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Accounting Workbook For Dummies
Author:
Published:
September 7, 2022
Overview
Number nightmares in accounting? No more!
The numbers are clear: the need for accountants is not only strong, but on the rise. With job growth projected to increase by 7% over the next 10 years, there’s no time like the present to join this growing—and profitable—profession. Accounting Workbook For Dummies, 2nd Edition gives you the hands-on instruction you need to understand complicated concepts through demonstration problems, practice worksheets. and spreadsheets.
- Understand the role of accountants versus bookkeepers
- Develop knowledge to establish
and maintain high quality accounting systems
Understanding the intricacies of accounting has never been easier as in today’s rapid-fire global economy, accountants have never been more important—it’s all in your hands with this plain-English workbook!
As a business manager or owner, taking care of your company’s accounting needs is a top priority. Correctly preparing financial statements, financial analyses, and accounting reports involves knowing all the financial data and information that needs to appear in these items.Making a profit helps keep you in business, while maintaining a strong balance sheet ensures you can stay in business.
About The Author
John A. Tracy is a former accountant and professor of accounting. He is also the author of Accounting For Dummies.
Articles From The Book
3 results
General Accounting
Articles
As a business manager or owner, taking care of your company’s accounting needs is a top priority. Correctly preparing financial statements, financial analyses, and accounting reports involves knowing all the financial data and information that needs to appear in these items.Making a profit helps keep you in business, while maintaining a strong balance sheet ensures you can stay in business.
General Accounting
Articles
The accountant’s job is to capture all the transactions of the business, determine the financial effects of every transaction, record every transaction in the business’s accounts, and from the accounts prepare the financial statements.
To carry out their mission, accountants must understand how transactions (and certain other events) affect the financial condition of the business.
General Accounting
Articles
Evaluating the financial performance of a business includes analyzing the return on capital (how its profit stacks up against the capital) used by the business. The figure below presents Company A’s profit performance for the year down to the operating profit before interest and income tax. Did the business earn enough operating profit relative to the capital it used to make this profit?
General Accounting
Articles
Different businesses make different accounting decisions. Some businesses choose conservative accounting methods while others choose liberal accounting methods. Accounting is more than just reading the facts or interpreting the financial outcomes of business transactions. Accounting also requires accountants to choose between alternative accounting methods.
General Accounting
Articles
In understanding accounting, you need to be very clear about which classification of business transaction you’re looking at. Businesses are profit-motivated, so one basic type of transaction is obvious: profit-making transactions. In a nutshell, profit-making transactions consist of making sales and incurring expenses.
General Accounting
Articles
The numbers in the statement of cash flows are derived from the changes in a business’s balance sheet accounts during the year. Changes in the balance sheet accounts drive the amounts reported in the statement of cash flows.
The three primary financial statements of a business — the balance sheet, the income statement, and the statement of cash flows — are intertwined and interdependent.
General Accounting
Articles
When an accountant records a sale or expense entry using double-entry accounting, he or she sees the interconnections between the income statement and balance sheet. A sale increases an asset or decreases a liability, and an expense decreases an asset or increases a liability.
Therefore, one side of every sales and expense entry is in the income statement, and the other side is in the balance sheet.
General Accounting
Articles
Accountants must carefully design cash flow reports for business managers. The conventional statement of cash flows is far too technical and intimidating for most managers to make sense of. What managers don’t understand, they don’t use.
Accountants may often be too bound by their “debits and credits” thinking when it comes to the statement of cash flows.
General Accounting
Articles
When designing internal accounting reports for business managers, the accountant should ask, “Who’s entitled to know what information in the internal accounting reports?” In general, the board of directors, the CEO, the president, and the COO are entitled to know anything and everything.
By virtue of their positions, the financial vice president and chief accountant (often called the controller) have access to all financial information about the business.
General Accounting
Articles
To aid in their decision-making analysis, business managers need for accountants to develop a model of operating profit for their business that, theoretically, fits on the back of an envelope.
Here's an example of such a compact profit model:
(Unit Margin × Sales Volume) – Fixed Expenses = Operating Profit
Suppose the sales price is $100 and variable costs equal $65 per unit.
General Accounting
Articles
A real account in a business is a record of the amount of asset, liability, or owners’ equity at a precise moment in time. Nominal accounts summarize a business’s revenue and expenses over a period of time, such as a year.
The recordkeeping process for bookkeepers is fundamentally the same: Adopt a chart of accounts, make original entries using debits and credits to keep the books in balance, make adjusting entries to get profit for the period right, and close the books at the end of the year.
