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Bookkeeping All-In-One For Dummies



  • Bookkeeping For Dummies
  • Bookkeeping Kit For Dummies
  • Accounting For Dummies
  • Reading Financial Reports For Dummies
  • Accounting Workbook For Dummies

Your soup-to-nuts guide to bookkeeping

Bookkeeping is a big responsibility—but it doesn't have to be fraught with fear. Inside, you'll find the friendly instruction you need to be a numbers-crunching champion in no time! From keeping track of transactions to utilizing the latest technology in the field, this comprehensive guide covers it all—so you can focus on the finances.

  • Keep your cool while keeping the books — chart the accounts, keep journals, control your records, and be the master of your ledger
  • Show them the money — report profits, balance assets and liabilities, make sense of the income statement, and get your financial reports in order
  • All in a day's work — count your sales, buy and track purchases, sort out employee payroll and benefits, and find the inside scoop on reporting employer-paid taxes
  • The proof is in the pudding — close journals, check your accuracy, adjust the books, and complete year-end payroll results
  • 'Cuz I'm the taxman — file and pay business taxes, prep for the new year, and get all of your ducks in a row for budgeting and cost accounting

Open the book and find:

  • Approachable ways to manage daily finances
  • What you need to know to decipher double-entry bookkeeping
  • AP and AR made absolutely painless
  • The ins and outs of store credit
  • How to stay on top of returns and allowances
  • The easy way to complete year-end payroll and reports
  • Alternative accounting methods worth having under your belt

