Bookkeeping All-in-One For Dummies^®, 2nd Edition

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Library of Congress Control Number: 2019943279

ISBN: 978-1-119-59290-7 (pbk); 978-1-119-59371-3 (ebk); 978-1-119-59370-6 (ebk)

Bookkeeping All-in-One For Dummies®

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Table of Contents

Cover

Introduction

About This Book
Foolish Assumptions
Icons Used in This Book
Beyond the Book
Where to Go From Here

Book 1: Keeping the Books

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
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
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
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
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
Chapter 6: Computer Options for Bookkeeping
1. Surveying Your Software Options
2. Setting Up Your Computerized Books
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

Book 2: Accounting and Financial Reports

Chapter 1: Financial Report Basics
1. Figuring Out Financial Reporting
2. Checking Out Types of Reporting
3. Introducing the Annual Report
4. Digging Deeper into the Annual Report
5. Summarizing the Financial Data
Chapter 2: Reporting Profit
1. Introducing Income Statements
2. Finding Profit
3. Getting Particular about Assets and Operating Liabilities
4. Summing Up the Diverse Financial Effects of Making Profit
5. Reporting Extraordinary Gains and Losses
6. Correcting Common Misconceptions about Profit
7. Importance of Reviewing All Parts of Financial Statements
Chapter 3: Exploring Business Structures
1. Flying Solo: Sole Proprietorships
2. Joining Forces: Partnerships
3. Seeking Protection with Limited Liability Companies
4. Shielding Your Assets: S and C Corporations
5. Investigating Private Companies
6. Understanding Public Companies
7. Entering a Whole New World: How a Company Goes from Private to Public
Chapter 4: The Balance Sheet: Assets, Liabilities, and Equity
1. Understanding the Balance Equation
2. Introducing the Balance Sheet
3. Ogling Assets
4. Looking at Liabilities
5. Navigating the Equity Maze
Chapter 5: The Income Statement
1. Introducing the Income Statement
2. Delving into the Tricky Business of Revenue
3. Acknowledging Expenses
4. Sorting Out the Profit and Loss Types
5. Calculating Earnings per Share
Chapter 6: The Statement of Cash Flows
1. Digging into the Statement of Cash Flows
2. Checking Out Operating Activities
3. Investigating Investing Activities
4. Understanding Financing Activities
5. Recognizing the Special Line Items
6. Adding It All Up
Chapter 7: Getting a Financial Report Ready
1. Recognizing Top Management’s Role
2. Reviewing the Purposes of Financial Reporting
3. Keeping Current with Accounting and Financial Reporting Standards
4. Making Sure That Disclosure Is Adequate
5. Putting a Spin on the Numbers (Short of Cooking the Books)
6. Going Public or Keeping Things Private
7. Dealing with Information Overload
8. Statement of Changes in Owners’ Equity
Chapter 8: Accounting Alternatives
1. Setting the Stage
2. Taking Financial Statements with a Grain of Salt
3. Explaining the Differences
4. Calculating Cost of Goods Sold Expense and Inventory Cost
5. Recording Depreciation Expense
6. Scanning Revenue and Expense Horizons

Book 3: Day-to-Day Bookkeeping

Chapter 1: Buying and Tracking Your Purchases
1. Keeping Track of Inventory
2. Practice: Working with Inventory and Calculating Cost of Goods Sold
3. Buying and Monitoring Supplies
4. Staying on Top of Your Bills
5. Practice: Calculating Discounts
6. Answers to Practice Questions
Chapter 2: Counting Your Sales
1. Collecting on Cash Sales
2. Practice: Recording Sales
3. Selling on Credit
4. Practice: Sales on Store (Direct) Credit
5. Proving Out the Cash Register
6. Practice: Proving Out
7. Tracking Sales Discounts
8. Practice: Recording Discounts
9. Recording Sales Returns and Allowances
10. Practice: Tracking Sales Returns and Allowances
11. Monitoring Accounts Receivable
12. Practice: Aging Summary
13. Accepting Your Losses
14. Answers to Practice Questions
Chapter 3: Employee Payroll and Benefits
1. Setting the Stage for Staffing: Making Payroll Decisions
2. Collecting Employee Taxes
3. Determining Net Pay
4. Practice: Payroll Tax Calculations
5. Surveying Your Benefits Options
6. Preparing Payroll and Posting It in the Books
7. Practice: Payroll Preparation
8. Finishing the Job
9. Depositing Employee Taxes
10. Outsourcing Payroll and Benefits Work
11. Answers to Practice Questions
Chapter 4: Employer-Paid Taxes and Government Payroll Reporting
1. Paying Employer Taxes on Social Security and Medicare
2. Completing Unemployment Reports and Paying Unemployment Taxes
3. Practice: Calculating FUTA Tax
4. Carrying Workers’ Compensation Insurance
5. Maintaining Employee Records
6. Answers to Practice Questions

