To use a sports analogy, accounting can be thought of as a way of keeping score within your business. Unlike a baseball game that results in a final score at the end, you’re going to have multiple scores to keep track of in your business. For instance, how much cash do you have on hand? How much do your customers owe you? How much do you owe your vendors? How much have you spent on various aspects of your business? This scorekeeping is typically done on a calendar-month and calendar-year basis.
But now that much of accounting work is done with the help of a computer, you can easily keep score on a weekly or daily basis, or even in real time throughout the day.
In short, the main thing to remember is that accounting is what helps you learn about how your business is doing. How much information you want and how often you want it is up to you. This book helps you learn how to get the information (or the score, if you will).
In Idiot’s Guides: Introductory Accounting, we teach you how to know if your business is meeting your expectations and how your understanding of the basic accounting procedures can make you more successful. You also learn about the tools and best practices that help you keep your accounting scorecard accurate and up to date.
With easy-to-understand, “plain English” language and helpful examples from a variety of accounting software programs (rather than recommend a specific program), we break down the sometimes-complicated fundamentals of accounting so you can ensure your books balance.
How This Book Is Organized
This book is divided into six parts, each dealing with a different aspect of accounting.
Part 1, Laying the Groundwork, leads off with key accounting terminology you’ll encounter throughout the book. It also explains fundamental accounting concepts, such as how T accounts help you balance transactions and what types of transactions you’ll perform as part of your ongoing accounting routine. Part 1 also walks you through what you need to know from an accounting perspective when you start your business. We look at choosing the best legal structure, handling the cash invested in the business; choosing an accounting method; and filing the right documentation with federal, state, and local authorities.
Part 2, Doing the Books, covers all the core activities you need to perform to set up your business’s accounting system, including choosing accounting software, identifying account categories and setting up a chart of accounts, setting up for and tracking inventory, handling day-to-day transactions in your accounting software and online, working with the general ledger, and reconciling statements. Armed with the information in Part 2, you easily can run the day-to-day accounting activities for your business.
Part 3, Employee-Related Accounting, provides need-to-know information about employees and related accounting decisions and activities. We start by helping with decisions and steps with regard to any new team member you take on. From there, you learn about insurance and retirement plans, their impact on your business accounting, and the ins and outs of payroll taxes. This part should help you hire and manage employee compensation and taxes with confidence.
Part 4, Financial Reporting, looks at the various types of reports you should generate with your accounting software and how to use them. We show you reports that zero in on particular areas such as accounts receivable and accounts payable, as well as reports that focus on the big picture for the business: income statement, balance sheet, and statement of cash flow. A chapter also explores best security practices for your accounting information. By the end of Part 4, you’ll understand how these reports help with business decision-making and communication with business stakeholders.
In Part 5, Monthly, Quarterly, and Annual Activities, you learn about and plan for activities you need to perform at specified times, either as business best practices or for regulatory and tax compliance reasons. You look at how and when to close the books and report employee and vendor tax information. Part 5 also covers the necessary personal tax returns and concludes with guidelines for keeping records for these and other accounting activities.
Part 6, Data Analysis and Forecasting, shows you how to use other software tools to supplement your accounting system. You discover how a spreadsheet program can help you perform activities not found in spreadsheets, starting with building a simple amortization schedule. Then we dive deeper into how a spreadsheet can help with budgeting and other forecasting.
Extras
Throughout this book, we offer four types of additional information, set apart in sidebars, to help enrich what you’re learning. Here’s what to look for:
ACCOUNTING HACK
These sidebars share tips and tricks for more effective accounting.
BOTTOM LINE
Look here for further technical information or key ideas or practices to supplement what you’re learning.
RED FLAG
When there’s something discussed in the text that you might misunderstand, or some typical trap you might want to avoid, we highlight it in one of these sidebars.
Online Extras
As a bonus to this book, we’ve included additional tons of information on helpful accounting apps and software, key business forms, a small business tax and form calendar, and a handy accounting workbook online. Point your browser to idiotsguides.com/introductoryaccounting, and enjoy!
Acknowledgments
This book represents a culmination of knowledge I’ve accumulated over the course of my consulting career. As such, several people come to mind who have helped me along the way at critical junctures. I didn’t initially plan to become a CPA, but Greg Chapin kept encouraging me until I prepared for and sat for the exam. Not long after, Stuart Vessels noticed me back on CompuServe in the mid-1990s, answering questions about Lotus 1-2-3, which led to my start as a freelance writer. Later, Chris Downing saw an article I wrote and invited me to teach Excel classes for a department of a local university. A critical milestone was when my co-author Gail Perry invited me to write for a website aimed at accountants. Writing for Gail ultimately led to the remarkable teaching career I enjoy today, as well as this book. I could write for days about the many people who have helped and encouraged me over the years, but first and foremost my wife, Erin, has stood beside me from the beginning. I also want to thank co-author Lisa Bucki for her significant contributions. Thank you to David Conley for checking our work and being a sounding board to me over the years. Finally, thank you to the team at Alpha Books, especially Lori Hand, who all have been so kind to this first-time author. —David Ringstrom
I’ve known and worked with co-author David Ringstrom for several years, and every collaboration we have had has resulted in a positive experience and outstanding results, so I am profoundly grateful to him for joining me on this project and taking the lead on so much of it. My association with Lisa Bucki dates way back to 1995 when I wrote my second book, The Complete Idiot’s Guide to Doing Your Income Taxes. Lisa was my associate publisher and went out of her way to teach me the ropes of the book-writing business, and I’m so glad to have a chance to work with her again on this project. Thanks also to tech reviewer David Conley, managing editor Lori Hand, and all other parties who helped get this book into its final form. Finally, thank you to you readers, who have invested both time and money in this book. We wrote it for you. —Gail Perry
Special Thanks to the Technical Reviewer
Idiot’s Guides: Introductory Accounting was reviewed by an expert who double-checked the accuracy of what’s presented here to help us ensure learning accounting is as easy as it gets. Special thanks are extended to David Conley, CPA.