Lita Epstein, MBA, enjoys helping people develop good financial, investing, and tax planning skills. She is the author of Bookkeeping For Dummies. John A. Tracy, CPA, is Professor of Accounting, Emeritus, at the University of Colorado in Boulder.

Introduction 1

About This Book 2

Foolish Assumptions 2

Icons Used in This Book 2

Beyond the Book 3

Where to Go From Here 4

Book 1: Keeping the Books 5

Chapter 1: Basic Bookkeeping 7

Bookkeepers: The Record Keepers of the Business World 8

Delving into Bookkeeping Basics 8

Recognizing the Importance of an Accurate Paper Trail 10

Using Bookkeeping’s Tools to Manage Daily Finances 12

Running Tests for Accuracy 14

Finally Showing Off Your Financial Success 14

Wading through Bookkeeping Lingo 16

Pedaling through the Accounting Cycle 18

Tackling the Big Decision: Cash-Basis or Accrual Accounting 20

Seeing Double with Double-Entry Bookkeeping 22

Differentiating Debits and Credits 24

Chapter 2: Charting the Accounts 25

Getting to Know the Chart of Accounts 25

Starting with the Balance-Sheet Accounts 27

Tracking the Income-Statement Accounts 33

Setting Up Your Chart of Accounts 37

Chapter 3: The General Ledger 39

Understanding the Eyes and Ears of a Business 39

Developing Entries for the Ledger 40

Posting Entries to the Ledger 44

Adjusting for Ledger Errors 48

Using Computerized Transactions 48

Chapter 4: Keeping Journals 51

Establishing a Transaction’s Point of Entry 51

When Cash Changes Hands 52

Managing Sales Like a Pro 56

Keeping Track of Purchases 58

Dealing with Transactions That Don’t Fit 59

Posting Journal Information to Accounts 62

Simplifying Your Journaling with Computerized Accounting 63

Chapter 5: Controlling Your Records 67

Putting Controls on Your Business’s Cash 68

Keeping the Right Paperwork 76

Protecting Your Business Against Internal Fraud 79

Insuring Your Cash through Employee Bonding 84

Chapter 6: Computer Options for Bookkeeping 85

Surveying Your Software Options 86

Setting Up Your Computerized Books 89

Chapter 7: Financial Statements and Accounting Standards 95

Reviewing the Basic Content of Financial Statements 96

Contrasting Profit and Cash Flow from Profit 107

Gleaning Key Information from Financial Statements 108

Keeping in Step with Accounting and Financial Reporting Standards 112

Book 2: Accounting and Financial Reports 119

Chapter 1: Financial Report Basics 121

Figuring Out Financial Reporting 122

Checking Out Types of Reporting 125

Introducing the Annual Report 129

Digging Deeper into the Annual Report 132

Summarizing the Financial Data 143

Chapter 2: Reporting Profit 145

Introducing Income Statements 146

Finding Profit 151

Getting Particular about Assets and Operating Liabilities 154

Summing Up the Diverse Financial Effects of Making Profit 159

Reporting Extraordinary Gains and Losses 160

Correcting Common Misconceptions about Profit 163

Importance of Reviewing All Parts of Financial Statements 164

Chapter 3: Exploring Business Structures 167

Flying Solo: Sole Proprietorships 168

Joining Forces: Partnerships 170

Seeking Protection with Limited Liability Companies 171

Shielding Your Assets: S and C Corporations 172

Investigating Private Companies 175

Understanding Public Companies 179

Entering a Whole New World: How a Company Goes from Private to Public 185

Chapter 4: The Balance Sheet: Assets, Liabilities, and Equity 187

Understanding the Balance Equation 188

Introducing the Balance Sheet 188

Ogling Assets 192

Looking at Liabilities 199

Navigating the Equity Maze 201

Chapter 5: The Income Statement 203

Introducing the Income Statement 204

Delving into the Tricky Business of Revenue 208

Acknowledging Expenses 212

Sorting Out the Profit and Loss Types 214

Calculating Earnings per Share 217

Chapter 6: The Statement of Cash Flows 219

Digging into the Statement of Cash Flows 220

Checking Out Operating Activities 223

Investigating Investing Activities 226

Understanding Financing Activities 227

Recognizing the Special Line Items 229

Adding It All Up 230

Chapter 7: Getting a Financial Report Ready 233

Recognizing Top Management’s Role 234

Reviewing the Purposes of Financial Reporting 236

Keeping Current with Accounting and Financial Reporting Standards 237

Making Sure That Disclosure is Adequate 238

Putting a Spin on the Numbers (Short of Cooking the Books) 244

Going Public or Keeping Things Private 250

Dealing with Information Overload 252

Statement of Changes in Owners’ Equity 254

Chapter 8: Accounting Alternatives 257

Setting the Stage 258

