Description
Book SynopsisWhen it comes to operating a small business, it doesn't matter how good the idea is if the accounting behind the operations isn't solid. Now readers have a resource that covers the accounting tools and strategies that will help them run a successful company.
Table of ContentsPART I The Foundation of Accounting
CHAPTER 1. ACCOUNTING FOR YOUR BUSINESS 1
Introduction 2
1.1. Basic Accounting Concepts 2
1.1.1 Separate Entity Assumption 2
1.1.2 Accounting Period Assumption 3
1.1.3 Cash-Basis and Accrual Accounting 3
1.1.4 Internal Controls 5
Self-Check 6
1.2. Types of Businesses 6
1.2.1 Types of Business Operations 6
1.2.2 Legal Forms of Business Structure 7 Self-Check 12
1.3. Accounting Software Options 12
1.3.1 Overview of Software Options 13
1.3.2 Add-Ons and Fees 16
1.3.3 Setting Up Your Computerized Books 16
Self-Check 19
Summary 19
Assess Your Understanding 20
Be a Small Business Accountant 21
Key Terms 22
CHAPTER 2. MASTERING DEBITS AND CREDITS 23
Introduction 24
2.1 Differentiating Debits and Credits 24
2.1.1 Double-Entry Accounting 24
2.1.2 The Accounting Equation 25
2.1.3 The T-Account Tool 27
2.1.4 Analyzing Transactions 28
Self-Check 30
2.2 Overview of Financial Statements 30
2.2.1 The Balance Sheet 30
2.2.2 The Income Statement 32
Self-Check 32
2.3 The Chart of Accounts 33
2.3.1 Account Sections 33
2.3.2 Account Numbers 34
2.3.3 Managing an Efficient Chart of Accounts 35
Self-Check 37
Summary 37
Assess Your Understanding 38
Be a Small Business Accountant 41
Key Terms 42
CHAPTER 3. BEGINNING THE ACCOUNTING CYCLE 43
Introduction 44
3.1. Steps of the Accounting Cycle 44
3.1.1 Transactions 45
3.1.2 Journal Entries 45
3.1.3 Posting 45
3.1.4 Trial Balance 45
3.1.5 Worksheet 46
3.1.6 Adjusting Journal Entries 46
3.1.7 Financial Statements 46
3.1.8 Closing 46
Self-Check 47
3.2 Introduction to Journals and Ledgers 47
3.2.1 Journals 47
3.2.2 Ledgers 49
Self-Check 51
3.3 Keeping the Right Paperwork 51
3.3.1 Creating a Filing System 52
3.3.2 Figuring Out What to Keep and for How Long 53
Self-Check 55
Summary 55
Assess Your Understanding 57
Be a Small Business Accountant 58
Key Terms 59
PART II Accounting for a Service Business
CHAPTER 4. JOURNALIZING TRANSACTIONS 61
Introduction 62
4.1 Starting Your Business 62
4.1.1 Using the General Journal 62
4.1.2 Equity Transactions 64
Self-Check 68
4.2 Buying and Selling 69
4.2.1 Buying for the Business 69
4.2.2 Making the Sale 72
Self-Check 74
4.3 Other Transactions 74
4.3.1 Accounts Payable and Accounts Receivable 75
4.3.2 The Completed General Journal 75
Self-Check 77
Summary 77
Assess Your Understanding 78
Be a Small Business Accountant 80
Key Terms 81
CHAPTER 5. POSTING TRANSACTIONS AND PREPARING A TRIAL BALANCE 83
Introduction 84
5.1 Updating Ledger Accounts 84
5.1.1 The Ledger Account Form 84
5.1.2 Posting from the General Journal to the General Ledger 85
Self-Check 91
5.2 Maintaining the General Ledger 91
5.2.1 Calculating the Account Balances 91
5.2.2 Correcting Errors in a Manual System 92
Self-Check 93
5.3 Computerized Posting 94
5.3.1 Several Tasks at the Same Time 94
5.3.2 Researching Transactions 94
5.3.3 Correcting Transactions 95
Self-Check 97
5.4 Preparing the Trial Balance 97
5.4.1 Preparing a Manual Trial Balance 98
5.4.2 What to Do If You’re Out of Balance 100
5.4.3 Preparing a Trial Balance Using Software 100
5.4.4 Limitations of the Trial Balance 102
Self-Check 102
Summary 102
Assess Your Understanding 104
Be a Small Business Accountant 107
Key Terms 108
References 109
CHAPTER 6. ADJUSTMENTS AND THE WORKSHEET 111
Introduction 112
6.1 Setting Up the Worksheet 112
