. Print the report.
performing.
So now let’s dive in and look at some Just so that we don’t have to keep saying
Profit & Loss (Income Statement)
of the insights you can gain from “now open up your Balance Sheet” or “run Go to Reports > Profit & Loss and set the
two date pickers to the first and last days of
analyzing the financial statements your P&L”, let’s go ahead and grab both
those reports now. the period you are analyzing. Again, click
for your business. Update Report; switch the ‘toggle’ to
Run both reports for the month just ended Details; and print.
Tip: You can do this work as often as (or other period you’re analyzing), and print
you choose, but we’d suggest setting them off so they are handy.
Tip: As well as printing your Financial
aside some time each month for Statements, click the ‘Export’ button and
analysis, which also allows you to save each as a .CSV file, which will allow you
to use the numbers in a spreadsheet.
look at trends in your business over
time.
89
Review the
We’ve seen before that the Balance Liabilities are also broken out, into
Sheet reports Assets, Liabilities and Current Liabilities and Long-term
Owners Equity, but if you look at your Liabilities.
balance Balance Sheet now, you’ll notice it has a
little more structure than that.
Current Liabilities are pretty much the
reverse of Current Assets: obligations
sheet Your Wave Balance Sheet separates
Assets into Cash and Bank; Other
that your business is going to need to
settle in under a year (usually much less
Current Assets; and Long-term than that!). Examples include short term
Assets. debt such as credit card balances;
money owed to suppliers; and payroll
Current Assets (which include Cash
and tax liabilities.
and Bank), are resources that you
expect to turn into cash in the relatively Long Term Liabilities are (no surprise
short term - certainly under a year. So in here!) obligations that you will pay back
addition to physical cash, your business’ in the long term, which is considered to
Current Assets include bank accounts, be beyond 12 months. A 5-year fixed
money owed to you by customers, and term loan from the bank, or credit
products available for resale (and finance on a vehicle, would be examples
potentially many other things). of Long Term Liabilities.
Long-term Assets are things that you Current and Long-term Assets
use in the business, and wouldn’t and Liabilities are separated out
normally expect to turn into cash in less
than a year: office equipment; vehicles;
for a simple reason: it allows you
tools; etc. You could sell them for cash to see at a glance what you have
in an emergency, but then your in ready cash, and assets that
business would be missing things it turn into cash in the short term, to
needs to operate. pay obligations that are also due
in the short term.
What does your Balance Sheet
show?
90
Review the
If you remember back to the first If the amount of income was greater than
Accounting Coffee Break, the basic the amount of expense, your business
function of the Income Statement made a profit; if expenses were more
income should be familiar to you.
It simply shows the income that your
than income, your business turned a loss!
Just as the Balance Sheet is normally
statement business has earned during a particular
period, less the expenses incurred in the
presented with a little more structure, it’s
normal to see the Income Statement
(P&L) course of generating that income. broken up as follows:
PROFIT & LOSS
Income (Revenue)
- Cost of Goods Sold
= Gross Profit
(Gross Profit %)
- Operating Expenses
= Net Profit
(Net Profit %)
The Income Statement separates out Costs of Good Sold (CoGS) from other expenses, so
that you can clearly see the Gross Profit that your business generates from operations.
Gross Profit is the amount available to fund your business’ regular