Book 4: Preparing for Year’s End

Chapter 1: Depreciating Your Assets
1. Defining Depreciation
2. Reducing the Value of Assets
3. Tackling Taxes and Depreciation
4. Setting Up Depreciation Schedules
5. Recording Depreciation Expenses
Chapter 2: Paying and Collecting Interest
1. Deciphering Types of Interest
2. Handling Interest Income
3. Delving into Loans and Interest Expenses
Chapter 3: Proving Out the Cash
1. Why Prove Out the Books?
2. Making Sure Ending Cash Is Right
3. Closing the Cash Journals
4. Using a Temporary Posting Journal
5. Reconciling Bank Accounts
6. Posting Adjustments and Corrections
Chapter 4: Closing the Journals
1. Prepping to Close: Checking for Accuracy and Tallying Things Up
2. Posting to the General Ledger
3. Checking Out Computerized Journal Records
Chapter 5: Checking Your Accuracy
1. Working with a Trial Balance
2. Testing Your Balance with Computerized Accounting Systems
3. Developing a Financial Statement Worksheet
4. Replacing Worksheets with Computerized Reports
Chapter 6: Adjusting the Books
1. Adjusting All the Right Areas
2. Testing an Adjusted Trial Balance
3. Changing Your Chart of Accounts

Book 5: Accounting and Managing Your Business

Chapter 1: Managing Profit
1. Helping Managers: The Fourth Vital Task of Accounting
2. Internal Profit Reporting
3. Presenting a Profit Analysis Template
4. Answering Critical Profit Questions
5. Taking a Closer Look at the Lines in the Profit Template
6. Using the Profit Template for Decision-Making Analysis
7. Tucking Away Some Valuable Lessons
8. Closing with a Boozy Example
Chapter 2: Budgeting
1. Exploring the Reasons for Budgeting
2. Recognizing Additional Benefits of Budgeting
3. Deciding Whether Budgeting Is Worth Its Costs
4. Realizing That Not Everyone Budgets
5. Watching Budgeting in Action
6. Considering Capital Expenditures and Other Cash Needs
7. Using Computer Accounting to Make Budgeting More Effective
Chapter 3: Cost Accounting
1. Looking Down the Road to the Destination of Costs
2. Are Costs Really That Important?
3. Becoming More Familiar with Costs
4. Assembling the Product Cost of Manufacturers
5. Puffing Profit by Excessive Production
Chapter 4: Filing and Paying Business Taxes
1. Finding the Right Business Type
2. Tackling Tax Reporting for Sole Proprietors
3. Filing Tax Forms for Partnerships
4. Paying Corporate Taxes
5. Taking Care of Sales Tax Obligations
Chapter 5: Prepping the Books for a New Accounting Cycle
1. Finalizing the General Ledger
2. Conducting Special Year-End Bookkeeping Tasks
3. Starting the Cycle Anew

Index

About the Authors

Advertisement Page

Connect with Dummies

End User License Agreement

List of Tables

Book 1, Chapter 1

TABLE 1-1 How Credits and Debits Affect Your Accounts

Book 2, Chapter 6

TABLE 6-1 Cash Flows from Operating Activities

Book 3, Chapter 1

TABLE 1-1 Comparison of Gross Profit Based on Inventory-Valuation Method

Book 3, Chapter 3

TABLE 3-1 Portion of an IRS Tax Table for Employers

Book 3, Chapter 4

TABLE 4-1 Filing Requirements for Form 941
TABLE 4-2 Sample Unemployment Tax Rates

Book 4, Chapter 1

TABLE 1-1 Depreciation Recovery Periods for Business Equipment

Book 4, Chapter 2

TABLE 2-1 Credit Card Interest Calculation
TABLE 2-2 Six-Month Amortization Chart for Truck Payments

Book 4, Chapter 3

TABLE 3-1 Bank Reconciliation

Book 4, Chapter 4

TABLE 4-1 Aging Summary: Accounts Receivable as of March 31, 2019
TABLE 4-2 Aging Summary: Accounts Payable as of March 31, 2019

Book 5, Chapter 4

TABLE 4-1 Comparison of Tax Obligations for Sole Proprietors

List of Illustrations

Book 1, Chapter 1

FIGURE 1-1: The accounting cycle.

