You can't know how your business is doing until you record it.a Bookkeepers' Boot Camp is the first book in the Numbers 101 for Small Business series. It shows small business owners the essentials of record keeping, and why it's crucial to a business's success to track financial data. The book gives business owners a greater understanding of the purpose and process of record keeping and a deeper understanding of their businesses. Mohr has helped hundreds of small business owners who didn't understand the importance of record keeping and always put it off until later.a These business owners were almost literally buried under a pile of papers, overwhelmed by the immensity of the task at hand. Mohr shows business owners how to sort through the masses of information and paperwork, record what is important, and how to use that information to grow a business for success!
Eighty percent of all small businesses started this year will be gone in 5 years. As Mohr says, starting a small business can be like driving a car in a foreign country where you don't know what the road signs are telling you.a Numbers 101 for Small Business is a new series of easy-tounderstand guides for small business owners, covering such topics as bookkeeping, analyzing and tracking financial information, starting a business, growing a business, and exiting a business. Using real life examples, Mohr teaches small business owners how to beat the odds and turn their ideas into successful, growing companies.
PART 1: THE BASICS 1 1 Getting Started 3 The Numbers 101 for Small Business Series 4 Bookkeepers' Boot Camp 5 How to Use This Book 5 2 A Brief Look at the Origins of Bookkeeping 6 Double-Entry Bookkeeping 7 3 Important Concepts 8 Generally Accepted Accounting Principles (GAAP) 8 Stewardship 9 Accrual Accounting 9 Debits and Credits 10 Accountants versus Bookkeepers 10 Bookkeeper 10 Accountant 10 Accounting Jargon 11 The Use of Estimates 11 The Importance of Bookkeeping 11 Contents iv Bookkeepers' Boot Camp 4 Setting up the Record Keeping System 12 What Kinds of Paper Do I Need to Keep? 12 Invoices 12 Statements of account 13 Deposit slips 13 Supplier invoices 13 Check stubs or copies 13 Purchase orders 14 Bank statements 14 Canceled checks 14 How Do I Account for My Source Documents? 14 Where Do I Record This Information? 15 Journals and ledgers 15 What Kind of Bookkeeping System Should I Get? 16 Manual journal and ledger 16 Computerized bookkeeping systems 18 5 Making Bookkeeping Easier with Technology 20 Receipt Scanners 20 Smartphone Apps 21 The Cloud 21 Remote Bookkeeping 21 Technology Is Not Substitute for Financial Acumen 22 6 The Balance Sheet 23 The Purpose of the Balance Sheet 23 The Components of the Balance Sheet 24 Assets 24 Capital assets 27 Other assets 27 Liabilities 28 Current liabilities 28 Long-term liabilities 29 Equity 30 Capital stock 30 Capital contributions 30 Retained earnings 30 Dividends 31 Contents v 7 The Income Statement 33 The Purpose of the Income Statement 33 What's on My Income Statement? 36 Interpreting the Income Statement 38 The Statement of Retained Earnings: A Tag-Along 38 8 The Cash Flow Statement 40 Categorizing Cash Flows 40 Back to the Balance Sheet: The Basis of the Cash Flow Statement 41 Putting It All Together 45 What Is the Cash Flow Statement Telling Me? 45 PART 2: INTERMEDIATE TOPICS 49 9 Recording the Sales Cycle 51 What Makes up the Sales Cycle? 51 Recording Cash Sales 52 Real life 52 Accounting world 53 Recording Credit Sales 53 Real life 54 Accounting world 54 Sales Discounts 54 Recording Cash Receipts 55 Real life 55 Accounting world 55 Partial payments 55 Preparing Invoices 56 Preparing Statements of Account 56 Bad Debts: Analyzing Them and Writing Them off 57 Screen your customers 57 Set credit limits 57 Make your credit terms clear 58 Follow up with monthly statements 58 Call your customers when they are overdue 58 Get professional help 58 Pursue the debt in small claims court 58 Writing off the debt 58 vi Bookkeepers' Boot Camp 10 Recording the Purchase Cycle 60 Purchasing Inventory 60 Purchasing Supplies 62 Common Cost of Goods Sold Categories 62 Common Expense Categories 63 Setting up the Accounts Payable Sub-ledger 64 Cash Payments 65 Real life 65 Accounting world 65 11 Inventory 67 Inventory Tracking Systems 67 Types of Inventory 67 Inventory in a Manufacturing Environment 68 Inventory Costing Methods 69 Specific identification method 69 First-in, first-out (FIFO) 70 Last-in, first-out (LIFO) 70 Weighted average cost 70 Year-End Valuation 70 Setting up the Inventory Count 71 12 Capital Assets 75 What's in the Cost of My Capital Assets? 