overhead expenses, and provide a profit for you, the business owner.
91
Calculate the
!"##$%& '(($&( − *%+$%&,#-
quick ratio !"##$%& .*'/*.*&*$(
When we looked at the structure of “Quick” in this case doesn’t refer to the Subtract any Inventory (a relatively difficult
speed at which the ratio can be calculated asset to convert to cash) from your Current
the Balance Sheet just now, we
(although this will be a pretty simple ratio to Assets, and divide the resulting number by
mentioned that both Assets and calculate). Instead, we’re using the archaic your current liabilities. “Current” here
Liabilities are separated into Current meaning of “quick” which is “alive.” excludes any long-term liabilities or long-
and Long-term, allowing you to see term assets that appear in your balance
This gives us a framework to use when
sheet.
at a glance how well your Current thinking about the quick ratio: it is a pulse
check for your business. The quick ratio gives you a number that
Assets cover your Current Liabilities.
indicates whether or not your business can
The quick ratio (also commonly pay off its current liabilities using its current
liquid assets (cash, and any asset that can
referred to as the acid test ratio),
be easily converted into cash).
provides another lens to look at this
question.
In general, most businesses should aim to have a Quick Ratio of 1 or above – meaning all
Calculate the quick ratio for your Current Liabilities can be paid from Cash and near-cash assets.
business on a weekly or monthly If your Quick Ratio is significantly below 1, look deeper at the composition of your Current
basis to get a snapshot of your Liabilities: ‘Current’ is a fairly broad definition, so thinking through which liabilities could
actually need paying in the short term – and perhaps unexpectedly, for example if your bank
business’ health that can be tracked calls a loan – will help you better decide if your business is facing some liquidity risks.
over time.
92
Calculate your !"#$%&'() #*"#(+#+ (!-#$ℎ#%/)
break-even )$!++ "$!1& 2%$)'(
sales
New businesses often require a few As noted before, your Income Statement Let’s say your business is already profitable,
(P&L) shows your Sales, and your Gross with $30,000 in Sales. How secure are you?
months to generate enough sales to Well, if your Sales next month come in
Profit after deducting Cost of Goods Sold.
begin to turn a profit every month. If Gross Profit is the amount available to pay $5,000 lower, with the same Gross Profit
you’re in this situation, knowing what the fixed, general overheads of your Margin and same Operating Expenses, you’d
level of sales you need to break even business, and hopefully deliver a profit. (In be back to break-even, so the amount of
fact, Gross Profit is sometimes called sales you can stand to lose before making a
gives to a target to aim at, and to “Contribution to Overhead”.) loss is: $5,000
beat. $30,000
× 100 = 16.7%
Dividing your Operating Expenses by your
If you’re past this stage and making Gross Profit Margin (both shown on your
This gives you an idea of the ‘safety margin’
Income Statement) gives you a quick idea of
profits on a regular basis, it’s still in your business’ current performance.
how much your business needs to sell to
useful to know how far past break- exactly break even, i.e. make neither a profit
even you are. This tells you how nor a loss. For example, if your business has Break-even analysis relies on some
secure your profitability is, and also general expenses of $10,000 per month, important assumptions: including that your
and your Gross Profit Margin is 40%, your Operating Expenses and Gross Profit Margin
helps if you’re thinking about taking remain consistent as you move from
break-even point in Sales is:
on more regular expenses to grow current sales to break-even sales.
your business. 40 Take some time to think about your
$10,000 ÷ = $25,000
100 business. Are your Operating expenses
fixed, or do they actually vary with Sales.
If your business isn’t making $25,000 a
Can you improve your Gross Profit Margin?
month in sales, can you get there soon
What else can you change?
enough, or should you be reviewing your
expenses?
93
Explore trends
in your numbers
So far, we’ve looked at reviewing As you print out your financial statements Of course, paper and pencil records have
financial statements for a single each month, look back at previous months their limitations, and this is the 21st century!
to see what’s changing. The best way to track trends is to take your
period. To get the most from your
Grab a pen and make notes of any monthly exports of your Balance Sheet and
reporting, however, it’s important to
significant increases or decreases from Income Statement and build a spreadsheet
track trends in your business month- of month-by-month numbers.
previous months. Think about what you’re
over-month. seeing, and make notes of your conclusions,
Add your % change analysis, and use your
When you’re busy, it’s easy for or special factors that explain the numbers.
spreadsheet’s charting capabilities to build
change to creep up unnoticed. This is For example, you might note: “Offered 10% trend graphs of significant numbers so that
a particular risk when things seem to discount to win big Acme Widgets sale. Hit you can visually track how your key metrics
Gross Profit Margin. L” are moving over time, and in relation to each
be going well: If you’re having your
Tracking percentage changes is also other.
busiest ever month ever, it’s easy to
helpful. Pick the largest components of your
miss that gross profit margin is You’ve maybe heard the saying:
Balance Sheet and Income Statement, and
slipping, customers are paying more calculate the percentage change from last What gets measured, gets managed.
slowly, or costs are rising unchecked! month to this month. Are your numbers Over the page, we suggest a few
Reviewing your financial statements
moving together, or diverging? For example, metrics that many businesses track
if your Sales are growing 10% month-over- month-to-month, but the key is to
every month and tracking trends will month, but Accounts Receivable are
ensure you are not blind-sided, and figure out what’s important to
growing 30%, that is something to check
that you have the information you out! manage in your business, and
need to drive your business forward. measure that!
94
Quick Ratio
Is your business able to cover its short-
term liabilities from cash and assets that
turn into cash in the short term? Is this
stable over time, or moving up / down?
Accounts Receivable (AR)

AR is cash in your customers’ bank
accounts, that could be cash in yours! If
AR is growing faster than income, are you
spending enough time on collections?
Income (Revenue) Overdue Portion of AR

