Chapter 1

Setting Up the Books

In This Chapter

  • Keeping business records
  • Navigating the accounting cycle
  • Choosing between cash-basis and accrual accounting
  • Deciphering double-entry bookkeeping
  • Introducing the Chart of Accounts
  • Reviewing the types of accounts that make up the chart
  • Creating your own Chart of Accounts

All businesses need to keep track of their financial transactions — that's why bookkeeping and bookkeepers are so important. Without accurate records, how can you tell whether your business is making a profit or taking a loss?

The first part of this chapter covers the key parts of bookkeeping by introducing you to the language of bookkeeping, familiarizing you with how bookkeepers manage the accounting cycle, and showing you how to understand the most difficult type of bookkeeping — double-entry bookkeeping.

Can you imagine the mess your checkbook would be if you didn't record each check you wrote? You've probably forgotten to record a check or two on occasion, but you certainly learn your lesson when you realize that an important payment bounces as a result. Yikes!

Keeping the books of a business can be a lot more difficult than maintaining a personal checkbook. Each business transaction must be carefully recorded to make sure it goes into the right account. This careful bookkeeping gives you an effective tool for figuring out how well the business is doing financially.

As a bookkeeper, you need a roadmap to help you determine where to record all those transactions. ...

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