Taking Financial Statements with a Grain of Salt 259

Explaining the Differences 262

Calculating Cost of Goods Sold Expense and Inventory Cost 268

Recording Depreciation Expense 272

Scanning Revenue and Expense Horizons 275

Book 3: Day-to-Day Bookkeeping 277

Chapter 1: Buying and Tracking Your Purchases 279

Keeping Track of Inventory 280

Practice: Working with Inventory and Calculating Cost of Goods Sold 289

Buying and Monitoring Supplies 292

Staying on Top of Your Bills 292

Practice: Calculating Discounts 294

Answers to Practice Questions 295

Chapter 2: Counting Your Sales 297

Collecting on Cash Sales 297

Practice: Recording Sales 301

Selling on Credit 303

Practice: Sales on Store (Direct) Credit 308

Proving Out the Cash Register 310

Practice: Proving Out 311

Tracking Sales Discounts 313

Practice: Recording Discounts 315

Recording Sales Returns and Allowances 317

Practice: Tracking Sales Returns and Allowances 318

Monitoring Accounts Receivable 319

Practice: Aging Summary 320

Accepting Your Losses 321

Answers to Practice Questions 322

Chapter 3: Employee Payroll and Benefits 325

Setting the Stage for Staffing: Making Payroll Decisions 326

Collecting Employee Taxes 330

Determining Net Pay 332

Practice: Payroll Tax Calculations 333

Surveying Your Benefits Options 334

Preparing Payroll and Posting It in the Books 336

Practice: Payroll Preparation 339

Finishing the Job 340

Depositing Employee Taxes 342

Outsourcing Payroll and Benefits Work 342

Answers to Practice Questions 343

Chapter 4: Employer-Paid Taxes and Government Payroll Reporting 345

Paying Employer Taxes on Social Security and Medicare 346

Completing Unemployment Reports and Paying Unemployment Taxes 348

Practice: Calculating FUTA Tax 352

Carrying Workers’ Compensation Insurance 352

Maintaining Employee Records 354

Answers to Practice Questions 357

Book 4: Preparing for Year’s End 359

Chapter 1: Depreciating Your Assets 361

Defining Depreciation 362

Reducing the Value of Assets 364

Tackling Taxes and Depreciation 368

Setting Up Depreciation Schedules 369

Recording Depreciation Expenses 370

Chapter 2: Paying and Collecting Interest 371

Deciphering Types of Interest 371

Handling Interest Income 373

Delving into Loans and Interest Expenses 374

Chapter 3: Proving Out the Cash 383

Why Prove Out the Books? 383

Making Sure Ending Cash is Right 384

Closing the Cash Journals 385

Using a Temporary Posting Journal 392

Reconciling Bank Accounts 392

Posting Adjustments and Corrections 396

Chapter 4: Closing the Journals 397

Prepping to Close: Checking for Accuracy and Tallying Things Up 398

Posting to the General Ledger 403

Checking Out Computerized Journal Records 404

Chapter 5: Checking Your Accuracy 409

Working with a Trial Balance 409

Testing Your Balance with Computerized Accounting Systems 413

Developing a Financial Statement Worksheet 415

Replacing Worksheets with Computerized Reports 417

Chapter 6: Adjusting the Books 419

Adjusting All the Right Areas 419

Testing an Adjusted Trial Balance 427

Changing Your Chart of Accounts 428

Book 5: Accounting and Managing Your Business 431

Chapter 1: Managing Profit 433

Helping Managers: The Fourth Vital Task of Accounting 434

Internal Profit Reporting 436

Presenting a Profit Analysis Template 439

Answering Critical Profit Questions 443

Taking a Closer Look at the Lines in the Profit Template 446

Using the Profit Template for Decision-Making Analysis 450

Tucking Away Some Valuable Lessons 451

Closing with a Boozy Example 454

Chapter 2: Budgeting 455

Exploring the Reasons for Budgeting 456

Recognizing Additional Benefits of Budgeting 461

Deciding Whether Budgeting is Worth Its Costs 462

Watching Budgeting in Action 467

Considering Capital Expenditures and Other Cash Needs 472

Using Computer Accounting to Make Budgeting More Effective 474

Chapter 3: Cost Accounting 477

Looking Down the Road to the Destination of Costs 478

Are Costs Really That Important? 480

Becoming More Familiar with Costs 483

Assembling the Product Cost of Manufacturers 487

Puffing Profit by Excessive Production 495

Chapter 4: Filing and Paying Business Taxes 501

Finding the Right Business Type 501

Tackling Tax Reporting for Sole Proprietors 504

Filing Tax Forms for Partnerships 505

Paying Corporate Taxes 506

Taking Care of Sales Tax Obligations 507

Chapter 5: Prepping the Books for a New Accounting Cycle 509

Finalizing the General Ledger 510

Conducting Special Year-End Bookkeeping Tasks 511

Starting the Cycle Anew 514

Index 517

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