Customer Concentration
Total Income, straight off your Income Check your Aged Receivables report, and
How much of your Income came from note what proportion of total AR is
Statement. Is it growing month-over-
which customers? How much would losing outstanding longer than your terms permit.
month? Are there seasonal peaks and lows?
your top customer hurt your business? Are Act fast to chase overdue balances.
your Sales becoming more concentrated
Quotations / Estimates Issued on your top customers, or less? (Check the
Bad Debt % of Previous Month’s AR
Think about your Sales cycle. What Income by Customer report.
predicts income 1 – 3 months down the Track how much of the previous month’s AR
road? For some businesses it will be Gross Profit Margin you must write off each month to get a
Quotations / Estimates issued. For others Are you giving up margin to grow total basis for estimating future bad debt losses.
it may be inquiries from their website. Income? Would you be better off growing Can you improve it?
Figure out what predicts future income in more slowly with better-paying customers?
Inventory
your business, and measure it!
Net Profit If you are tracking Inventory, how is the
Pending Orders / Bookings / Utilization After covering Operating Expenses, is your total value changing over time? If
Net Profit increasing or decreasing? Inventory is increasing faster than Income,
If your business has fixed costs and
do you need to check you are holding the
capacity, such as a permanent team of Is it increasing faster or slower than the
correct items that current sales require, or
technicians, or property to rent out, how rate your top-line Income is increasing? If
could you adjust your average order size to
many days’ full utilization will current slower, where is you rising income being
keep inventory levels under control?
orders fill? Do you need more Sales? consumed? What can you change?
95
Forecast your
cash flow
Tracking trends in your business Like all accounting software, Wave is a tool As you build your Cash Flow forecast, you’ll
for tracking what has happened. Now, we need to refer to data from Wave for your
gives you priceless insight to how
want to think about what’s going to happen. starting balances, and also to guide you on
your business has been performing It’s time to step out of Wave, and fire up a suitable amounts to estimate for your
over time. spreadsheet. various expenditures. So get ready by
creating and printing or exporting the
But trying to manage your business To help you build a good forecast for your
following reports:
business, we’ve put together a Cash Flow
by looking at your accounting history Forecast Template spreadsheet that you can 1. Income Statements for several recent
can be a bit like trying to drive by download and complete. periods.
looking in the rear-view mirror. We This spreadsheet has been built using 2. Cash Flow Report for several recent
need to look forward, too! Microsoft Excel, but if you don’t have access periods.
to Excel, you will also be able to open it using 3. Aged Receivables Report.
The single most important way to Google Sheets, which is available for free, or 4. Aged Payables Report.
“look forward” is to forecast your for a small fee as part of Google’s G Suite.
5. Balance Sheet.
cash. Every day, businesses that are We’d recommend creating a new forecast
making sales, serving happy each month (or even weekly, if cash is tight),
customers, and even operating and checking regularly to see how accurate Download the template from
your forecasts are, so you keep getting better http://bit.ly/wave-cash-flow-forecast
profitably, go out of business – at predicting your cash flow.
simply because they run out of cash.
Don’t be one of them! 96
Year-end
accounting
By the end of this
how to…
Bring your record keeping up to date Check all the boxes to make sure that your financial year’s books
are complete.
Review personal/business transactions Ensure that any instances where a personal account was used to
pay for a business expense (or vice versa) are recorded properly.
Correct loan balances and interest expenses Adjust loan and interest expense balances to match your lender’s
Year-end statement.
Recognize un-invoiced income Account for work that you’ve performed that hasn’t been
invoiced.
Record unearned income and customer prepayments Match payments that you’ve received with the work you’ll be
doing in the next financial year.
Recognize unbilled expenses Record expenses that your business has incurred, but have not
yet been paid for.
Record prepaid expenses/vendor prepayments Account for products & services that you’ve paid for, but haven’t
received yet.
Check and adjust inventory Take stock of, and record any loss of valuation in your inventory.
98
Finalize your
year-end
Year-end marks the point where Year-end is a significant landmark in the Completing Year-end accounting essentially
having kept on top of your accounting lifecycle of your business. involves two steps:
Management Accounting throughout Significant because – in most of the world 1. Bring your management accounting
the year pays dividends in – it is when you need to gather and report record-keeping 100% up to date, and
information in specified formats for tax 2. Provide the necessary reports and
streamlining and simplifying the
purposes, but also because the end of a transaction-level data to your
financial accounting processes full year is when we naturally want to Accountant that he or she will need to
needed to report and calculate pause to compare performance with the calculate and report your tax liability,
taxes. year before, and plan the year ahead. along with any other prescribed
Importantly, for businesses that are at all reporting.
If you’ve been following the Weekly
seasonal, comparing performance on a Wave creates all the report formats that you
to Monthly and Monthly to Quarterly
year-to-year basis averages out seasonal will need to give to your Accountant (CPA),
bookkeeping steps set out in this impacts and lets us see the underlying so let’s get on now with completing your
guide, completing your Year-end growth trends. So, even if you are already Management Accounts for the year.
