Capstone: Full Bookkeeping Cycle

The Complete Cycle

🔄 Quick Recall: In the previous lesson, we built a year-round tax preparation system. Now let’s tie everything together by walking through a complete bookkeeping cycle for one month.

You’ve learned each piece individually—chart of accounts, transactions, reconciliation, financial statements, AR/AP, and tax prep. Now it’s time to do it all at once.

This capstone simulates a real month of bookkeeping for a small consulting business. Work through each step, and by the end you’ll have completed the full cycle from raw transactions to finished financial statements.

The Scenario

You run a small marketing consultancy. It’s January 2026. Here are the month’s transactions:

Week 1:

Jan 2: Received $4,500 payment from Client A (Invoice #201, issued Dec 15)
Jan 3: Paid January rent $1,500 by check
Jan 5: Purchased office supplies $120 on business credit card

Week 2:

Jan 8: Completed project for Client B, invoiced $6,000 (Net 30)
Jan 10: Paid internet bill $95 by auto-pay
Jan 12: Received $2,000 deposit from Client C for upcoming project

Week 3:

Jan 15: Paid quarterly estimated tax $2,200 by check
Jan 18: Purchased new monitor $450 on business credit card
Jan 20: Completed project for Client D, invoiced $3,500 (Net 15)

Week 4:

Jan 22: Received $6,000 payment from Client B (Invoice paid in full)
Jan 25: Paid credit card bill $570 (previous month’s balance)
Jan 28: Owner’s draw $3,000
Jan 30: Bank charged $15 monthly service fee

Step 1: Record All Transactions

Work through each transaction and create journal entries.

Jan 2 — Client A payment received:

Account	Debit	Credit
Cash	$4,500
Accounts Receivable		$4,500

Jan 3 — Rent paid:

Account	Debit	Credit
Rent Expense	$1,500
Cash		$1,500

Jan 8 — Client B invoiced:

Account	Debit	Credit
Accounts Receivable	$6,000
Consulting Revenue		$6,000

Jan 12 — Client C deposit:

Account	Debit	Credit
Cash	$2,000
Unearned Revenue		$2,000

Note: This is a deposit for future work—it’s not revenue yet. It’s a liability (you owe them the work).

✅ Quick Check: For the Jan 18 monitor purchase on a credit card, which accounts would you debit and credit?

Continue recording the remaining transactions using the same format. Every entry must balance.

Step 2: Post to Ledger

After recording all journal entries, organize them by account. Each account should show all its transactions for the month with a running balance.

Cash Account Summary:

Date	Description	Debit	Credit	Balance
Jan 1	Opening balance			$8,000
Jan 2	Client A payment	$4,500		$12,500
Jan 3	Rent		$1,500	$11,000
Jan 10	Internet		$95	$10,905
Jan 12	Client C deposit	$2,000		$12,905
Jan 15	Estimated tax		$2,200	$10,705
Jan 22	Client B payment	$6,000		$16,705
Jan 25	Credit card payment		$570	$16,135
Jan 28	Owner’s draw		$3,000	$13,135
Jan 30	Bank fee		$15	$13,120

Step 3: Reconcile

Compare your Cash account ledger against the bank statement. Assume:

Bank statement ending balance: $14,620
Outstanding check: Rent check not yet cashed ($1,500)

Adjusted bank balance: $14,620 - $1,500 = $13,120

Your book balance: $13,120

They match. Reconciliation complete.

Step 4: Generate Financial Statements

Income Statement — January 2026

	Amount
Revenue
Consulting Revenue	$9,500
Total Revenue	$9,500
Expenses
Rent	$1,500
Office Supplies	$120
Internet	$95
Bank Fees	$15
Total Expenses	$1,730
Net Income	$7,770

Note: The monitor ($450) is equipment (an asset), not an expense. Client C’s $2,000 deposit is unearned revenue, not income yet. The estimated tax payment and owner’s draw are not expenses.

Course Review

Lesson	Skill	Key Concept
1. Why Bookkeeping Matters	Foundation	Track every transaction consistently
2. Chart of Accounts	Organization	Five account types, 15-25 accounts
3. Recording Transactions	Execution	Double-entry: debits equal credits
4. Bank Reconciliation	Verification	Match books to bank monthly
5. Financial Statements	Reporting	P&L, Balance Sheet, Cash Flow
6. AP and AR	Cash Flow	Manage what you owe and what’s owed to you
7. Tax Preparation	Compliance	Year-round system beats annual panic
8. Capstone	Integration	Full cycle from transactions to statements

Key Takeaways

The bookkeeping cycle follows a clear order: record, post, reconcile, report
Every transaction tells a story—learn to read it through journal entries
Reconciliation is your error-catching safety net
Financial statements are the output—clean inputs produce reliable insights
Consistency beats complexity: simple systems maintained daily outperform elaborate systems abandoned monthly
AI accelerates the process but understanding the fundamentals lets you catch errors and make smart decisions

Congratulations!

You’ve completed the full Bookkeeping with AI course. You now have the knowledge and skills to:

Set up and maintain a bookkeeping system for any small business
Record transactions accurately using double-entry principles
Reconcile your accounts to catch errors and fraud
Generate financial statements that reveal how your business performs
Manage cash flow through AR and AP
Prepare for tax season without stress

These aren’t just theoretical skills—they save real money. Businesses with clean books make better decisions, pay less in taxes (legally), and avoid the costly mistakes that come from flying blind.

Your next step: apply these skills to your own business or a practice scenario. Start with a chart of accounts, record one week of transactions, and reconcile against your bank statement. The habit starts now.