Book 1, Chapter 2

FIGURE 2-1: The top portion of a sample Chart of Accounts.

Book 1, Chapter 3

FIGURE 3-1: Summarizing cash transactions so they can be posted to the General L...
FIGURE 3-2: Summarizing sales transactions so they can be posted to the General ...
FIGURE 3-3: Summarizing goods-to-be-sold transactions so they can be posted to t...
FIGURE 3-4: Summarizing miscellaneous transactions so they can be posted to the ...
FIGURE 3-5: Cash account in the General Ledger.
FIGURE 3-6: Accounts Receivable account in the General Ledger.
FIGURE 3-7: Accounts Payable account in the General Ledger.
FIGURE 3-8: Sales account in the General Ledger.
FIGURE 3-9: Home page of sample account in QuickBooks.
FIGURE 3-10: A Chart of Accounts as it appears in QuickBooks.
FIGURE 3-11: A peek inside the Accounts Payable account in QuickBooks.

Book 1, Chapter 4

FIGURE 4-1: The first point of entry for incoming cash is the Cash Receipts jour...
FIGURE 4-2: The first point of entry for outgoing cash is the Cash Disbursements...
FIGURE 4-3: The first point of entry for sales made on store credit is the Sales...
FIGURE 4-4: The first point of entry for purchases bought on credit is the Purch...
FIGURE 4-5: The point of entry for miscellaneous transactions is the General jou...
FIGURE 4-6: Summary of Cash Receipts journal entries after the first five days.
FIGURE 4-7: Customer Payment entry form.
FIGURE 4-8: List of bills to be paid.
FIGURE 4-9: Customer Invoice entry form.

Book 1, Chapter 5

FIGURE 5-1: Many businesses that handwrite their checks use business voucher che...
FIGURE 5-2: Computer-printed checks usually preprint the business’s name. This c...

Book 1, Chapter 6

FIGURE 6-1: As part of the initial interview, QuickBooks generates a Chart of Ac...
FIGURE 6-2: Adding bank accounts and printing checks from QuickBooks.

Book 1, Chapter 7

FIGURE 7-1: Income statement for a business that sells products.
FIGURE 7-2: Income statement for a business that sells services.
FIGURE 7-3: Balance sheet for a company that sells products on credit.
FIGURE 7-4: Balance sheet for a service company.
FIGURE 7-5: Statement of cash flows.

Book 2, Chapter 2

FIGURE 2-1: Typical income statement for a business that sells products.
FIGURE 2-2: Typical income statement for a service business.
FIGURE 2-3: Financial effects of revenue and expenses.
FIGURE 2-4: Financial effects of making profit through end of year.
FIGURE 2-5: Financial changes from profit-making activities through end of year.
FIGURE 2-6: Changes in assets and operating liabilities from profit-making activ...

Book 2, Chapter 4

FIGURE 4-1: The account format.
FIGURE 4-2: The report format.
FIGURE 4-3: The financial position format.

Book 2, Chapter 5

FIGURE 5-1: Single-step format.
FIGURE 5-2: Multistep format.

Book 2, Chapter 6

FIGURE 6-1: The direct method.
FIGURE 6-2: The indirect method.
FIGURE 6-3: The investing activities section.
FIGURE 6-4: The financing activities section.

Book 2, Chapter 7

FIGURE 7-1: Current assets and current liabilities of a business before window d...
FIGURE 7-2: Comparison of smoothed and actual profit histories.
FIGURE 7-3: Example of statement of changes in stockholders’ equity.

Book 2, Chapter 8

FIGURE 8-1: Actual versus alternative income statement and balance sheet for a c...

Book 3, Chapter 1

FIGURE 1-1: You record the receipt of inventory by using the Enter Bills forms.
FIGURE 1-2: Setting up an inventory item with QuickBooks.