financial statements is going to be tracking your business performance on a
monthly basis, Year-end is a great time to There are 8 steps…
pretty straightforward. If you
make comparisons on an annual basis too.
haven’t… don’t worry – we’ll take you
through everything you need to do!
99
Step 1: Bring
your record
keeping 100%
up-to-date
You’ve been tracking income and Issue remaining invoices Finalize your last payroll of the year
expenses all year in Wave, so this Any completed sales or work that you can Whether you use Wave Payroll or another
invoice with a date before the Year-end: service, now’s the time to run your last
really shouldn’t be hard. get those invoices out! Not only will you be payroll of the year. Be sure, too, to include
A final check will make sure you getting your bookkeeping straight, any Year-end bonuses you may want to
customers might even pay you! pay to yourself, or any team members.
haven’t missed anything, and that
you have the complete baseline Record incidental income Balance your business bank account(s)
information for your year-end. Some bank interest? Affiliate Referral With everything recorded, now’s the time
fees? A forgotten royalty check? If there’s to balance your bank accounts for the final
income you’ve missed, record that too! time in the year.
A properly balanced bank account is your
Gather and record remaining bills and
reassurance that all your major
receipts
transactions are recorded correctly.
In the glove box of your car? In you wallet?
Pockets of the outfit you wore to that
trade conference? Check if you have any
remaining bills or receipts that you have
forgotten to record, and enter them now.
100
Step 2: Review
personal and
business
transactions
Even though you’ve hopefully kept Business use of home Personal expenses paid by business
business transactions separate from We discussed on Page 67 why you might It’s easy to mix up credit cards, and pay for
want to record Business Use of Home on a a personal item on your business card (or
your personal money in a dedicated regular, monthly basis – to get a clear view vice versa). Check your business card
business bank account, there will still of your business’ operating costs. charges to make sure everything is right.
be a number of areas where your If you have chosen not to record it
business and personal finances monthly, decide if you want to add it now Personal element of business expenses
intersect. as part of your Management Accounting Just as you can identify a business
(debit Office Expense; credit Owner’s element in personal expenditures, such as
Review all the areas where you have Investment / Drawings), or simply handle it for your home or vehicle, there can be a
paid expenses on behalf of the as part of your personal tax filing. personal element in business expenses.
business, or the business has paid for A cellphone plan paid for from your
Business mileage
items for your personal benefit, and business is likely to have a personal
If you use your personal vehicle for element, for example. Looking at your
ensure you have recorded and business purposes, you should be logging itemized bill, if you see that 30% of your
documented these fully. personal and business miles, and ideally usage is personal, you should adjust for
recording the expense at least monthly. this portion in your bookkeeping by means
Go back to check your motor expenses are of a Journal Transaction (credit Cellphone
correct. (See page 68 for more). Expense; debit Owner Investment /
Drawings)
101
Step 3: Correct
loan balances
& interest
expenses
If your business has a bank loan or In most countries where Wave is used, your 2. All payments have been recorded as
lender will automatically send you a Year- Interest, leaving Loan liability
other commercial loan, your lender
end statement of payments made, showing untouched.
will have assigned part of each how much of each payment was Interest,
You have recorded too much Interest.
payment that you have made to and how much went to repay the Principal.
Create a Journal Transaction to debit
Interest, and part to reducing the Of course their Year-end may be different to
Loan liability account by the amount of
yours, or the statement may never appear,
outstanding loan balance so if you don’t already have the statement
principal repayment during the year;
credit Interest Expense.
(”principal”). The split between handy, ask your bank to provide one.
interest and principal repayment 3. Each payment has been split using
Business owners usually record monthly
estimated amounts for Interest and
changes with every payment. loan payments in one of three ways. Here
repayment of Principal.
they are, and how to adjust for each:
It’s rarely easy or convenient to You’re hopefully pretty close to the
1. All payments have been recorded as
record the split every time we make correct split between Interest expense
Principal, reducing the Loan liability
a loan payment, so at Year-end you and Principal repayment. Refer to your
account.
lender’s Year-end statement to
will want to make an adjustment so Your Loan liability has not actually calculate the appropriate adjustment
that the total interest you have reduced this much. Create a Journal between these two accounts, and
recorded for year is correct, and the Transaction to debit Interest Expense create a Journal Transaction to make
by the amount of Interest on your the necessary change.
amount showing outstanding on your
lender’s statement; credit Loan liability
Balance Sheet reflects the actual account.
amount your business still owes. 102
Step 4:
Recognize
un-invoiced
income
Back in the section on Monthly to Here’s how to handle un-invoiced income 3. Create a Journal Transaction to Debit
in Wave: Un-invoiced Income and credit your
Quarterly tasks, we looked at re-
appropriate Sales (Income) account for
phasing ”lumpy” income. We saw 1. First, review partially-completed orders
the total calculated in Step 1.
and customer projects. Determine the
that a long project delivered over proportion of each that has been 4. Remember (in the next fiscal year) to
more than one month could distort completed, and the value. For example, post additional Journal Transactions in
