Introduction 1
About This Book 1
Conventions Used in This Book 2
Foolish Assumptions 3
What You’re Not to Read 3
How This Book Is Organized 3
Part I: Basic Bookkeeping: Why You Need It 4
Part II: Keeping a Paper Trail 4
Part III: Tracking Day-to-Day Business Operations with Your Books 4
Part IV: Preparing the Books for Year’s (or Month’s) End 4
Part V: Reporting Results and Starting Over 5
Part VI: The Part of Tens 5
Part VII: Appendixes 5
Icons Used in This Book 5
Where to Go From Here 6
Part I: Basic Bookkeeping: Why You Need It 7
Chapter 1: So You Want to Do the Books 9
Delving Into Bookkeeping Basics 9
Picking your accounting method 10
Understanding assets, liabilities, and equity 10
Introducing debits and credits 10
Charting your bookkeeping course 11
Recognizing the Importance of an Accurate Paper Trail 11
Maintaining a ledger 12
Keeping journals 12
Consider computerizing 12
Instituting internal controls 13
Using Bookkeeping’s Tools to Manage Daily Finances 13
Maintaining inventory 13
Tracking sales 14
Handling payroll 14
Running Tests for Accuracy 14
Proving out your cash 15
Testing your balance 15
Doing bookkeeping corrections 15
Finally Showing Off Your Financial Success 15
Preparing financial reports 16
Paying taxes 16
Chapter 2: Getting Down to Bookkeeping Basics 17
Bookkeepers: The Record Keepers of the Business World 17
Basic Bookkeeping Lingo 18
Accounts for the balance sheet 19
Accounts for the income statement 19
Other common bookkeeping terms 20
Practice: Account Basics 21
Pedaling through the Accounting Cycle 23
Tackling the Big Decision: Cash-Basis or Accrual Accounting 25
Waiting for funds with cash-basis accounting 25
Recording right away with accrual accounting 26
Practice: Accrual versus Cash Accounting 27
Seeing Double with Double-Entry Bookkeeping 29
Differentiating Debits and Credits 31
Practice: Double-Entry Accounting 32
Answers to Problems on the Basics 34
Chapter 3: Outlining Your Financial Road Map with a Chart of Accounts 39
Getting to Know the Chart of Accounts 39
Starting with the Balance Sheet Accounts 41
Tackling assets 42
Laying out your liabilities 45
Eyeing the equity 47
Tracking the Income Statement Accounts 48
Recording the money you make: Revenue 49
Tracking the cost of sales 50
Acknowledging the money you spend: Expense accounts 50
Setting Up Your Chart of Accounts 53
Part II: Keeping a Paper Trail 55
Chapter 4: The General Ledger: A One-Stop Summary of Your Business Transactions 57
The Eyes and Ears of a Business: Looking at the General Ledger 57
Developing Entries for the Ledger 58
Practice: Summaries for General Ledger 62
Posting Entries to the Ledger 65
The Cash account 65
The Accounts Receivable account 66
The Accounts Payable account 66
The balance sheet 67
The Sales account 67
Adjusting for Ledger Errors 69
Practice: Posting to the General Ledger 69
Using Computerized Transactions to Post and Adjust in the General Ledger 74
Answers to Problems on Ledgers 76
Chapter 5: Keeping Journals 81
Establishing a Transaction’s Point of Entry 81
When Cash Changes Hands: Juggling the Cash Accounts Journals 82
Keeping track of incoming cash 82
Following outgoing cash 84
Practice: Cash Receipts and Cash Disbursements Journals 86
Managing Sales Like a Pro 90
Practice: Sales Journals 92
Keeping Track of Purchases 93
Practice: Purchases Journal 95
Dealing with Transactions that Don’t Fit the Big Four 96
Practice: General Journal 98
Posting Journal Information to Accounts 99
Simplifying Your Journaling with Computerized Accounting 101
Answers to Problems on Keeping Journals 104
Chapter 6: Computer Options for Your Bookkeeping 111
Surveying Your Software Options 111
Bookkeeper 112
QuickBooks 113
Sage Peachtree Complete Accounting 114
Setting Up Your Computerized Books 115
Customizing software to match your operations 117
Converting your manual bookkeeping to a computerized system 119
Chapter 7: Controlling Your Books, Your Records, and Your Money 121
Putting Controls on Your Business’s Cash 121
Checking accounts 122
Savings accounts 125
Petty cash accounts 125
Cash registers 126
Practice: Cash Controls 128
Keeping the Right Paperwork 129
Creating a fi ling system 130
Figuring out what to keep and for how long 131
Protecting Your Business against Internal Fraud 132
Facing the reality of financial fraud 132
Dividing staff responsibilities 133
Balancing control costs 135
Practice: Internal Controls 136
Insuring Your Cash through Employee Bonding 138