Introduction 1

About This Book 2

Foolish Assumptions 2

Icons Used in This Book 2

Beyond the Book 3

Where to Go From Here 3

Book I: Keeping the Books 5

Chapter 1: Basic Bookkeeping 7

Bookkeepers: The Record Keepers of the Business World 7

Delving into Bookkeeping Basics 8

Picking your accounting method: Cash basis versus accrual 9

Understanding assets, liabilities, and equity 9

Introducing debits and credits 9

Charting your bookkeeping course 10

Recognizing the Importance of an Accurate Paper Trail 10

Maintaining a ledger 11

Keeping journals 11

Instituting internal controls 11

Computerizing 12

Using Bookkeeping’s Tools to Manage Daily Finances 12

Maintaining inventory 12

Tracking sales 13

Handling payroll 13

Running Tests for Accuracy 14

Proving out your cash 14

Testing your balance 14

Doing bookkeeping corrections 14

Finally Showing Off Your Financial Success 14

Preparing financial reports 15

Paying taxes 15

Wading through Bookkeeping Lingo 16

Accounts for the balance sheet 16

Accounts for the income statement 17

Other common terms 17

Pedaling through the Accounting Cycle 18

Tackling the Big Decision: Cash]basis or Accrual Accounting 20

Waiting for funds with cash]basis accounting 20

Recording right away with accrual accounting 21

Seeing Double with Double]Entry Bookkeeping 22

Differentiating Debits and Credits 24

Chapter 2: Charting the Accounts 25

Getting to Know the Chart of Accounts 25

Starting with the Balance Sheet Accounts 27

Tackling assets 28

Laying out your liabilities 31

Eyeing the equity 33

Tracking the Income Statement Accounts 34

Recording the money you make 34

Tracking the Cost of Sales 35

Acknowledging the money you spend 35

Setting Up Your Chart of Accounts 37

Chapter 3: The General Ledger 41

The Eyes and Ears of a Business 41

Developing Entries for the Ledger 42

Posting Entries to the Ledger 46

Adjusting for Ledger Errors 50

Using Computerized Transactions to Post and Adjust in the General Ledger 51

Chapter 4: Keeping Journals 53

Establishing a Transaction’s Point of Entry 53

When Cash Changes Hands 54

Keeping track of incoming cash 54

Following outgoing cash 56

Managing Sales Like a Pro 58

Keeping Track of Purchases 60

Dealing with Transactions that Don’t Fit 62

Posting Journal Information to Accounts 64

Simplifying Your Journaling with Computerized Accounting 66

Chapter 5: Controlling Your Records 71

Putting Controls on Your Business’s Cash 71

Checking accounts 72

Savings accounts 77

Petty cash accounts 77

Cash registers 78

Keeping the Right Paperwork 80

Creating a filing system 81

Figuring out what to keep and for how long 82

Protecting Your Business Against Internal Fraud 83

Facing the reality of financial fraud 83

Dividing staff responsibilities 85

Balancing control costs 87

Insuring Your Cash through Employee Bonding 88

Chapter 6: Computer Options for Bookkeeping.89

Surveying Your Software Options 90

Bookkeeper 90

Sage 50 Pro 91

QuickBooks Pro 92

Setting Up Your Computerized Books 93

Customizing software to match your operations 95

Converting your manual bookkeeping to a computerized system 97

Chapter 7: Financial Statements and Accounting Standards 99

Reviewing the Basic Content of Financial Statements 100

Realizing that form follows function in financial statements 100

Income statements 102

Balance sheets 104

Statement of cash flows 108

A note about the statement of changes in shareowners’ equity 111

Contrasting Profit and Cash Flow from Profit 111

Gleaning Key Information from Financial Statements 113

How’s profit performance? 113

Is there enough cash? 114

Can you trust financial statement numbers? 115

Why no cash distribution from profit? 116

Keeping in Step with Accounting and Financial Reporting Standards 117

Recognizing U.S. standards 117

Getting to know the U.S. standard setters 119

Internationalization of accounting standards (maybe, maybe not) 120

Divorcing public and private companies 121

Following the rules and bending the rules 122

Book II: Accounting and Financial Reports 125

Chapter 1: Financial Report Basics 127

Figuring Out Financial Reporting 128

Preparing the reports 128

Seeing why financial reporting counts (and who’s counting) 129

Checking Out Types of Reporting 131

Keeping everyone informed 131

Following the rules: Government requirements 132

Going global 133

Staying within the walls of the company: Internal reporting 134

Introducing the Annual Report 135

Breaking down the parts 135

Getting to the meat of the matter 136

Keeping the number crunchers in line 137

Digging Deeper into the Annual Report 138

Debunking the letter to shareholders 138

Making sense of the corporate message 140

Meeting the people in charge 140

Finding basic shareholder information 140

Getting the skinny from management 141

Management as a whole? 144

Getting guarantees from management 144

Bringing the auditors’ answers to light 145

Summarizing the Financial Data 148

Finding the highlights 148

Reading the notes 149

Chapter 2: Reporting Profit 151

Introducing Income Statements 152

Looking at a product business 152

Looking at a service business 153

Taking care of some housekeeping details 154

Your job: Asking questions! 156

Finding Profit 157

Getting Particular about Assets and Operating Liabilities 160

Making sales on credit → Accounts receivable asset 161

Selling products → Inventory asset 161

Prepaying operating costs → Prepaid expense asset 162

Fixed assets → Depreciation expense 163

Unpaid expenses → Accounts payable, accrued expenses payable, and income tax payable 164

