Bookkeeping All-in-One For Dummies

Lita Epstein, John A. Tracy

• Publisher: For Dummies
• Year: 2019
• ISBN:
  9781119593706
• Edition: 2
• Topic: Business
• Subtopic: Bookkeeping & Budgets
• Index: Business

Manage the art of bookkeeping

Do you need to get up and running on bookkeeping basics and the latest tools and technology used in the field? You've come to the right place! Bookkeeping All-In-One For Dummies is your go-to guide for all things bookkeeping. Bringing you accessible information on the new technologies and programs, it cuts through confusing jargon and gives you friendly instruction you can use right away.

Inside, you'll learn how to keep track of transactions, unravel up-to-date tax information, recognize your assets, and so much more.

• Covers all the new techniques and programs in the bookkeeping field
• Shows you how to manage assets and liabilities
• Explains how to track business transactions accurately with ledgers and journals
• Helps you make sense of accounting and bookkeeping basics

Get all the info you need to jumpstart your career as a bookkeeper!

Book 1

Keeping the Books

Contents at a Glance

1. Chapter 1: Basic Bookkeeping
   1. Bookkeepers: The Record Keepers of the Business World
   2. Delving into Bookkeeping Basics
   3. Recognizing the Importance of an Accurate Paper Trail
   4. Using Bookkeeping’s Tools to Manage Daily Finances
   5. Running Tests for Accuracy
   6. Finally Showing Off Your Financial Success
   7. Wading through Bookkeeping Lingo
   8. Pedaling through the Accounting Cycle
   9. Tackling the Big Decision: Cash-Basis or Accrual Accounting
   10. Seeing Double with Double-Entry Bookkeeping
   11. Differentiating Debits and Credits
2. Chapter 2: Charting the Accounts
   1. Getting to Know the Chart of Accounts
   2. Starting with the Balance-Sheet Accounts
   3. Tracking the Income-Statement Accounts
   4. Setting Up Your Chart of Accounts
3. Chapter 3: The General Ledger
   1. Understanding the Eyes and Ears of a Business
   2. Developing Entries for the Ledger
   3. Posting Entries to the Ledger
   4. Adjusting for Ledger Errors
   5. Using Computerized Transactions
4. Chapter 4: Keeping Journals
   1. Establishing a Transaction’s Point of Entry
   2. When Cash Changes Hands
   3. Managing Sales Like a Pro
   4. Keeping Track of Purchases
   5. Dealing with Transactions That Don’t Fit
   6. Posting Journal Information to Accounts
   7. Simplifying Your Journaling with Computerized Accounting
5. Chapter 5: Controlling Your Records
   1. Putting Controls on Your Business’s Cash
   2. Keeping the Right Paperwork
   3. Protecting Your Business Against Internal Fraud
   4. Insuring Your Cash through Employee Bonding
6. Chapter 6: Computer Options for Bookkeeping
   1. Surveying Your Software Options
   2. Setting Up Your Computerized Books
7. Chapter 7: Financial Statements and Accounting Standards
   1. Reviewing the Basic Content of Financial Statements
   2. Contrasting Profit and Cash Flow from Profit
   3. Gleaning Key Information from Financial Statements
   4. Keeping in Step with Accounting and Financial Reporting Standards

Chapter 1

Basic Bookkeeping

IN THIS CHAPTER

Introducing how to keep the books

Managing daily business finances

Keeping business records

Navigating the accounting cycle

Choosing between cash-basis and accrual accounting

Deciphering double-entry bookkeeping

This chapter provides an overview of a bookkeeper’s work. If you’re just starting a business, you may be your own bookkeeper for a while until you can afford to hire one, so think of this chapter as your to-do list.

All businesses need to keep track of their financial transactions; that’s why bookkeeping and bookkeepers are so important. Without accurate records, how can you tell whether your business is making a profit or taking a loss? This chapter also covers the key parts of bookkeeping by introducing you to the language of bookkeeping, familiarizing you with how bookkeepers manage the accounting cycle and showing you how to understand the most difficult type of bookkeeping: double-entry.