our monthly accounts if we treat the if you had completed 30% of a $10,000 the opposite direction as you complete
project at the Year-end date, you would each order / project and invoice the full
income it creates as all being earned
value this at $3,000 complete. sale value.
at the end of the project, when an
2. If you haven’t previously done so in
invoice is issued. Instead, we showed
following the steps to manage “lumpy”
you how recognize part of the income (refer back to Page 69), go to
income each month, growing the Accounting > Chart of Accounts; Tip: Don’t record ‘speculative’ work – without
value of an Un-invoiced Income scroll down to Expected Payments a firm and reliable customer agreement – as
from Customers and add a new Income. Un-invoiced income should only be
asset. account. Call it Un-invoiced Income. recorded for confirmed customer orders /
projects where you know the sale will be
If you reach your Year-end in the
completed.
middle of just such a project, you’ll
want to recognize your un-invoiced
income, to be sure your total for the
year is accurate. 103
Step 5: Record
unearned
income and
customer prepayments
Just as you’ll sometimes reach Year- We looked at re-phasing Income in Monthly 3. Figure out what proportion of the value
to Quarterly Tasks (see Page 70.) The of your incomplete orders / projects
end with income that has been
process at Year-end is identical: remains to be delivered as at the Year-
earned but not Invoiced, you could end date, and create a Journal
1. Wave records the value of each Invoice
also find you have income that is as Income at the Invoice Date, balanced Transaction to debit Income; credit
invoiced but not earned. by AR. We need to reduce that Income, Unearned Income (Liability) this amount.
and replace it at a later date, when we
You could even have invoices that believe the Income will actually be
4. Moving into the next fiscal year, as the
affected orders / projects are fully
have been paid by your customers, earned.
delivered, post new Journal
but the actual products and services 2. If you haven’t already, add a new Liability Transactions to reinstate the Income:
on them won’t be delivered until account under Customer Prepayments debit Unearned Income (Liability);
some time in the next financial year. and Customer Credits. Call it Unearned credit Income.
Income.
These should be recorded as
We have suggested using a Customer Prepayments-type Account called Unearned Income. If you
customer prepayments.
are recording actual Customer Prepayments or Deposits – i.e. deliberately and consciously paid by
your customer for future work – you may prefer to add another Account explicitly called Customer
Prepayments or Customer Deposits. The accounting will be identical, by you may find these names
make clearer what’s happening in your business.
104
Step 6:
Recognize
unbilled
expenses
As at the Year-end date, had your There are two was to record an Unbilled Method 2 (Keeps Accounts Payable
Expense. ‘clean’):
business incurred expenses that you
had not yet paid for, or even Method 1 (The easy way!):
1. Go to Accounting > Chart of Accounts
received a bill for? 1. Add a Bill dated whenever your business and create a new Short Term Liability
actually incurred the expense. Wave will Account called something like Unbilled
Perhaps you hosted a small holiday handle this like any other Bill, meaning Expense Liability.
party for customers; you had a the expense is recognized at the Bill
2. Create a Journal Transaction as at the
Date; not when you pay it.
caterer take care of the food, but date the expense was incurred to debit
they hadn’t yet invoiced you when 2. When the ‘real’ Bill arrives, check the bill the relevant Expense categories; credit
details are correct, but don’t enter it Unbilled Expense Liability.
you hit your Year-end on December
again! Simply pay it like any other Bill.
31st. 3. When the vendor’s Bill arrives, enter it
(Note that this method will throw your Aged normally, and also create a Journal
Your business has incurred and Payables reporting off a little, because we Transaction as at the Bill date to reverse
benefitted from the expense, but are recording a bill before it actually arrives.) the previous one; i.e. debit Unbilled
Expense Liability; credit the relevant
right now it’s nowhere in your
Expense categories.
numbers. Record this Unbilled
Expense to make your accounting
more accurate.
105
Step 7: Record
prepaid
expenses and
vendor prepayments
Just like you can arrive at Year-end Adjusting for Prepaid Expense / Vendor 3. Figure out what proportion of any
Prepayments is very like the way we handle products or services you have
with invoiced Income you haven’t
Unearned Income / Customer Prepayments: purchased remains undelivered or
fully earned, you might also have
1. Wave records the value of each Bill as unused as at the Year-end date, and
recorded Expenses your business Expense at the Bill Date, balanced by AP, create a Journal Transaction to debit
hasn’t yet consumed. together with directly-entered Expenses Prepaid Expense; credit the relevant
paid from Cash / Bank / Credit accounts. Expense accounts.
If you pay rent quarterly, and your We need to reduce that Expense, and
Year-end falls 1 month into a rental 4. Moving into the next fiscal year, as your
replace it at a later date, when we the
business receives or makes use of these
quarter, if you’ve recorded the full Expense will be consumed.
products and services, post new Journal
quarter’s rent, you’re applying too 2. Add a new Asset account under Vendor Transactions to reinstate the Expense:
much to the current financial year: 2 Prepayments and Vendor Credits. Call debit the correct Expense accounts;
it Prepaid Expense.
months’ of the quarter’s rent belong credit Income.
in the next year.
As with Unearned Income and Note that there is no accounting difference between Prepaid Expenses that exist because your
business has not fully received or consumed purchased products or services, and a deliberate pre-
Customer Prepayments in Step 5, payment to a vendor for services that will be delivered wholly in the next financial year. For clarity,
resolve this by adjusting for Prepaid however, you might wish to distinguish these as Vendor Prepayments.
Expenses / Vendor Prepayments.