General Accounting
Articles
As the business manager, you’re in control of your business’s accounting needs, so you need a strong understanding of the ins and outs of financial statements, including what goes on them and in what order. If you don’t prepare them correctly, they won’t reflect a true picture of your business’s financial status.
General Accounting
Articles
In deciding on its cost of goods sold expense method of accounting, a business first determines whether the products it sells are fungible or unique. Fungible means that products are interchangeable and virtually indistinguishable from one another.
A unique product is the only one of its kind; no other product is like it in all respects.
General Accounting
Articles
To make a profit, business managers have to control expenses. This task requires a good deal of information about how to record expenses and losses. How many expense accounts should a business maintain? There’s no easy answer to this question.
To get an idea of the broad range of expenses a business may have and therefore needs to account for, imagine a business with $10 million annual sales revenue.
General Accounting
Articles
The accounting equation used in business must always be kept in balance — the assets on one side of the equation must equal the claims against the assets on the other side:
Assets = Liabilities + Owners’ equity
These claims arise from credit extended to the business (liabilities) and capital invested by owners in the business (owners’ equity).
General Accounting
Articles
Accountants and bookkeepers record transactions as debits and credits while keeping the accounting equation constantly in balance. This process is called double-entry bookkeeping. Double-entry bookkeeping records both sides of a transaction — debits and credits — and the accounting equation remains in balance as transactions are recorded.
General Accounting
Articles
Virtually every business needs fixed assets — long-lived economic resources such as land, buildings, and machines — to carry on its profit-making activities. In a balance sheet, these assets typically are reported in a category called property, plant, and equipment.
The cost and accumulated depreciation of a business’s fixed assets depends on the following:
When the assets were bought (recently or many years ago?
General Accounting
Articles
Having your business reach a profit is important; if it doesn’t, sooner or later the business will fail. As a business manager, you want to keep a close eye on the financial statements and make the necessary (and legal) accounting adjustments to your financial records as needed. These helpful tips can help you make the necessary adjustments to your business’s net income, eye two different profit analysis models, and communicate the reports to your managers.
General Accounting
Articles
Two interest rates used in business loans are the nominal interest rate and the effective interest rate. The annual interest rate quoted by the bank is often called the nominal rate (nominal means in name only). The effective annual interest rate gives effect to the compounding of the nominal rate.
Assume a business borrows $100,000 for one year at an annual interest rate of 6 percent (the nominal interest rate).
General Accounting
Articles
The trick in preparing management control reports for business managers is to separate the wheat from the chaff. Being very busy people, business managers can’t afford to waste time on relatively insignificant problems. They have to prioritize problems and deal with the issues that have the greatest effect on the business.
General Accounting
Articles
When designing the layout and content of profit performance reports to the manager, the accountant needs to understand what the business manager wants. The profit report should ideally reflect the manager’s profit strategy and tactics.
A manager of a profit center focuses on two main things — margin and sales volume.
General Accounting
Articles
Though few in number, investing and financing transactions for a business are important and usually involve big chunks of money. The investing and financing transactions are reported in the statement of cash flows.
Suppose a business recorded 10,000 transactions during the year. The large majority would be sales and expense transactions and the set-up and follow-up transactions for sales and expenses.
General Accounting
Articles
Set-up and follow-up transactions are supporting transactions for the profit-making activities of a business that take place before or after revenue and expenses are recorded. These set-up and follow-up transactions are necessary, as you can see in the following examples:
Buying products for inventory (the goods are held in inventory until they’re sold and delivered to customers)
Collecting receivables from customers
Paying liabilities for products, supplies, and services that were bought on credit
Paying certain expenses in advance, such as for insurance policies, shipping containers, and office supplies
Profit-making activities are reported in the income statement, and investing and financing activities are reported in the statement of cash flows.
General Accounting
Articles
The effect that making a sale has on a business’s financial condition depends on the type of sales transaction that's made — that is, when the cash is collected from the sale When a business sells a product or service, cash may be collected at the time of the sale (called a cash sale), after the sale (on credit), or before the sale (an advance payment).
General Accounting
Articles
From the sales revenue and expenses reported in a business’s income statement, you can determine the balances of several assets and liabilities using the normative operating ratios for the business. Laying the foundation for the balance sheet of a business using its normative operating ratios is very instructive.
General Accounting
Articles
How much would you pay for a business? The business’s balance sheet — among other reports and factors — can help determine the valuation of a business. No accountant could tell you what a business is worth because it’s not really an accounting question. Accountants prepare financial statements; they don’t put a value on the business and report this value in its financial report.