76 Satellite costs 76 Trade-ins 76 Depreciation: An Overview 77 Land 77 Buildings 77 Equipment 77 Tools 77 Office equipment 77 Signage 77 Computer hardware 77 Computer software 77 Vehicles 77 Concepts Involved in Depreciation 78 Useful life 78 Salvage value 78 Contents vii Methods of Depreciation 78 Straight-line 78 Declining balance 78 Sum-of-the-years-digits (SYD) 79 Accounting for Depreciation 79 Accounting for Sales of Capital Assets 80 13 Leases and Loans 82 Lease Transactions: An Overview 82 Accounting for Operating Leases 83 Accounting for Capital Leases 84 Accounting for Loans 84 Reconciling the Loan Balance 86 14 Transactions between the Company and Its Owners 87 Shareholder Loans 87 You Pay for a Business Expense out of Your Own Pocket 88 The Company Pays for a Personal Expense 89 What Happens If I Run My Business out of My House? 89 Step 1: How much space? 89 Step 2: Calculating the expenses 90 Capital improvements 90 Repairs that affect the whole house 90 Repairs that affect only the personal square footage 91 Repairs that affect only the business square footage 91 Hey, the Business Uses My Car Too! 91 Business mileage 92 What about Other Personal Assets Used for Business? 93 Caveat 93 Setting up the Management Bonus 93 Dividends 94 15 Remittances to the Government 96 What Are Government Remittances? 97 US Remittances to the Government 97 Employment taxes 97 State sales tax 98 Other remittances to the government 98 Canadian Remittances to the Government 98 Payroll taxes 98 viii Bookkeepers' Boot Camp Goods and Services Tax (GST) 99 Other remittances to the government 99 Reconciling the Remittance Accounts 100 16 Maintaining a Petty Cash System 101 Setting up the Petty Cash Fund 101 Using Your Petty Cash 102 Reconciling the Petty Cash Fund 102 Replenishing the Petty Cash Fund 104 17 Reconciling the Bank 105 The Bank Statement Arrives 105 Outstanding checks 106 Outstanding deposits 106 Bank charges 106 Automatic monthly payments 106 Bank errors 106 The Reconciliation Process 107 Items on the bank statement that are not in the ledger 107 Items in your ledger that are not on your bank statement 107 What Happens If I Still Can't Reconcile? 108 Example of the Bank Reconciliation Process 108 18 When the Damn Thing Just Won't Balance 111 The Process of Reconciliation 111 Backward Posting 112 Transposition Error 112 Addition Error 113 19 When Your Books Are Already a Mess 115 Introduction 115 Step 1: Organize the Mess 116 Step 2: Inventory the Documents 116 Step 3: Gather Missing Documents 117 Step 4: Enter the Accounting Transactions 117 Step 5: Reconcile to the Bank Statements 118 Step 6: Create a Monthly Financial Statement Package 118 Step 7: Organize Your Bookkeeping for the Future 118 Contents ix PART 3: ADVANCED ISSUES 121 20 The Role of the External Accountant 123 Choosing an Accountant 123 The Role of the Accountant 124 Starting your business 125 Year end 125 Employee evaluation and compensation 125 Internal controls 125 Management operating plan 125 What the Accountant Needs from You at Year-End 126 The Process of Creating Financial Statements 126 Corporate Income Tax Returns 127 Posting the Adjusting Journal Entries 127 Rolling Forward the Year 128 How Do You Know When You're Outgrowing Your Accountant? 128 21 Budgeting: Planning for the Future 130 But How Do I Know What's Going to Happen in the Future? 130 Setting up the 12-Month Budget 131 Aren't I Just Making up Fake Numbers? 132 Changes to the Company's Operations 132 Rolling, Rolling, Rolling, Keep That Budget Rolling 132 22 Monitoring Cash Flow: How Not to Run out of Money 135 What Is Cash Flow? 135 What's the Difference between Cash Flow and Net Income? 135 How Do I Know When My Business Is Going to Run out of Money? 136 Building Your Company's War Chest 136 How Can I Stretch My Company's Cash Further? 137 Barter: A Small-Business Owner's Secret Weapon 138 Accounting for barter transactions 139 The Future: How to Avoid the Cash Crunch before It Hits 140 23 A Brief Look at Foreign Currency 141 Occasional Foreign Currency Transactions 141 The Foreign Currency Bank Account 142 Revaluation at Year End 143 Reconciling the Foreign Currency Bank Account 143 Foreign Currency Risk 143 x Bookkeepers' Boot Camp 24 Tax Planning 145 Minimizing Tax versus Avoiding Tax 145 What Is Tax Integration? 146 Why You Need to Understand Tax Brackets 146 Deferring Tax Owing versus Getting Rid of It Altogether 147 Owner/Manager Remuneration: Getting Money out of Your Business 147 25 Graduation 149 Boot Camp Test 150 Boot Camp Test Answers 162 Appendix A Glossary 171 Appendix B Resources for the Growing Business 177 Figure 1 The Opertating Cycle 52 Samples 1 General Journal 16 2 General Ledger 17 3 Balance Sheet 25 4 Partnership Equity Statement 32 5 Statement of Income 35 6 Statement of Retained Earnings 39 7 Comparative Balance Sheet 42 8 Balance Sheet with Difference 44 9 Cash Flow Statement 46 10 Statement of Account 57 11 Accounts Payable Report 65 12 Inventory Count Sheet 72 13 Bank Reconciliation 108 Worksheets 1 Inventory Count Sheet 74 2 Petty Cash Control Sheet 103 3 Budget Template 133