106
Step 8: Check
and adjust
inventory
If you’re a service-based business Goods that you purchase for re-sale, or 3. Straight to CoGS: if your inventory
materials and resources that you use to levels don’t fluctuate much, you may
with no inventory, feel free to skip
create your product or service, are either have chosen to simply record all your
along to the next section. If you’ve used straight away and accounted as Cost purchases as CoGS, and not track
been tracking Inventory as described of Goods Sold (CoGS) expenses, or are kept Inventory at all. This could be accurate
in the Monthly to Quarterly Tasks within your business as Inventory to be enough for your day-to-day needs, but
used over the weeks and months to come. If still needs adjustment at Year -end.
section, you’ll be familiar with the your business accumulates inventory, you
Whichever approach you’ve taken, your
inventory tracking processes. (If not, should have been tracking this in one of
Year-end Inventory adjustment essentially
refer back to Page 76 to read about three ways:
applies a Periodic approach: you’re going to
the Periodic Method of accounting 1. Perpetual method: recording all check what inventory you have on hand,
for Inventory.) purchases into your Inventory asset, and adjust your accounts so that they
and using Journal Transactions to match this reality.
However you’ve been approaching record inventory being consumed in
Turn over the page for a summary of the
Inventory, get ready to do some CoGS on a sale-by-sale basis.
different adjustments you might make…
counting. At Year-end you want to 2. Periodic method: recording all
take particular care that the purchases into a dedicated ‘Purchases’
asset account, and updating Inventory
Inventory value reported on your and CoGS maybe monthly, based on a
Balance Sheet matches what you physical count.
actually have available to your
business.
107
How to The physical Inventory you have is less than your Balance Sheet shows
adjust The physical Inventory you have is more
Inventory … because you used more inventory
than your Balance Sheet shows than you realized in delivering your ... or because some of your Inventory
if…
product / service has been lost, stolen, or destroyed
You use the You have likely under-recorded purchases You have likely over-recorded purchases of Using the perpetual method, the inventory
Perpetual of inventory, or over-recorded use of inventory, or under-recorded use of you have available should match what your
method inventory as CoGS expenses for sales. inventory as CoGS expenses for sales. Balance Sheet says at all times if your
Check your expense transaction records to Check you inventory purchase transaction bookkeeping has been accurate. If it
see if you have mis-categorized any records to see if any should have been doesn’t, common reasons are theft,
inventory purchases as expenses. Review categorized as simple expense transactions. breakage, fire or flood damage, etc. These
your Journal Transactions to see if you have are collectively referred to as ‘Shrinkage’,
Review your Sales history to ensure there is
duplicated transactions, or applied too which is a general Expense.
a Journal Transaction that applies
much CoGS expense against Sales, and appropriate CoGS against each sale. To account for ‘Shrinkage’, add this as a
correct your bookkeeping as required. new Expense account, and create a Journal
Correct your bookkeeping as required.
Transaction to debit Shrinkage and credit
Inventory as required.
You use the You have previously under-recorded You have previously over-recorded The Periodic method relies on counting
Periodic Purchases, or applied too much CoGS Purchases, or applied too litltle CoGS physical inventory, and assumes that all the
method expense. expense. difference between your last inventory
Check your expense transaction records to Check your expense transaction records to count (plus purchases since then) and your
see if you have mis-categorized any see if you have mis-categorized any present inventory account is attributable to
Purchases as expenses; make corrections. expenses as Purchases; make corrections. CoGS. This makes it hard to identify
Shrinkage.
If a difference remains, create a Journal If a difference remains, create a Journal
Transaction to debit Inventory for the Transaction to debit CoGS and credit If your inventory count reveals a pile of
difference; credit CoGS. Inventory for the difference. broken, unsaleable items, however, you
could certainly categorize these as
‘Shrinkage’.
You record For convenience, you are treating all For convenience, you are treating all Recording purchases straight to CoGS
purchases purchases as CoGS, but in fact the unused purchases as CoGS, but it looks like you makes sense when either the amount that
straight to purchases you have on hand have increased actually started the year with some you are purchasing to support your sales, or
CoGS since last year. inventory on hand, and you’ve used some of the change in inventories month-to-month,
Create a Journal Transaction to debit that up along with whatever you’ve is small.
Inventory so it matches your physical purchased in the year. If you are accounting this way, there is likely