Answers to Problems on Controlling Your Books, Records, and Money 138
Part III: Tracking Day-to-Day Business Operations with Your Books 139
Chapter 8: Buying and Tracking Your Purchases 141
Keeping Track of Inventory 141
Entering initial cost 143
Managing inventory and its value 146
Practice: Working with Inventory and Calculating Cost of Goods Sold 150
Buying and Monitoring Supplies 153
Staying on Top of Your Bills 154
Keeping tasks separate 154
Developing a system for Accounts Payable 155
Paying early if it benefits you 155
Practice: Calculating Discounts 156
Answers to Problems on Buying and Tracking Your Purchases 157
Chapter 9: Counting Your Sales 159
Collecting on Cash Sales 159
Discovering the value of sales receipts 160
Recording cash transactions in the books 161
Practice: Recording Sales in the Books 163
Selling on Credit 166
Deciding whether to offer store credit 166
Recording store credit transactions in the books 167
Practice: Sales on Store (Direct) Credit 170
Proving Out the Cash Register 174
Practice: Proving Out 175
Tracking Sales Discounts 177
Practice: Recording Discounts 179
Recording Sales Returns and Allowances 182
Practice: Tracking Sales Returns and Allowances 183
Monitoring Accounts Receivable 184
Practice: Aging Summary 185
Accepting Your Losses 186
Answers to Counting Your Sales 187
Chapter 10: Employee Payroll and Benefits 191
Setting the Stage for Staffing: Making Payroll Decisions 191
Completing government forms 192
Picking pay periods 194
Determining wage and salary types 195
Collecting Employee Taxes 197
Sorting out Social Security tax 197
Making sense of Medicare tax 197
Figuring out federal withholding tax 198
Settling up state and local withholding taxes 199
Determining Net Pay 199
Practice: Payroll Tax Calculations 200
Surveying Your Benefits Options 201
Tax-exempt benefits 201
Taxable benefits 203
Dealing with cafeteria plans 203
Preparing Payroll and Posting It in the Books 204
Calculating payroll for hourly employees 204
Doling out funds to salaried employees 204
Totaling up for commission checks 205
Determining base salary plus tips 206
Practice: Payroll Preparation 207
Finishing the Job 209
Depositing Employee Taxes 210
Outsourcing Payroll and Benefits Work 211
Answers to Problems on Employee Payroll and Benefits 211
Chapter 11: Employer-Paid Taxes and Government Payroll Reporting 213
Paying Employer Taxes on Social Security and Medicare 214
Filing Form 941 214
Knowing how often to fi le 215
Completing Unemployment Reports and Paying Unemployment Taxes 216
Examining how states calculate the FUTA tax rate 217
Calculating FUTA tax 218
Filing and paying unemployment taxes to state governments 219
Practice: Calculating FUTA Tax 220
Carrying Workers’ Compensation Insurance 221
Maintaining Employee Records 222
Answers to Problems on Employer-Paid Taxes and Government Payroll Reporting 225
Part IV: Preparing the Books for Year’s (or Month’s) End 227
Chapter 12: Depreciating Your Assets 229
Defining Depreciation 229
Knowing what you can and can’t depreciate 230
Figuring out the useful life of a fixed asset 231
Delving into cost basis 232
Practice: Calculating Cost Basis 233
Reducing the Value of Assets 234
Sharing the cost evenly: Straight-Line depreciation 234
Starting stronger: Sum-of-Years-Digits depreciation 235
Decreasing more quickly: Double-Declining Balance depreciation 236
Accounting for varying output: Units of Production depreciation 237
Practice: Calculating Depreciation 237
Tackling Taxes and Depreciation 238
Section 179 239
MACRS 240
Setting Up Depreciation Schedules 240
Recording Depreciation Expenses 241
Answers to Problems on Depreciating Your Assets 241
Chapter 13: Paying and Collecting Interest 243
Deciphering Types of Interest 243
Simple interest 244
Compound interest 244
Practice: Calculating Simple and Compound Interest 245
Handling Interest Income 246
Delving Into Loans and Interest Expenses 247
Short-term debt 247
Long-term debt 251
Practice: Calculating and Recording Credit and Long-Term Debt Payments 254
Answers to Problems on Paying and Collecting Interest 257
Chapter 14: Proving Out the Cash 261
Why Prove Out the Books? 261
Making Sure Ending Cash Is Right 262
Closing the Cash Journals 263
Finalizing cash receipts 264
Finalizing cash outlays 268
Practice: Closing the Cash Journals 269
Using a Temporary Posting Journal 271
Reconciling Bank Accounts 271
Tracking down errors 272