Summing Up the Diverse Financial Effects of Making Profit 165

Reporting Extraordinary Gains and Losses 167

Correcting Common Misconceptions About Profit 170

Closing Comments 170

Chapter 3: Exploring Business Structures 173

Flying Solo: Sole Proprietorships 174

Keeping taxes personal 174

Reviewing requirements for reporting 175

Joining Forces: Partnerships 175

Partnering up on taxes 176

Meeting reporting requirements 176

Seeking Protection with Limited Liability Companies 176

Taking stock of taxes 177

Reviewing reporting requirements 177

Shielding Your Assets: S and C Corporations 177

Paying taxes the corporate way 178

Getting familiar with reporting requirements 180

Investigating Private Companies 181

Checking out the benefits 181

Defining disadvantages 182

Figuring out reporting 183

Understanding Public Companies 184

Examining the perks 186

Looking at the negative side 186

Filing and more filing: Government and shareholder reports 187

Entering a Whole New World: How a Company Goes from Private to Public 190

Teaming up with an investment banker 190

Making a public offering 191

Chapter 4: The Balance Sheet: Assets, Liabilities, and Equity 193

Understanding the Balance Equation 193

Introducing the Balance Sheet 194

Digging into dates 194

Nailing down the numbers 196

Figuring out format 196

Ogling Assets 198

Current assets 198

Long]term assets 201

Accumulated depreciation 204

Looking at Liabilities 205

Current liabilities 205

Long]term liabilities 206

Navigating the Equity Maze 206

Stock 207

Retained earnings 208

Capital 208

Drawing 208

Chapter 5: The Income Statement 209

Introducing the Income Statement 209

Digging into dates 210

Figuring out format 211

Delving into the Tricky Business of Revenues 214

Defining revenue 214

Adjusting sales 215

Considering cost of goods sold 217

Gauging gross profit 218

Acknowledging Expenses 219

Sorting Out the Profit and Loss Types 221


Non]operating income or expense 222

Net profit or loss 223

Calculating Earnings per Share 223

Chapter 6: The Statement of Cash Flows 225

Digging into the Statement of Cash Flows 225

The parts 226

The formats 227

Checking Out Operating Activities 229

Depreciation 230

Inventory 230

Accounts receivable 231

Accounts payable 231

The cash flow from activities section, summed up 232

Investigating Investing Activities 232

Understanding Financing Activities 233

Issuing stock 233

Buying back stock 234

Paying dividends 235

Incurring new debt 235

Paying off debt 235

Recognizing the Special Line Items 236

Discontinued operations 236

Foreign currency exchange 236

Adding It All Up 237

Chapter 7: Getting a Financial Report Ready 239

Recognizing Top Management’s Role 240

Reviewing the Purposes of Financial Reporting 242

Keeping Current with Accounting and Financial Reporting Standards 243

Making Sure Disclosure Is Adequate 244

Footnotes: Nettlesome but needed 245

Other disclosures in financial reports 246

Putting a Spin on the Numbers (Short of Cooking the Books) 249

Window dressing for fluffing up the cash balance and cash flow 250

Sanding the rough edges off the year]to]year profit numbers 251

Going Public or Keeping Things Private 256

Reports from publicly owned companies 256

Reports from private businesses 257

Dealing with Information Overload 258

Browsing based on your interests 258

Recognizing condensed versions 259

Using other sources of business information 260

Statement of Changes in Owners’ Equity 260

Chapter 8: Accounting Alternatives 263

Setting the Stage 264

Taking Financial Statements with a Grain of Salt 264

Taking an alternative look at the company’s financial statements 265

Spotting significant differences 266

Explaining the Differences 268

Accounts receivable and sales revenue 269

Inventory and cost of goods sold expense 270

Fixed assets and depreciation expense 271

Accrued expenses payable, income tax payable, and expenses 272

Wrapping things up 273

Calculating Cost of Goods Sold Expense and Inventory Cost 274

FIFO 274

LIFO 275

Recording Depreciation Expense 278

Scanning Revenue and Expense Horizons 280

Book III: Day]to]Day Bookkeeping 283

Chapter 1: Buying and Tracking Your Purchases 285

Keeping Track of Inventory 286

Entering initial cost 287

Managing inventory and its value 290

Practice: Working with Inventory and Calculating Cost of Goods Sold 295

Buying and Monitoring Supplies 298

Staying on Top of Your Bills 298

Keeping tasks separate 298

Developing a system for Accounts Payable 299

Paying early if it benefits you 300

Practice: Calculating Discounts 300

Answers to Problems on Buying and Tracking Your Purchases 301

Chapter 2: Counting Your Sales 303

Collecting on Cash Sales 303

Discovering the value of sales receipts 304

Recording cash transactions in the books 305

Practice: Recording Sales in the Books 307

Selling on Credit 308

Deciding whether to offer store credit 309

Recording store credit transactions in the books 310

Practice: Sales on Store (Direct) Credit 313

Proving Out the Cash Register 315

Practice: Proving Out 317

Tracking Sales Discounts 319

Practice: Recording Discounts 320

Recording Sales Returns and Allowances 322

Practice: Tracking Sales Returns and Allowances 323

Monitoring Accounts Receivable 324

Practice: Aging Summary 325

Accepting Your Losses 326

Answers to Counting Your Sales 326

Chapter 3: Employee Payroll and Benefits 329

Setting the Stage for Staffing: Making Payroll Decisions 329

Completing government forms 330

Picking pay periods 332

Determining wage and salary types 332

Collecting Employee Taxes 334

Sorting out Social Security tax 334

Making sense of Medicare tax 335

Figuring out federal withholding tax 335

Settling up state and local withholding taxes 336

Determining Net Pay 336

Practice: Payroll Tax Calculations 337

Surveying Your Benefits Options 338

Tax]exempt benefits 338

Taxable benefits 339

Dealing with cafeteria plans 340

Preparing Payroll and Posting It in the Books 340

Calculating payroll for hourly employees 341