inventory on hand; credit CoGS. Post a Journal Transaction to debit CoGS to be little benefit in attempting to track and
and credit Inventory so it matches your report ‘Shrinkage’.
physical inventory
108 on hand.
Congratulations!
Your year-end management
accounting is complete!
With all your adjustments completed, Your Management Accounting records also With these reports, your CPA now has all the
you now have a full picture of the include all the transaction data that your information they need to finalize any public
CPA requires to calculate and report your reporting that may be required on an
income earned during your financial taxes. Accruals basis, as well as any tax
year, and the expenses incurred to calculations that may be required on a Cash
Here’s what you should plan to share
support that income. You also know basis.
(export all Reports on a Detailed basis – as
– as of the end of the year – what opposed to Summary): They can also see all your investments in
your business has, what it owes, fixed assets through the year, so they can
§ Your Income Statement (P&L) for the
and… yes… what’s left for you, as year.
calculate the correct capital
the owner! allowances/depreciation allowances, as well
§ Your closing Balance Sheet at the end of as any other charges you’ve applied to
Take a moment to review your Year- the current year. understand and reflect the realities of your
end Financial Statements, just as you § Your closing Balance Sheet at the end of business, that may need to be adjusted and
the prior year. replaced with ‘official’ tax calculations.
have been every month. If this isn’t
§ Your Cash Flow Report for the year
your first year in business, compare Depending on your business structure, it
(select ‘Cash and Cash Equivalents’). may be liable to tax, independent of any
your business’ performance this year
§ Your Account Transactions (General personal taxes you pay. In this case, your
to last, and think about goals for the Ledger) Report on an Accruals basis.* Accountant will let you know the Tax
year ahead. § Your Account Transactions (General Expense to add as a final Journal
This is also a great time to export Ledger) Report on a ‘Cash and Cash Transaction in your bookkeeping.
Equivalents’ Basis*.
information to share with your And now you’re really done!
accountant, so they can complete Congratulations!
your tax filings for the year. 109
Bonus tip:
What to do if you don’t have an
accountant and are filing your own taxes
There are many advantages to To file your own taxes, you’re going to be Fixed Asset purchases are found on the
working with an accountant (CPA) as using some of the same six reports we Account Transactions (General Ledger)
identified on the previous page, so go ahead report. Your tax preparation software should
you complete your Year-end. A good and print / export them now. You’re also use this information to calculate Capital /
CPA may find tax allowances and going to need a set of tax forms from your Depreciation allowances. (If you file taxes on
deductions that you would not know local tax authority, or some software to an an Accruals basis – be sure to deduct
about yourself, saving you money – prepare and submit your tax return online. Depreciation from your expenses, so you’re
and they may prevent you making not claiming twice!)
Good online tax preparation software will
mistakes that could come back to guide you and provide you lots of You may need to also add back Business
bite you in an audit. Also, a good information about what numbers to include Use of Home and Business Motoring
in every part of your tax return, so using tax expenses if you are claiming these as
accountant can be a valued advisor
preparation software is a great choice. personal deductions: you can’t deduct them
to your business all year round. twice! Note that if you recorded these
Let your tax preparation software guide you,
If your business is still at its early expenses via Journal Transactions, they
and refer to your Wave reports for each of
won’t appear on any of your Cash-based
growth stage, however, the cost of the numbers you are asked for. Here’s
Reports; Journal Transactions only appear
using a CPA may seem out of where you’ll find the main numbers:
on Accruals-based Reports.
balance with the kind of income you Total Income comes from your Income
Continue through your tax preparation
are making, so you may be thinking Statement if you file on an Accruals basis, or
software, locating all the numbers you need
your Cash Flow Report on a Cash basis.
of “going it alone” at Tax Time. on your Wave reports until you’re done.
Expenses come from your Income
Taxes are different from country to Statement (Accruals basis) or Cash Flow Double-check everything, and submit
country, and even at more local Report (Cash). when you’re ready. Well done on
levels, so we can’t give you specific reporting your own taxes!
tax advice. We can set you on the
right track, however.
110
Comprehensive
checklist
111
The bookkeeping cycle
Daily/Weekly Capture receipts Upload photos of your receipts and store them in
Wave.
Invoice Clients Use Wave’s Invoicing feature to send invoices to

