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
