Bookkeeping Essentials

How to Succeed as a Bookkeeper

Steven M. Bragg

• Publisher: Wiley
• Year: 2011
• ISBN:
  9781118019436
• Edition: 1
• Topic: Business
• Subtopic: Bookkeeping & Budgets
• Index: Business

The handy problem-solver with helpful information for today's busy bookkeepers

Bookkeeping Essentials: How to Succeed as a Bookkeeper is the handy problem-solver that gives today's busy bookkeepers and accountants the helpful information they need in a quick-reference format. Whether in public practice or private industry, professionals will always have this reliable reference tool at their fingertips.

• Packed with practical techniques and rules of thumb for analyzing, evaluating, and solving the day-to-day problems every accountant faces
• Helps bookkeepers and accountants quickly pinpoint what to look for, what to watch out for, what to do, and how to do it
• Offers hundreds of explanations supported by a multitude of examples, tables, charts, and ratios

Filled with dozens of accounting best practices, Bookkeeping Essentials is a powerful companion for the ever-changing world of today's accountant and bookkeeper.

Part One

The Basics of Bookkeeping

Chapter 1

Bookkeeping Basics

What Is Bookkeeping?

Bookkeeping is how you record and report on the financial transactions of a business. The bookkeeper is responsible for initially recording basic accounting transactions, such as issuing invoices to customers, recording cash receipts, and paying employees. Bookkeeping is rarely conducted entirely on paper anymore. Instead, the bookkeeper uses a low-end accounting software package to record transactions. The software makes it easier to record transactions, and also summarizes the information into financial reports that are useful to the owners of the business to see how it is operating.

What Is the Job Description of a Bookkeeper?

The following is a detailed description of the tasks for which a bookkeeper is responsible. These line items may vary somewhat for companies located in specialized industries, but the description covers the bulk of all bookkeeper activities.

Basic Function

The bookkeeper position creates financial transactions and creates financial reports from that information. The creation of financial transactions includes posting information to accounting journals or accounting software from such source documents as invoices to customers, cash receipts, and supplier invoices. The bookkeeper also reconciles accounts to ensure their accuracy.

Principal Accountabilities

• Purchase supplies and equipment as authorized by management.
• Monitor office supply levels and reorder as necessary.
• Tag and monitor fixed assets.
• Pay supplier invoices in a timely manner.
• Take all reasonable discounts on supplier invoices.
• Pay any debt as it comes due for payment.
• Monitor debt levels and compliance with debt covenants.
• Issue invoices to customers.
• Collect sales taxes from customers and remit them to the government.
• Ensure that receivables are collected promptly.
• Record cash receipts and make bank deposits.
• Conduct a monthly reconciliation of every bank account.
• Conduct periodic reconciliations of all accounts to ensure their accuracy.
• Maintain the petty cash fund.
• Issue financial statements.
• Provide information to the external accountant who creates the company's financial statements.
• Assemble information for external auditors for the annual audit.
• Calculate and issue financial analysis of the financial statements.
• Maintain an orderly accounting filing system.
• Maintain the chart of accounts.
• Maintain the annual budget.
• Calculate variances from the budget and report significant issues to management.
• Comply with local, state, and federal government reporting requirements.
• Process payroll in a timely manner.
• Provide clerical and administrative support to management as requested.

Desired Qualifications

The bookkeeper candidate should have an associate's degree in accounting or business administration, or equivalent business experience, as well as a knowledge of bookkeeping and generally accepted accounting principles. Preference will be given to candidates with a working knowledge of the accounting software package.

What Is a Certified Public Accountant?

A certified public accountant (CPA) is an accountant who has passed all parts of the CPA examination, as administered by the American Institute of Certified Public Accountants, and who has also completed all additional work and educational requirements of their local state accounting regulatory agencies. A CPA is authorized to render an opinion on the fairness of a client's financial statements.

A CPA has considerably more knowledge of accounting than the typical bookkeeper, and must also update this knowledge with an annual continuing professional education requirement.

How Does a Bookkeeper Interact with a CPA?

The bookkeeper should consider a CPA to be a resource who can provide assistance in a variety of areas. If a CPA is already rendering an opinion on the fairness of the financial statements issued by the bookkeeper, then ethical guidelines prevent that CPA from providing many other services to the bookkeeper's company (other than creating tax returns). However, it is entirely acceptable to hire the services of a different CPA who acts solely as an advisor in such matters as creating budgets and financial statements.

What Are Generally Accepted Accounting Principles?

Generally accepted accounting principles (GAAP) are the set of authoritative accounting standards issued by several standard-setting bodies (particularly for U.S. GAAP, the Financial Accounting Standards Board, or FASB), which entities should follow in preparing their financial statements. The standards show how to aggregate and present financial information, as well as disclose supporting information.

The FASB issues frequent updates to GAAP, which are called Accounting Standard Updates. Most of these updates relate to technical issues that are of no concern to the bookkeeper, but some may require a change in how basic transactions are recorded or reported. If so, consult with your CPA regarding how these changes apply to your business.

What Are International Financial Reporting Standards?

International Financial Reporting Standards (IFRS) are the accounting standards set by the International Accounting Standards Board, which an entity can comply with if it wishes to create financial statements that are accepted in those countries allowing the use of IFRS. International Financial Reporting Standards were previously known as International Accounting Standards (IAS).

Most companies in the United States do not yet have to comply with IFRS, which in any case are close to the standards of GAAP, which are required within the United States. There is a general trend in favor of adopting IFRS throughout the world, but there is not yet a specific conversion date for this in the United States.

What Is the Income Statement?

The income statement is a financial report that summarizes an entity's revenue, cost of goods sold, gross margin, other costs, tax expense, and net income or loss. The income statement shows an entity's financial results over a specific time period, usually a month, quarter, or year. The key parts of an income statement are:

• Revenue. Revenue is an increase in assets or decrease in liabilities, caused by the provision of services or products to customers. You typically record revenue when you issue an invoice to a customer.
• Cost o...