Bookkeeping All-In-One For Dummies. Dummies Consumer
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Название: Bookkeeping All-In-One For Dummies

Автор: Dummies Consumer

Издательство: Автор

Жанр: Зарубежная образовательная литература

Серия: For Dummies

isbn: 9781119093954

isbn:

СКАЧАТЬ use a combination of debits and credits. You may think of a debit as a subtraction because you’ve found that debits usually mean a decrease in your bank balance. On the other hand, you’ve probably been excited to find unexpected credits in your bank or credit card that mean more money has been added to the account in your favor. Now, forget all that you ever learned about debits or credits. In the world of bookkeeping, their meanings aren’t so simple.

      The only definite thing when it comes to debits and credits in the bookkeeping world is that a debit is on the left side of a transaction and a credit is on the right side of a transaction. Everything beyond that can get very muddled. Don’t worry if you’re finding this concept very difficult to grasp. You get plenty of practice using these concepts throughout this book.

      Before getting into all the technical mumbo jumbo of double-entry bookkeeping, here’s an example of the practice in action. Suppose you purchase a new desk that costs $1,500 for your office. This transaction actually has two parts: You spend an asset – cash – to buy another asset – furniture. So, you must adjust two accounts in your company’s books: the Cash account and the Furniture account. Here’s what the transaction looks like in a bookkeeping entry:

      In this transaction, you record the accounts impacted by the transaction. The debit increases the value of the Furniture account, and the credit decreases the value of the Cash account. For this transaction, both accounts impacted are asset accounts, so, looking at how the balance sheet is affected, you can see that the only changes are to the asset side of the balance sheet equation:

      Assets = Liabilities + Equity

      Furniture increase = Cash decreases = No change to total assets

      In this case, the books stay in balance because the exact dollar amount that increases the value of your Furniture account decreases the value of your Cash account. At the bottom of any journal entry, you should include a brief explanation that explains the purpose for the entry. The first example indicates this entry was “To purchase a new desk for the office.”

      To show you how you record a transaction if it impacts both sides of the balance sheet equation, here’s an example that shows how to record the purchase of inventory. Suppose you purchase $5,000 worth of widgets on credit. (Haven’t you always wondered what widgets were? You won’t find the answer here. They’re just commonly used in accounting examples to represent something that’s purchased.) These new widgets add value to your Inventory Asset account and also add value to your Accounts Payable account. (Remember, the Accounts Payable account is a Liability account where you track bills that need to be paid at some point in the future.) Here’s how the bookkeeping transaction for your widget purchase looks:

      Here’s how this transaction affects the balance sheet equation:

      Assets = Liabilities + Equity

      Inventory increases = Accounts Payable increases = No change

      In this case, the books stay in balance because both sides of the equation increase by $5,000.

      

You can see from the two example transactions how double-entry bookkeeping helps to keep your books in balance – as long as you make sure each entry into the books is balanced. Balancing your entries may look simple here, but sometimes bookkeeping entries can get very complex when more than two accounts are impacted by the transaction. Don’t worry, you don’t have to understand it totally now. You’ll see how to enter transactions throughout the book. Again, this is just a quick overview to introduce the subject.

      Differentiating Debits and Credits

Because bookkeeping’s debits and credits are different from the ones you’re used to encountering, you’re probably wondering how you’re supposed to know whether a debit or credit will increase or decrease an account. Believe it or not, identifying the difference will become second nature as you start making regular bookkeeping entries. But to make things easier, Table 1-1 is a chart that’s commonly used by all bookkeepers and accountants.

Table 1-1 How Credits and Debits Impact Your Accounts

      

Copy Table 1-1 and post it at your desk when you start keeping your own books. It will help you keep your debits and credits straight!

Chapter 2

      Charting the Accounts

       In This Chapter

      ▶ Introducing the Chart of Accounts

      ▶ Reviewing the types of accounts that make up the chart

      ▶ Creating your own Chart of Accounts

      Can you imagine the mess your checkbook would be if you didn’t record each check you wrote? You’ve probably forgotten to record a check or two on occasion, but you certainly learn your lesson when you realize that an important payment bounces as a result. Yikes!

      Keeping the books of a business can be a lot more difficult than maintaining a personal checkbook. Each business transaction must be carefully recorded to make sure it goes into the right account. This careful bookkeeping gives you an effective tool for figuring out how well the business is doing financially.

      As a bookkeeper, you need a road map to help you determine where to record all those transactions. This road map is called the Chart of Accounts. This chapter tells you how to set up the Chart of Accounts, which includes many different accounts. It also reviews the types of transactions you enter into each type of account in order to track the key parts of any business: assets, liabilities, equity, revenue, and expenses.

      Getting to Know the Chart of Accounts

      The Chart of Accounts is the road map that a business creates to organize its financial transactions. After all, you can’t record a transaction until you know where to put it! Essentially, this chart is a list of all the accounts a business has, organized in a specific order; each account has a description that includes the type of account and the types of transactions that should be entered into that account. Every business creates its own Chart of Accounts based on how the business is operated, so you’re unlikely to find two businesses with the exact same Charts of Accounts.

      However, some basic organizational and structural characteristics are common to all Charts of Accounts. The organization and structure are designed around two key financial reports: the balance sheet, which shows what your business owns and what it owes, and the income statement, which shows how much money your business took in from sales and how much money it spent to generate those sales. (You can find out more about balance sheets in Book II Chapter 4 and income statements in Book II Chapter 5.)

      The Chart of Accounts starts with the balance sheet accounts, which include the following:

      ✔ Current Assets: Includes all accounts that track things the company owns and expects to use in the next 12 months, such as cash, accounts receivable (money collected from customers), and inventory

      ✔ Long-term Assets: Includes all accounts that track СКАЧАТЬ