Self-Check 114
6.2 Calculating the Adjustments 114
6.2.1 Prepaid Expenses 115
6.2.2 Depreciation 116
6.2.3 Bad Debts 120
6.2.4 The Adjusted Trial Balance 122
Self-Check 124
6.3 Completing the Worksheet 125
6.3.1 Showing Net Income on the Worksheet 125
6.3.2 Journalizing and Posting the Adjustments 127
6.3.3 Replacing Worksheets with Computerized Reports 130
Self-Check 130
Summary 130
Assess Your Understanding 132
Be a Small Business Accountant 135
Key Terms 136
CHAPTER 7. FINANCIAL STATEMENTS AND THE CLOSING PROCESS 137
Introduction 138
7.1 The Income Statement 138
7.1.1 Preparing the Income Statement 138
7.1.2 Gaining Insight from an Income Statement 139
7.1.3 Analyzing the Income Statement 141
7.1.4 Using the Income Statement Data 142
Self-Check 143
7.2 The Balance Sheet 144
7.2.1 The Statement of Owner’s Equity 144
7.2.2 Preparing the Balance Sheet 146
7.2.3 Analyzing the Balance Sheet 147
Self-Check 152
7.3 The Closing Process 152
7.3.1 Permanent and Temporary Accounts 152
7.3.2 Closing the Temporary Accounts 153
7.3.3 Preparing a Postclosing Trial Balance 158
Self-Check 159
Summary 160
Assess Your Understanding 161
Be a Small Business Accountant 163
Key Terms 164
PART III Basic Accounting Procedures
CHAPTER 8. CASH, BANKING, AND INTERNAL CONTROLS 165
Introduction 166
8.1 Protecting against Internal Fraud 166
8.1.1 Types of Internal Fraud 166
8.1.2 Dividing Staff Responsibilities 168
8.1.3 Insuring Your Cash through Employee Bonding 170
8.1.4 Balancing Control Costs 170
Self-Check 171
8.2 Cash in the Bank 171
8.2.1 Checking Accounts 172
8.2.2 Savings Accounts 174
8.2.3 Bank Reconciliations 174
Self-Check 178
8.3 Cash on Hand 178
8.3.1 Petty Cash 179
8.3.2 Cash Registers 181
Self-Check 186
Summary 186
Assess Your Understanding 188
Be a Small Business Accountant 190
Key Terms 191
CHAPTER 9. EMPLOYEE PAYROLL AND DEDUCTIONS 193
Introduction 194
9.1 Staffing Your Business 194
9.1.1 Completing Government Forms 194
9.1.2 Picking Pay Periods 201
9.1.3 Determining Wage and Salary Types 202
Self-Check 204
9.2 Payroll Tax Withholdings 204
9.2.1 Social Security Tax 204
9.2.2 Medicare Tax 205
9.2.3 Federal Income Tax 205
9.2.4 State and Local Income Taxes 206
Self-Check 207
9.3 Employee Benefits 207
9.3.1 Tax-Exempt Benefits 207
9.3.2 Taxable Benefits 209
Self-Check 210
9.4 Payday 210
9.4.1 Calculating Gross Earnings 210
9.4.2 Calculating Net Pay 212
9.4.3 Recording the Payroll 213
9.4.4 Depositing Payroll Taxes 217
9.4.5 Outsourcing Payroll and Benefits Work 217
Self-Check 217
Summary 218
Assess Your Understanding 220
Be a Small Business Accountant 222
Key Terms 223
References 225
CHAPTER 10. UNDERSTANDING PAYROLL LEGALITIES 227
Introduction 228
10.1 Payroll Tax Deposits 228
10.1.1 When to Deposit Taxes 228
10.1.2 How to Deposit Taxes 230
10.1.3 Accounting for Tax Deposits 230
Self-Check 231
10.2 Payroll Tax Returns 231
10.2.1 Filing Form 941 231
10.2.2 Filing Form 940 235
Self-Check 240
10.3 Year-End Reporting 243
10.3.1 Filing the W-2 Forms 243
10.3.2 Filing the W-3 Form 247
Self-Check 249
10.4 Workers’ Compensation Insurance 249
Self-Check 252
10.5 Maintaining Employee Records 252
Self-Check 254
Summary 254
Assess Your Understanding 256
Be a Small Business Accountant 257
Key Terms 258
References 259
CHAPTER 11. SPECIAL JOURNALS: SALES AND CASH RECEIPTS 261
Introduction 262
11.1 Special Journals 262
11.1.1 Sales Journal 262
11.1.2 Cash Receipts Journal 264
Self-Check 271
11.2 Posting from Special Journals 271
11.2.1 Subsidiary Ledgers 271
11.2.2 Posting from the Sales Journal 272
11.2.3 Posting from the Cash Receipts Journal 275
