Bookkeeping Kit For Dummies

Lita Epstein, MBA, designs online courses about reading financial reports, investing, and taxes. She’s the author of Reading Financial Reports For Dummies and also writes periodically for AOL’s Daily Finance.

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