Using a computerized system 273
Posting Adjustments and Corrections 275
Answers to Problems on Proving Out the Cash 276
Chapter 15: Closing the Journals 277
Prepping to Close: Checking for Accuracy and Tallying Things Up 277
Paying attention to initial transaction details 278
Summarizing journal entries 278
Analyzing summary results 281
Planning for cash flow 282
Posting to the General Ledger 282
Checking Out Computerized Journal Records 283
Chapter 16: Checking Your Accuracy by Trial and (Hopefully No) Error 289
Working with a Trial Balance 289
Conducting your trial balance 290
Dealing with trial balance errors 291
Practice: Preparing a Trial Balance 293
Testing Your Balance with Computerized Accounting Systems 294
Developing a Financial Statement Worksheet 295
Replacing Worksheets with Computerized Reports 297
Answers to Problem on Checking Your Accuracy 299
Chapter 17: Adjusting the Books 301
Adjusting All the Right Areas 301
Depreciating assets 302
Allocating prepaid expenses 304
Counting inventory 304
Allowing for bad debts 305
Recognizing unpaid salaries and wages 307
Practice: Adjusting for Certain Expenses and Inventory 309
Testing Out an Adjusted Trial Balance 312
Changing Your Chart of Accounts 313
Answers to Problems on Adjusting the Books 314
Part V: Reporting Results and Starting Over 317
Chapter 18: Developing a Balance Sheet 319
Gathering Balance Sheet Ingredients 319
Dividing and listing your assets 321
Acknowledging your debts 323
Naming your investments 324
Ta Da! Pulling Together the Final Balance Sheet 325
Account format 325
Report format 326
Financial Position format 326
Practice: Formatting Balance Sheets 327
Putting Your Balance Sheet to Work 328
Testing your cash 328
Assessing your debt 329
Practice: Calculating Balance Sheet Ratios 330
Generating Balance Sheets Electronically 332
Answers to Developing a Balance Sheet 332
Chapter 19: Producing an Income Statement 337
What’s an Income Statement? 337
Formatting the Income Statement 338
Preparing the Income Statement 339
Finding Net Sales 340
Finding Cost of Goods Sold 340
Drawing the remaining amounts from your worksheet 340
Gauging your Cost of Goods Sold in a manufacturing environment 342
Practice: Calculating Net Sales and Cost of Goods Sold 342
Deciphering Gross Profit 344
Monitoring Expenses 344
Using the Income Statement to Make Business Decisions 345
Testing Profits 347
Return on Sales 348
Return on Assets 348
Return on Equity 349
Practice: Calculating ROS, ROA, and ROE 349
Branching Out with Income Statement Data 351
Answers to Producing an Income Statement 352
Chapter 20: Completing Year-End Payroll and Reports 355
Tackling Year-End Employee Reporting 355
Sending in wage reports 360
Producing 1099s for Vendors and Contractors 360
Filing Year-End Summaries 363
Chapter 21: Satisfying the Tax Man 365
Finding the Right Business Type 365
Sole proprietorship 365
Partnership 366
Limited Liability Companies (LLCs) 366
Corporations 367
Tackling Tax Reporting for Sole Proprietors 368
Filing Tax Forms for Partnerships 369
Paying Corporate Taxes 370
Reporting for an S corporation 370
Reporting for a C corporation 370
Taking Care of Sales Taxes Obligations 371
Chapter 22: Prepping the Books for a New Accounting Cycle 373
Finalizing the General Ledger 373
Zeroing out income statement accounts 374
Carrying over balance sheet accounts 375
Conducting Special Year-End Bookkeeping Tasks 375
Checking customer accounts 376
Assessing vendor accounts 377
Deleting accounts 377
Starting the Cycle Anew 378
Part VI: The Part of Tens 379
Chapter 23: Ten Ways to Manage Your Business Cash with Your Books 381
Charting the Way 381
Balancing Your Entries 381
Posting Your Transactions 382
Tracking Customer Collections 382
Paying Bills Accurately and On Time 382
Planning Profi ts 383
Comparing Budget to Actual Expenses 383
Looking at Sales Goals against Actual Sales 383
Monitoring Cost Trends 384
Making Pricing Decisions 384
Chapter 24: The Ten (Plus One) Most Important Accounts for Any Bookkeeper 385
Cash 385
Accounts Receivable 386
Inventory 386
Accounts Payable 386
Loans Payable 386
Sales 387
Purchases 387
Payroll Expenses 387
Office Expenses 387
Owners’ Equity 388
Retained Earnings 388
Part VII: Appendixes 389
Appendix A: Glossary 391
Appendix B: About the CD 395
System Requirements 395
Using the CD 396
What You’ll Find on the CD 396
Software 397
Chapter files 397
Troubleshooting 399
Customer Care 400
Index 403