Bookkeeping, the methodical way in which businesses track their financial transactions, is rooted in accounting. Accounting is the total structure of records and procedures used to record, classify, and report information about a business’s financial transactions. Bookkeeping involves the recording of that financial information into the accounting system while adhering to solid accounting principles.

Bookkeepers: The Record Keepers of the Business World

Bookkeepers are the ones who toil day in and day out to ensure that transactions are accurately recorded. Bookkeepers need to be very detail-oriented and love to work with numbers because numbers and the accounts they go into are just about all these people see all day. A bookkeeper isn’t required to be a certified public accountant (CPA).

Many small-business people who are just starting their businesses serve as their own bookkeepers until the business is large enough to hire someone dedicated to keeping the books. Few small businesses have accountants on staff to check the books and prepare official financial reports; instead, they have bookkeepers on staff who serve as the outside accountants’ eyes and ears. Most businesses do seek an accountant with a CPA certification to set up and review accounting processes, prepare financial reports, oversee the work of a bookkeeper, and file taxes.

In many small businesses today, a bookkeeper enters the business transactions daily while working inside the company. At the end of each month or quarter, the bookkeeper sends summary reports to the accountant, who then checks the transactions for accuracy and prepares financial statements.

In most cases, the accounting system is initially set up with the help of an accountant to ensure that it uses solid accounting principles. That accountant periodically stops by the office and reviews the system to make sure that transactions are being handled properly.

Accurate financial reports are the only way you can know how your business is doing. These reports are developed from the information that you, as the bookkeeper, enter into your accounting system. If that information isn’t accurate, your financial reports are meaningless. As the adage goes, “Garbage in, garbage out.”

Delving into Bookkeeping Basics

If you don’t carefully plan your bookkeeping operation and figure out exactly how and what financial detail you want to track, you’ll have absolutely no way to measure the success (or failure, unfortunately) of your business efforts.

Bookkeeping, when done properly, gives you an excellent gauge of how well you’re doing financially. It also provides you lots of information throughout the year that you can use to test the financial success of your business strategies and make course corrections early in the year, if necessary, to ensure that you reach your year-end profit goals.

Bookkeeping can become your best friend for managing your financial assets and testing your business strategies, so don’t shortchange it. Take the time to develop your bookkeeping system with your accountant before you even open your business’s doors and make your first sale.

Picking your accounting method: cash basis versus accrual

You can’t keep books unless you know how you want to go about doing so. The two basic accounting methods you have to choose between are cash-basis accounting and accrual accounting. The key difference between these two accounting methods is the point at which you record sales and purchases in your books. If you choose cash-basis accounting, you record transactions only when cash changes hands. If you use accrual accounting, you record a transaction when it’s completed, even if cash doesn’t change hands.

Suppose that your company buys products to sell from a vendor but doesn’t pay for those products for 30 days. If you’re using cash-basis accounting, you don’t record the purchase until you lay out the cash to the vendor. If you’re using accrual accounting, you record the purchase when you receive the products, and you also record the future debt in an account called accounts payable.

Understanding assets, liabilities, and equity

Every business has three key financial parts that you must keep in balance: assets, liabilities, and equity. Assets include everything the company owns, such as cash, inventory, buildings, equipment, and vehicles. Liabilities include everything the company owes to others, such as vendor bills, credit card balances, and bank loans. Equity includes the claims owners have on the assets based on their portion of ownership in the company.

The formula for keeping your books in balance involves these three elements:

Assets = Liabilities + Equity

Much of bookkeeping involves keeping your books in balance.

Introducing debits and credits

To keep the books, you need to revise your thinking about two common financial terms: debits and credits. Most nonbookkeepers and nonaccountants think of debits as subtractions from their bank accounts. The opposite is true of credits; people usually see them as additions to their accounts, in most cases in the form of refunds or corrections in favor of the account holders.

Well, forget all you thought you knew about debits and credits. Debits and credits are totally different animals in the world of bookkeeping. Because keeping the books involves a method called double-en...