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name: bookkeeping-double-entry description: Use when posting transactions, designing a chart of accounts, reconciling a bank account, clearing suspense and control accounts, running a month-end close, or producing a trial balance, profit and loss account and balance sheet from underlying records. Covers double-entry mechanics, accruals and prepayments, control-account proofs, and the reconciliation discipline that has to hold before any tax return or set of accounts is drawn from the books. disambiguation: The bookkeeping ENGINE — double entry, reconciliation, control accounts, trial balance — and it is jurisdiction-neutral. UK filing obligations and tax computations live in accounting-uk-ltd and its uk-* siblings. Reading source documents into transactions is financial-document-ingestion. Project budget-vs-actual and EVM is project-finance.

Double-entry bookkeeping

The engine underneath every return and every set of accounts. Get this wrong and everything computed from it is wrong in a way no downstream check will catch.

1. The rule everything else rests on

Every transaction has equal debits and credits, and the accounting equation always holds:

Assets = Liabilities + Equity

	Debit increases	Credit increases
Assets (bank, debtors, stock, equipment)	✓
Expenses (purchases, wages, rent)	✓
Liabilities (creditors, VAT owed, loans)		✓
Income (sales)		✓
Equity (share capital, retained profit)		✓

Mnemonic that survives pressure: DEAD CLIC — Debit Expenses Assets Drawings, Credit Liabilities Income Capital.

If a trial balance does not balance, you have made an error — you have not found a rounding quirk. Do not plug it.

2. Chart of accounts for a small Ltd

Keep it small. A chart nobody can hold in their head gets mis-posted.

Range	Type	Typical accounts
1000–1999	Assets	Bank current, bank savings, trade debtors, stock, equipment, accumulated depreciation
2000–2999	Liabilities	Trade creditors, VAT control, PAYE/NIC control, wages control, director's loan, corporation tax payable
3000–3999	Equity	Share capital, retained earnings
4000–4999	Income	Sales (split by stream if VAT treatment differs), other income
5000–5999	Cost of sales	Purchases, carriage, direct labour
6000–7999	Overheads	Rent, utilities, software, professional fees, insurance, motor, depreciation
9999	Suspense	Temporary only — see §5

Split sales by VAT treatment, not by curiosity. Standard, zero-rated, exempt and outside-scope income must be separable or the VAT return cannot be built without re-analysing everything.

3. Control accounts — the proofs that make books trustworthy

A control account is a running total whose balance must equal an independently-derived figure. When they agree, a whole class of error is excluded. Prove each one every period.

Control	Must equal
Bank	The bank statement balance, after listing unpresented items
VAT control	The VAT due per the return for the period, plus/minus anything unpaid from prior periods
Trade debtors	Sum of unpaid sales invoices in the aged list
Trade creditors	Sum of unpaid purchase invoices in the aged list
Wages control	Net pay + PAYE + NI + pension per the payroll run — should clear to nil
Director's loan	The director's own record; it is a real debt in both directions

A control account that does not prove is a finding, not a rounding issue. When one will not prove, ledger-error-diagnosis reads the difference itself to narrow the class before you start hunting — a difference divisible by 9 is a transposition, twice a real amount is a wrong-side posting.

4. Bank reconciliation — the non-negotiable one

Balance per bank statement
  −  unpresented payments (written, not yet cleared)
  +  outstanding lodgements (banked, not yet credited)
  =  balance per cash book

Procedure that actually works:

1. Tick statement lines against book entries, oldest first.
2. Anything on the statement and not in the books → post it (bank charges, interest, direct debits, card fees).
3. Anything in the books and not on the statement → age it. An unpresented item older than ~6 months is usually an error, not a slow cheque.
4. Anything that matches by amount but not by date → check it is not a duplicate.
5. Reconcile to zero difference. Not "close". If it will not, go to ledger-error-diagnosis rather than absorbing the remainder.

Reconcile before every VAT return and before year end. A return drawn from unreconciled books is a guess with a number on it.

5. Suspense and clearing accounts — and the discipline they need

• Suspense holds what you cannot yet classify. It is a question, never an answer.
• Clearing accounts hold items mid-journey — payments in transit, inter-account transfers, card settlement, marketplace payouts. They are legitimate and should clear to nil each period.

Rules that keep them honest:

• Nothing stays in suspense past period end without being reported. List every item, its age and its amount.
• Never post a balancing figure to suspense to make a trial balance agree. That converts a visible error into an invisible one — the single most damaging habit in small-company books.
• A clearing account with a residual balance is unfinished work. Investigate the residual; do not journal it to P&L to tidy up.
• Marketplace and payment-processor payouts belong in a clearing account: gross sale in, fees out, net payout out. Posting only the net payout understates both turnover and costs — and for a VAT-registered company understates output VAT, which is an error with penalty exposure.
• The awkward shapes have their own reference — references/transaction-patterns.md: net-vs-gross splits, the three processor-fee patterns (including the monthly aggregate deducted from a single settlement), supplier debit balances and paying in credit, refunds and chargebacks, and part-payments. Each with its detection signature and the failure it causes.

6. Accruals, prepayments, and getting the period right

Accounts are prepared on the accruals basis: recognise income and expense in the period they relate to, not when cash moved. (VAT may be on a cash basis if the company is on cash accounting — these are different questions; see uk-vat.)

Adjustment	Meaning	Entry
Accrual	Cost incurred, not yet invoiced	Dr Expense / Cr Accruals
Prepayment	Paid in advance of the period	Dr Prepayments / Cr Expense
Deferred income	Invoiced in advance of delivery	Dr Income / Cr Deferred income
Depreciation	Spreading an asset's cost	Dr Depreciation / Cr Accumulated depreciation

Reverse accruals and prepayments in the following period or they double-count. A permanent accrual that nobody reverses is one of the most common small-company errors.

7. Month-end close — a repeatable order

1. Ingest and post everything (financial-document-ingestion)
2. Reconcile every bank and card account to zero difference
3. Prove each control account (§3)
4. Clear clearing accounts; report anything left
5. Post accruals, prepayments, depreciation
6. Review suspense — it should be empty
7. Produce the trial balance; confirm it balances
8. Produce P&L and balance sheet; compare to prior period and explain the movements
9. Record what is unresolved, with its potential impact

Step 9 is not optional. A close that reports only what tidied up hides the part that matters.

8. Reading the statements

Profit & loss — performance over a period:

Turnover − Cost of sales = Gross profit
Gross profit − Overheads = Operating profit
Operating profit − Interest ± Other = Profit before tax
Profit before tax − Corporation tax = Profit after tax

Balance sheet — position at one instant:

Fixed assets + (Current assets − Current liabilities) − Long-term liabilities
  = Net assets
  = Capital and reserves

Sanity checks worth running every time: net assets equals capital and reserves · retained earnings moved by exactly this period's profit after tax (plus any dividend) · debtors and creditors are plausible against turnover · no negative stock, and no bank balance that contradicts the statement.

9. Anti-patterns

• Plugging a difference to suspense so the trial balance agrees.
• Posting only the net marketplace payout — understates turnover, costs and output VAT.
• Never reversing an accrual or prepayment, so the cost lands twice.
• Reconciling to "close enough". Zero or unreconciled; there is no third state.
• Mixing the director's personal spending into overheads instead of the director's loan account.
• A chart of accounts nobody can hold in their head — mis-posting follows.
• Not splitting sales by VAT treatment, forcing a re-analysis at every return.
• Calling the books done while a clearing account still holds a residual.