Book 3, Chapter 2

FIGURE 2-1: Example sales receipt in QuickBooks.
FIGURE 2-2: QuickBooks sales invoice for purchases made on store credit.
FIGURE 2-3: Generating statements for customers with QuickBooks.
FIGURE 2-4: In QuickBooks, recording payments from customers who bought on store...

Book 3, Chapter 4

FIGURE 4-1: New employee personal and contact information.
FIGURE 4-2: Employee Payroll Center.

Book 4, Chapter 2

FIGURE 2-1: In QuickBooks, you enter interest income at the beginning of the acc...
FIGURE 2-2: Recording receipt of cash from credit line.
FIGURE 2-3: Recording a loan payment in QuickBooks.

Book 4, Chapter 3

FIGURE 3-1: Using QuickBooks, you can easily generate reports showing your compa...
FIGURE 3-2: QuickBooks can produce reports showing your company’s cash disbursem...
FIGURE 3-3: Indicate the bank’s ending balance and any bank service charges or i...
FIGURE 3-4: Put a check mark next to checks and deposits that have cleared the a...
FIGURE 3-5: After reconciling your accounts, QuickBooks automatically provides a...

Book 4, Chapter 4

FIGURE 4-1: A sample Accounts Receivable journal summary.
FIGURE 4-2: QuickBooks lets you run reports concerning vendors and payables that...
FIGURE 4-3: When you run an Accounts/Payable (A/P) Aging Detail report in QuickB...
FIGURE 4-4: In QuickBooks, you can run a series of reports that summarize custom...
FIGURE 4-5: A computerized accounting system keeps a journal of all transactions...

Book 4, Chapter 5

FIGURE 5-1: A sample trial balance.
FIGURE 5-2: The Accountant & Taxes page of the QuickBooks Report Navigator lets ...
FIGURE 5-3: A sample trial balance report produced by QuickBooks.
FIGURE 5-4: This sample worksheet shows the first step in developing a company’s...
FIGURE 5-5: The Company & Financial Report Navigator page in QuickBooks gives yo...

Book 4, Chapter 6

FIGURE 6-1: In QuickBooks, you record bad debts on the Discount and Credits page...
FIGURE 6-2: After you record a bad debt in QuickBooks, the discount appears, ind...

Book 5, Chapter 1

FIGURE 1-1: Profit analysis template for a profit center.

Book 5, Chapter 2

FIGURE 2-1: P&L report for the year just ended.
FIGURE 2-2: Budgeted profit report for coming year.
FIGURE 2-3: Budgeted cash flow from operating activities for the coming year.
FIGURE 2-4: You can use your budget to manage your finances through the year wit...
FIGURE 2-5: You can use graphs to make it easier to find budget versus actual di...
FIGURE 2-6: You can quickly find where you’re over or under budget throughout th...

Book 5, Chapter 3

FIGURE 3-1: Manufacturing costs example.
FIGURE 3-2: Example of when production output greatly exceeds sales volume.

Book 5, Chapter 5

FIGURE 5-1: Click Date/Password to set up the closing date in QuickBooks.
FIGURE 5-2: Set a password for controlling data in closed accounts.
FIGURE 5-3: QuickBooks’s Year-End Guide Checklist walks you through year-end tas...
FIGURE 5-4: Use the Condense feature to back up files at the end of the year.
FIGURE 5-5: You set the first day of your fiscal year, and records before that d...

Introduction

Welcome to Bookkeeping All-In-One For Dummies, 2nd Edition! This book is a compendium of great Dummies content, covering soup to nuts on bookkeeping with a good portion of accounting coverage as well.

The term bookkeeper may generate images of a mild-mannered person quietly, or even meekly, poring over columns of figures under a green banker’s lamp somewhere in a corner. In reality, the bookkeeper is vitally important and wields a tremendous amount of power within a company. Information tracked in the books helps business owners make key decisions involving sales planning and product offerings, and enables them to manage many other financial aspects of their business.

If it weren’t for the hard work of bookkeepers, companies wouldn’t have a clue about what happens with their financial transactions. Without accurate financial accounting, a company owner wouldn’t know how many sales were made, how much cash was collected, or how much cash was paid for the products sold to customers during the year. He also wouldn’t know how much cash was paid to employees or how much cash was spent on other business needs throughout the year. In other words, yes, he’d be clueless.

