Bookkeeping All-In-One For Dummies. Dummies Consumer

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СКАЧАТЬ stops by the office and reviews the system to be sure transactions are being handled properly.

      

Accurate financial reports are the only way you can know how your business is doing. These reports are developed using the information you, as the bookkeeper, enter into your accounting system. If that information isn’t accurate, your financial reports are meaningless. As the old adage goes, “Garbage in, garbage out.”

      Delving into Bookkeeping Basics

      If you don’t carefully plan your bookkeeping operation and figure out exactly how and what financial detail you want to track, you’ll have absolutely no way to measure the success (or failure, unfortunately) of your business efforts.

      Bookkeeping, when done properly, gives you an excellent gauge of how well you’re doing financially. It also provides you with lots of information throughout the year so you can test the financial success of your business strategies and make course corrections early in the year if necessary to ensure that you reach your year-end profit goals.

      

Bookkeeping can become your best friend for managing your financial assets and testing your business strategies, so don’t shortchange it. Take the time to develop your bookkeeping system with your accountant before you even open your business’s doors and make your first sale.

Picking your accounting method: Cash basis versus accrual

      You can’t keep books unless you know how you want to go about doing so. The two basic accounting methods you have to choose from are cash-basis accounting and accrual accounting. The key difference between these two accounting methods is the point at which you record sales and purchases in your books. If you choose cash-basis accounting, you only record transactions when cash changes hands. If you use accrual accounting, you record a transaction when it’s completed, even if cash doesn’t change hands.

      For example, suppose your company buys products to sell from a vendor but doesn’t actually pay for those products for 30 days. If you’re using cash-basis accounting, you don’t record the purchase until you actually lay out the cash to the vendor. If you’re using accrual accounting, you record the purchase when you receive the products, and you also record the future debt in an account called Accounts Payable.

Understanding assets, liabilities, and equity

      Every business has three key financial parts that must be kept in balance: assets, liabilities, and equity. Assets include everything the company owns, such as cash, inventory, buildings, equipment, and vehicles. Liabilities include everything the company owes to others, such as vendor bills, credit card balances, and bank loans. Equity includes the claims owners have on the assets based on their portion of ownership in the company.

      The formula for keeping your books in balance involves these three elements:

      Assets = Liabilities + Equity

      Much of bookkeeping involves keeping your books in balance.

Introducing debits and credits

      To keep the books, you need to revise your thinking about two common financial terms: debits and credits. Most nonbookkeepers and nonaccountants think of debits as subtractions from their bank accounts. The opposite is true with credits – people usually see these as additions to their accounts, in most cases in the form of refunds or corrections in favor of the account holders.

      Well, forget all you thought you knew about debits and credits. Debits and credits are totally different animals in the world of bookkeeping. Because keeping the books involves a method called double-entry bookkeeping, you have to make at least two entries – a debit and a credit – into your bookkeeping system for every transaction. Whether that debit or credit adds or subtracts from an account depends solely upon the type of account.

      Don’t worry. All this debit, credit, and double-entry stuff may sound confusing, but it will become much clearer as you work through this chapter.

Charting your bookkeeping course

      You can’t just enter transactions in the books willy-nilly. You need to know where exactly those transactions fit into the larger bookkeeping system. That’s where your Chart of Accounts comes in; it’s essentially a list of all the accounts your business has and what types of transactions go into each one. Book I Chapter 2 talks more about the Chart of Accounts.

      Recognizing the Importance of an Accurate Paper Trail

      Keeping the books is all about creating an accurate paper trail. You want to track all of your company’s financial transactions so if a question comes up at a later date, you can turn to the books to figure out what went wrong.

      

An accurate paper trail is the only way to track your financial successes and review your financial failures, a task that’s vitally important in order to grow your business. You need to know what works successfully so you can repeat it in the future and build on your success. On the other hand, you need to know what failed so you can correct it and avoid making the same mistake again.

      All your business’s financial transactions are summarized in the General Ledger, and journals keep track of the tiniest details of each transaction. You can make your information gathering more effective by using a computerized accounting system, which gives you access to your financial information in many different formats. Controlling who enters this financial information into your books and who can access it afterwards is smart business and involves critical planning on your part.

Maintaining a ledger

      The granddaddy of your bookkeeping system is the General Ledger. In this ledger, you keep a summary of all your accounts and the financial activities that took place involving those accounts throughout the year.

      You draw upon the General Ledger’s account summaries to develop your financial reports on a monthly, quarterly, or annual basis. You can also use these account summaries to develop internal reports that help you make key business decisions. Book I Chapter 3 talks more about developing and maintaining the General Ledger.

Keeping journals

      Small companies conduct hundreds, if not thousands, of transactions each year. If every transaction were kept in the General Ledger, that record would become unwieldy and difficult to use. Instead, most companies keep a series of journals that detail activity in their most active accounts.

      For example, almost every company has a Cash Receipts Journal in which to keep the detail for all incoming cash and a Cash Disbursements Journal in which to keep the detail for all outgoing cash. Other journals can detail sales, purchases, customer accounts, vendor accounts, and any other key accounts that see significant activity.

      You decide which accounts you want to create journals for based on your business operation and your need for information about key financial transactions. Book I Chapter 4 talks more about journals and the accounts commonly journalized.

Instituting internal controls

      Every business owner needs to be concerned with keeping tight controls on company cash and how it’s used. One way to institute this control is by placing internal restrictions on who has access to enter information into your books and who has access necessary to use that information.

      You also need to carefully control who has the ability to accept cash receipts and who has the ability to disburse your business’s cash. Separating duties appropriately helps you protect your business’s assets from error, СКАЧАТЬ