Self-Check 278
11.3 Sales Returns and Allowances 278
11.3.1 Journalizing Sales Returns and Allowances 279
11.3.2 Posting Sales Returns and Allowances 279
Self-Check 281
11.4 Accounts Receivable Aging Summary 281
Self-Check 282
Summary 283
Assess Your Understanding 284
Be a Small Business Accountant 291
Key Terms 292
CHAPTER 12. SPECIAL JOURNALS: PURCHASES AND CASH DISBURSEMENTS 293
Introduction 294
12.1 Purchases Journal 294
12.1.1 Purchases Account 294
12.1.2 Parts of a Purchases Journal 295
Self-Check 296
12.2 Cash Disbursements Journal 296
12.2.1 Part of a Cash Disbursements Journal 296
12.2.2 Paying an Outstanding Bill 298
12.2.3 Paying Expenses 298
12.2.4 Paying Credit-Card Fees 299
12.2.5 Paying Loans and Interest 299
12.2.6 Paying Sales Tax 302
Self-Check 303
12.3 Posting Purchases and Cash Disbursements 303
12.3.1 Posting from the Purchases Journal 303
12.3.2 Posting from the Cash Disbursements Journal 306
Self-Check 308
12.4 Managing Accounts Payable 309
12.4.1 Purchases Returns and Allowances 309
12.4.2 Accounts Payable Aging Summary 310
Self-Check 311
Summary 311
Assess Your Understanding 312
Be a Small Business Accountant 316
Key Terms 317
PART IV Accounting for a Merchandising Business
CHAPTER 13. MERCHANDISE INVENTORY 319
Introduction 320
13.1 Cost of Goods Sold 320
13.1.1 Perpetual and Periodic Inventory 320
13.1.2 Net Purchases 322
13.1.3 Recording Initial Cost 323
Self-Check 328
13.2 Inventory Cost Flow 328
13.2.1 Determining the Value of Ending Inventory 329
13.2.2 Inventory Valuation Methods 329
13.2.3 Choosing the Best Method 331
13.2.4 Comparing the Methods 331
Self-Check 334
13.3 Lower of Cost or Market 334
Self-Check 335
Summary 336
Assess Your Understanding 337
Be a Small Business Accountant 340
Key Terms 341
References 343
CHAPTER 14. ADJUSTMENTS AND THE WORKSHEET FOR A MERCHANDISING BUSINESS 345
Introduction 346
14.1 Setting Up the Worksheet for a Merchandising Business 346
Self-Check 349
14.2 Inventory Adjustment 349
Self-Check 350
14.3 Adjustment to Record Expenses 350
14.3.1 Allowance for Bad Debt 351
14.3.2 Accrued Payroll Expenses 352
14.3.3 Depreciation Adjustment 354
14.3.4 Adjustment for Prepaid Expenses 354
Self-Check 356
Summary 356
Assess Your Understanding 358
Be a Small Business Accountant 361
Key Terms 362
CHAPTER 15. FINANCIAL STATEMENTS AND THE CLOSING PROCESS FOR A MERCHANDISING BUSINESS 363
Introduction 364
15.1 Financial Statements for a Merchandising Business 364
15.1.1 Income Statement 364
15.1.2 Statement of Owner’s Equity 367
15.1.3 Balance Sheet 369
Self-Check 370
15.2 Closing Entries for a Merchandising Business 371
Self-Check 374
15.3 Other Year-End Tasks: Form 1099 374
Self-Check 378
Summary 379
Assess Your Understanding 380
Be a Small Business Accountant 382
Key Terms 383
References 384
APPENDIX A: DEPRECIATION 385
A.1 Depreciation for Accounting Purposes 385
A.1.1 Knowing What You Can and Can’t Depreciate 385
A.1.2 Figuring Out the Useful Life of a Fixed Asset 386
A.1.3 Delving into Cost Basis 387
A.1.4 Depreciation Methods 387
A.1.5 Using QuickBooks to Calculate Depreciation 389
A.2 Depreciation for Income Tax Purposes 389
A.2.1 Section 179 389
A.2.2 MACRS 390
A.3 Setting Up Depreciation Schedules 390
A.4 Recording Depreciation Expenses 391
APPENDIX B: INCOME TAX 392
B.1 Tax Reporting for Sole Proprietors 392
B.2 Filing Tax Forms for Partnerships 392
B.3 Filing Tax Forms for Corporations 393
B.3.1 Reporting for an S Corporation 393
B.3.2 Reporting for a C Corporation 393
B.4 Tax Reporting for Limited Liability Companies 393
B.5 Professional Tax Services 393
Glossary 395
Index 407