The creation and maintenance of financial records is also important to those who work with the business, such as investors, financial institutions, and employees. People both inside (managers, owners, and employees) and outside the business (investors, lenders, and government agencies) all depend on the bookkeeper’s accurate recording of financial transactions.

Bookkeepers must be detailed-oriented, enjoy working with numbers, and meticulous about accurately entering those numbers in the books. They must be vigilant about keeping a paper trail and filing all needed backup information about the financial transactions entered into the books. And they must be knowledgeable about all aspects of money as it percolates through a business and how to organize and present that information so that it’s useful to everyone involved in the business, including outside interests and the Internal Revenue Service.

That’s where this book comes in.

About This Book

Within this book, you may note that some web addresses break across two lines of text. If you’re reading this book in print and want to visit one of these web pages, simply key in the web address exactly as it’s noted in the text, pretending that the line break doesn’t exist. If you’re reading this as an e-book, you’ve got it easy; tap the web address to be taken directly to the web page.

Some figures herein use QuickBooks Pro. Because it’s the most popular financial accounting software, some chapters show you some of its advanced features where appropriate.

Foolish Assumptions

The book makes some key assumptions about who you are and why you’ve picked up this book. Much of the book assumes that you are

A business owner or manager who wants to know the ins and outs of doing the books and what’s contained in financial records. You have a good understanding of business and its terminology but little or no knowledge of bookkeeping and accounting.
A person who does bookkeeping or plans to do bookkeeping for a small business and needs to know more about how to set up and keep the books. You have some basic knowledge of business terminology but don’t know much about bookkeeping, accounting, or creating and maintaining financial records.
A staff person in a small business who’s just been asked to take over the company’s bookkeeping duties. You need to know more about how transactions are entered into the books, how to prove out transactions to make sure that you’re making entries correctly and accurately, and how to prepare financial reports by using the data you collect.

Icons Used in This Book

For Dummies books use little pictures called icons to flag certain chunks of text that you shouldn’t want to miss or are free to skip. Here are the icons used in this book and what they mean:

Look to this icon for ideas on how to improve your bookkeeping processes and use the information in the books to manage your business.

This icon marks anything you’d do well to recall about bookkeeping after you finish reading this book.

This icon points out any aspect of bookkeeping that comes with dangers or perils that may hurt the accuracy of your entries or the way in which you use your financial information in the future. I also use this icon to mark certain things that can get you into trouble with the government, your lenders, your vendors, your employees, or your investors.

This icon points out material that may be interesting if you really want to know a little more but isn’t crucial to understanding the concept at hand. You can safely skip material with this icon, if you like.

When you see this icon, you have the chance to put your new-found knowledge to use. Practice your bookkeeping skills with real-world questions and story problems.

When you see this icon, you can review how to do key bookkeeping calculations.

Beyond the Book

In addition to the material in the print or e-book you’re reading right now, this book comes with some access-anywhere goodies on the web. Check out the free Cheat Sheet at https://www.dummies.com/cheatsheet/bookkeepingaio for some handy, bite-size bookkeeping info, including the three elements of bookkeeping that must be kept in balance, definitions of the balance sheet and income statement, and the differences between the four types of business structures.

This book includes some extras that wouldn’t fit between the covers, like the bonus content on a DVD. Check out www.dummies.com/business/accounting to read articles on the most important accounts bookkeepers keep, ways to manage cash using your books, tips on reading financial reports, and signs that a company is in trouble.

Where to Go From Here

Feel free to start anywhere you like. You can use the table of contents or index to zoom in on any topic you’re particularly interested in.

If you need the basics, or if you’re a little rusty and want to refresh your knowledge of bookkeeping, start with Book 1. For the nuts and bolts of accounting and financial reports, drop into Book 2. If you already know the basics and terminology of bookkeeping and are ready for some practical advice on day-to-day activities, you might start with Book 3. If you’re heading toward the end of the year and need to start wrapping things up, check out Book 4. If you’re a manager, Book 5 was written with you in mind.

Wherever you begin, best of luck on your bookkeeping journey!

Book 1

Keeping the Books

Contents at a Glance

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
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
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
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
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
Chapter 6: Computer Options for Bookkeeping
1. Surveying Your Software Options
2. Setting Up Your Computerized Books
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