Accounting All-in-One For Dummies, with Online Practice, 2nd Edition

Chapter 1

Grasping Bookkeeping and Accounting Basics

IN THIS CHAPTER

Examining the differences between bookkeeping and accounting

Getting to know the accounting cycle

Maintaining balance with the fundamental accounting equation

Most folks aren’t enthusiastic bookkeepers. You probably 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 most people, you stuff your bills in a drawer and just drag them out once a month when you pay them.

Individuals can get along quite well without much bookkeeping — but the exact opposite is true for a business. A business needs a good bookkeeping and accounting system to operate day to day, and a business needs accurate and timely data to operate effectively.

In addition to facilitating day-to-day operations, a company’s bookkeeping and accounting system serves as the source of information for preparing its periodic financial statements, tax returns, and reports to managers. The accuracy of these reports is critical to the business’s survival. That’s because managers use financial reports to make decisions, and if the ...