Chapter 3. Bookkeeping and Accounting Systems

In This Chapter

• Distinguishing between bookkeeping and accounting

• Getting to know the bookkeeping cycle

• Making sure your bookkeeping and accounting systems are rock solid

• Doing a double-take on double-entry accounting

• Deterring and detecting errors and outright fraud

• Choosing computer software wisely

I think it's safe to say that most folks are not enthusiastic bookkeepers. You may balance your checkbook against your bank statement every month and somehow manage to pull together all the records you need for your annual federal income tax return. But if you're like me, you stuff your bills in a drawer and just drag them out once a month when you're ready to pay them. And when's the last time you prepared a detailed listing of all your assets and liabilities (even though a listing of assets is a good idea for fire insurance purposes)? Personal computer programs are available to make bookkeeping for individuals more organized, but you still have to enter a lot of data into the program, and most people decide not to put forth the effort.

I don't prepare a summary statement of my earnings and income for the year. And I don't prepare a breakdown of what I spent my money on and how much I saved. Why not? Because I don't need to! Individuals can get along quite well without much bookkeeping — but the exact opposite is true for a business.

There's one key difference between individuals and businesses. Every business must prepare periodic financial statements, the accuracy of which is critical to the business's survival. The business depends on the accounts and records generated by its bookkeeping process to prepare these statements; if the accounting records are incomplete or inaccurate, the financial statements are incomplete or inaccurate. And inaccuracy simply won't do. In fact, inaccurate and incomplete bookkeeping records could be construed as evidence of fraud.

Obviously, then, business managers have to be sure that the company's bookkeeping and accounting system is adequate and reliable. This chapter shows you what bookkeepers and accountants do, mainly so you have a clear idea of what it takes to be sure that the information coming out of your accounting system is complete, timely, and accurate.