Accounting For Dummies®, 4th Edition

3.3. Managing the Bookkeeping and Accounting System

In my experience, too many business managers and owners ignore their bookkeeping and accounting systems or take them for granted — unless something goes wrong. They assume that if the books are in balance, everything is okay. The section "Double-Entry Accounting for Single-Entry Folks," later in this chapter, covers exactly what it means to have "books in balance" — it does not necessarily mean that everything is okay.

To determine whether your bookkeeping system is up to snuff, check out the following sections, which provide a checklist of the most important elements of a good system.

3.3.1. Categorize your financial information: The chart of accounts

Suppose that you're the accountant for a corporation and you're faced with the daunting task of preparing the annual federal income tax return for the business. This demands that you report the following kinds of expenses (and this list contains just the minimum!):

• Advertising

• Bad debts

• Charitable contributions

• Compensation of officers

• Cost of goods sold

• Depreciation

• Employee benefit programs

• Interest

• Pensions and profit-sharing plans

• Rents

• Repairs and maintenance

• Salaries and wages

• Taxes and licenses

You must provide additional information for some of these expenses. For example, the cost of goods sold expense is determined in a schedule that also requires inventory cost at the beginning of the year, purchases during the year, cost of labor during the year (for manufacturers), other costs, ...