Doling out funds to salaried employees 341

Totaling up for commission checks 341

Determining base salary plus tips 342

Practice: Payroll Preparation 343

Finishing the Job 344

Depositing Employee Taxes 345

Outsourcing Payroll and Benefits Work 346

Answers to Problems on Employee Payroll and Benefits 347

Chapter 4: Employer]Paid Taxes and Government Payroll Reporting 349

Paying Employer Taxes on Social Security and Medicare 350

Filing Form 941 350

Knowing how often to file 351

Completing Unemployment Reports and Paying Unemployment Taxes 352

Examining how states calculate the FUTA tax rate 353

Calculating FUTA tax 354

Filing and paying unemployment taxes to state governments 355

Practice: Calculating FUTA Tax 356

Carrying Workers’ Compensation Insurance 356

Maintaining Employee Records 358

Answers to Problems on Employer-Paid Taxes and Government Payroll Reporting 360

Book IV: Preparing for Year’s End 363

Chapter 1: Depreciating Your Assets 365

Defining Depreciation 365

Knowing what you can and can’t depreciate 366

Figuring out the useful life of a fixed asset 367

Delving into cost basis 368

Reducing the Value of Assets 368

Evaluating your depreciation options 369

Tackling Taxes and Depreciation 372

Section 179 372


Setting Up Depreciation Schedules 373

Recording Depreciation Expenses 374

Chapter 2: Paying and Collecting Interest 375

Deciphering Types of Interest 375

Simple interest 376

Compound interest 376

Handling Interest Income 377

Delving into Loans and Interest Expenses 378

Short]term debt 379

Long]term debt 382

Chapter 3: Proving Out the Cash 387

Why Prove Out the Books? 387

Making Sure Ending Cash Is Right 388

Closing the Cash Journals 389

Finalizing cash receipts 391

Finalizing cash outlays 395

Using a Temporary Posting Journal 396

Reconciling Bank Accounts 396

Tracking down errors 397

Using a computerized system 398

Posting Adjustments and Corrections 400

Chapter 4: Closing the Journals 401

Prepping to Close: Checking for Accuracy and Tallying Things Up 401

Paying attention to initial transaction details 402

Summarizing journal entries 402

Analyzing summary results 405

Planning for cash flow 406

Posting to the General Ledger 407

Checking Out Computerized Journal Records 408

Chapter 5: Checking Your Accuracy 413

Working with a Trial Balance 413

Conducting your trial balance 414

Dealing with trial balance errors 416

Testing Your Balance Using Computerized Accounting Systems 417

Developing a Financial Statement Worksheet 419

Replacing Worksheets with Computerized Reports 421

Chapter 6: Adjusting the Books 423

Adjusting All the Right Areas 423

Depreciating assets 424

Allocating prepaid expenses 425

Counting inventory 426

Allowing for bad debts 427

Recognizing unpaid salaries and wages 428

Testing Out an Adjusted Trial Balance 430

Changing Your Chart of Accounts 431

Book V: Accounting and Managing Your Business 433

Chapter 1: Managing Profit 435

Helping Managers: The Fourth Vital Task of Accounting 436

Following the organizational structure 436

Centering on profit centers 437

Internal Profit Reporting 438

Designing internal profit (P&L) reports 438

Reporting operating expenses 439

Presenting a Profit Analysis Template 441

Separating variable and fixed expenses 442

Stopping at operating earnings 444

Focusing on margin -- the catalyst of profit 444

Answering Critical Profit Questions 445

How did you make profit? 446

How did you increase profit? 447

Taking a Closer Look at the Lines in the Profit Template 448

Sales volume 448

Sales revenue 448

Cost of goods sold 449

Variable operating expenses 450

Fixed operating expenses 450

Using the Profit Template for Decision]Making Analysis 451

Tucking Away Some Valuable Lessons 453

Recognize the leverage effect caused by fixed operating expenses 453

Don’t underestimate the impact of small changes in sales price 453

Know your options for improving profit 454

Closing with a Boozy Example 455

Chapter 2: Budgeting 457

Exploring the Reasons for Budgeting 458

Modeling reasons for budgeting 459

Planning reasons for budgeting 460

Control reasons for budgeting 461

Additional Benefits of Budgeting 462

Is Budgeting Worth Its Costs? 464

Realizing That Not Everyone Budgets 465

Avoiding budgeting 465

Relying on internal accounting reports 466

Watching Budgeting in Action 468

Developing your profit improvement strategy and profit budget 469

Budgeting cash flow for the coming year 472

Considering Capital Expenditures and Other Cash Needs 474

Chapter 3: Cost Accounting 477

Looking Down the Road to the Destination of Costs 478

Are Costs Really That Important? 479

Becoming More Familiar with Costs 482

Direct versus indirect costs 482

Fixed versus variable costs 483

Relevant versus irrelevant costs 484

Actual, budgeted, and standard costs 485

Product versus period costs 486

Assembling the Product Cost of Manufacturers 486

Minding manufacturing costs 487

Classifying costs properly 489

Calculating product cost 491

Examining fixed manufacturing costs and production capacity 492

Puffing Profit by Excessive Production 495

Shifting fixed manufacturing costs to the future 495

Cranking up production output 496

Being careful when production output is out of kilter with sales volume 498

Chapter 4: Filing and Paying Business Taxes 501

Finding the Right Business Type 501

Sole proprietorship 502

Partnership 502

Limited Liability Companies (LLCs) 503

Corporations 503

Tackling Tax Reporting for Sole Proprietors 504

Filing Tax Forms for Partnerships 505

Paying Corporate Taxes 506

Reporting for an S corporation 506

Reporting for a C corporation 506

Taking Care of Sales Taxes Obligations 507

Chapter 5: Prepping the Books for a New Accounting Cycle 509

Finalizing the General Ledger 509

Zeroing out income statement accounts 510

Carrying over balance sheet accounts 511

Conducting Special Year]End Bookkeeping Tasks 511

Checking customer accounts 512

Assessing vendor accounts 513

Deleting accounts 513

Starting the Cycle Anew 514

Index 515