Bookkeeping Kit For Dummies

Accurate and complete bookkeeping is crucial to any business owner, but it's also important to those who work with the business, such as investors, financial institutions, and employees. Bookkeeping For Dummies provides the easy and painless way to master this critical skill.

You'll get clear and concise information on keeping track of transactions, figuring out balance sheets, keeping ledgers or journals, creating financial statements, and operating accounts for businesses, along with practices and examples to hone your skills. Plus, the bonus CD includes samples of bookkeeping forms, working papers, letters, resources, and spreadsheets.

• Keeping track of transactions
• Figuring out the balance sheet
• Keeping a ledger and journal
• Creating financial statements
• Operating accounts for businesses
• Recognizing assets and liabilities
• Up-to-date tax information
• Changes in small business regulations
• Additional and complementary examples
• Demonstration problems
• True/false and multiple-choice questions and scenarios

Whether you're a professional or a student looking to expand your skills, Bookkeeping Kit For Dummies is a one-stop resource for anyone interested in this ever-growing occupation.

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

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.