your clients and get paid.
Record and categorize transactions Track your transactions and categorize them
appropriately.
Record business mileage Log business use of your vehicle outside of Wave.
Record invoice payments Record payments received for your invoices.
Record bills Record any owing bills.
Record non-income and non- Account for any deposit and withdrawal
expense transactions transactions that aren’t income and expenses.
Weekly/Monthly Pay and record payment of bills Record payments for any bills that were recorded
earlier in the period.
Run Payroll Review payroll and pay your employees.
Review Aged Receivables Manage your overdue invoices to bring down your
bad debt.
Reconcile bank accounts Reconcile your Wave transactions against those in

your bank statement.
Monthly/Quarterly Report & remit sales tax Identify any sales taxes owed and correctly
account for their payment.
Record Amortization/ Accurately record the value of your assets over

Depreciation time.
Expense business use of home Record and account for office space and services
that you provide within your home.
Re-phase income Match income made over time with the work and
materials that went into it.
Write off bad debt Record bad debt when customers don’t pay.
Track inventory Record the value of your inventory as it’s

purchased and sold.
112
The analysis cycle
Monthly Analyze your financial statements Read and interpret your Balance Sheet and Profit &
Loss Statement to get meaningful insights for your
business.
Calculate and track the Quick Ratio Determine whether or not your business can pay off
its current liabilities with its current liquid assets.
Calculate Break Even Sales Determine the exact point at which your business will
make neither a profit nor a loss.
Explore trends in your numbers Note trends month-over-month to give you the
information you need to continue driving your
business forward.
Forecast cash flow Use previous periods’ numbers to forecast your

business’ cash flow and help anticipate its financial
needs.
Year-End Accounting
Yearly Bring your record keeping up to date Check all the boxes to make sure that your financial
year’s records are complete.
Review personal/business transactions Ensure that any instances where a personal account
was used to pay for a business expense (or vice
versa) are recorded properly.
Correct loan balances and Interest Adjust Loan and Interest Expense balances to match
Expense your lender’s Year-end statement.
Recognize un-invoiced income Account for work that you’ve performed that hasn’t
been invoiced.
Record unearned income and Match payments that you’ve received with the work
customer prepayments you’ll be doing in the next financial year.
Recognize unbilled expenses Record expenses that your business has incurred, but
have not yet been paid for.
Record prepaid expenses/vendor Account for products & services that you’ve paid for,
prepayments but haven’t received yet.
Check and adjust inventory Take stock of, and record any loss of valuation in your
inventory.
113

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Fearless

Master your accounting

Welcome to Wave’s Fearless Accounting guide, and congratulations on opening a

The Wave Customer Success Team

page page page page page

page page page page page

Compliance Account to owners Understand & grow your business

not financial business, and the practical steps and

To help you get started, though,

Whatever business you’re running, it’s a $

Owner’s Investment: $5,000

Look at the right side of the page. Rent is

Profit (Loss): ($800) - 8=

What I’ve earned: ($800)

It’s tempting to pin that first ever check to +3 ) 3:5 ) $

• What my business has, less what it

Design Services: $500 + ((

As usual, when we make or spend money,

:D= A 5: =8:D On the right, our ‘Income Statement’ shows:

C B ( • Profit or Loss (what’s left for us)

on one page! The Income Statement records income,

setup steps which is under Accounting on the left menu

You’ll also want to add accounts for any

2. Get transaction data into Wave

If your bank is not supported with a direct

Important: Sales Taxes cannot be changed

5. Add products & services

You’ll see that you can associate an Income

Note that you can also bulk import customers

Tip: If you decide to use Wave Payments, you

(For Canadian business owners, go to Sales >

8. Sign up for payroll

Tip: Make sure you have all tax information for

1. Giving yourself a pat on the back for

2. Entering a starting balance transaction

Get the starting balances from your previous

Before adding your starting balances, go to

Once this is done, all of your starting balances

Set up a separate, business bank account with your bank

Enter your bank accounts

Get transaction data into Wave

Set Wave to suit your brand

Add sales taxes

Add products & services

Sign up for online payments

Sign up for payroll

Enter starting balances

Owner’s Lifetime Lifetime Owner’s

Still with us? OK. Let’s reorganize this a bit:

Owner’s Owner’s Lifetime Lifetime

Nearly there! Let’s simplify this some more...

Owner’s Net Retained

What my business has What my business has

Record invoice payments Record payments received for your invoices.

Record bills Record any owing bills.

Logging mileage is not a feature of ,1 6

If you own a vehicle and use it in

transactions Things you buy that help your business

That’s it! A recurring invoice will be

about journals, when we paid rent, we used (reduced)