Wiley Pathways Small Business Accounting

When it comes to operating a small business, it doesn't matter how good the idea is if the accounting behind the operations isn't solid. Now readers have a resource that covers the accounting tools and strategies that will help them run a successful company. They'll gain a strong foundation in basic accounting and then progress to accounting strategies for service businesses. They'll also learn about basic accounting procedures and find ways to utilize accounting techniques for a merchandising business.

Table of Contents:
PART I The Foundation of Accounting CHAPTER 1. ACCOUNTING FOR YOUR BUSINESS 1 Introduction 2 1.1. Basic Accounting Concepts 2 1.1.1 Separate Entity Assumption 2 1.1.2 Accounting Period Assumption 3 1.1.3 Cash-Basis and Accrual Accounting 3 1.1.4 Internal Controls 5 Self-Check 6 1.2. Types of Businesses 6 1.2.1 Types of Business Operations 6 1.2.2 Legal Forms of Business Structure 7 Self-Check 12 1.3. Accounting Software Options 12 1.3.1 Overview of Software Options 13 1.3.2 Add-Ons and Fees 16 1.3.3 Setting Up Your Computerized Books 16 Self-Check 19 Summary 19 Assess Your Understanding 20 Be a Small Business Accountant 21 Key Terms 22 CHAPTER 2. MASTERING DEBITS AND CREDITS 23 Introduction 24 2.1 Differentiating Debits and Credits 24 2.1.1 Double-Entry Accounting 24 2.1.2 The Accounting Equation 25 2.1.3 The T-Account Tool 27 2.1.4 Analyzing Transactions 28 Self-Check 30 2.2 Overview of Financial Statements 30 2.2.1 The Balance Sheet 30 2.2.2 The Income Statement 32 Self-Check 32 2.3 The Chart of Accounts 33 2.3.1 Account Sections 33 2.3.2 Account Numbers 34 2.3.3 Managing an Efficient Chart of Accounts 35 Self-Check 37 Summary 37 Assess Your Understanding 38 Be a Small Business Accountant 41 Key Terms 42 CHAPTER 3. BEGINNING THE ACCOUNTING CYCLE 43 Introduction 44 3.1. Steps of the Accounting Cycle 44 3.1.1 Transactions 45 3.1.2 Journal Entries 45 3.1.3 Posting 45 3.1.4 Trial Balance 45 3.1.5 Worksheet 46 3.1.6 Adjusting Journal Entries 46 3.1.7 Financial Statements 46 3.1.8 Closing 46 Self-Check 47 3.2 Introduction to Journals and Ledgers 47 3.2.1 Journals 47 3.2.2 Ledgers 49 Self-Check 51 3.3 Keeping the Right Paperwork 51 3.3.1 Creating a Filing System 52 3.3.2 Figuring Out What to Keep and for How Long 53 Self-Check 55 Summary 55 Assess Your Understanding 57 Be a Small Business Accountant 58 Key Terms 59 PART II Accounting for a Service Business CHAPTER 4. JOURNALIZING TRANSACTIONS 61 Introduction 62 4.1 Starting Your Business 62 4.1.1 Using the General Journal 62 4.1.2 Equity Transactions 64 Self-Check 68 4.2 Buying and Selling 69 4.2.1 Buying for the Business 69 4.2.2 Making the Sale 72 Self-Check 74 4.3 Other Transactions 74 4.3.1 Accounts Payable and Accounts Receivable 75 4.3.2 The Completed General Journal 75 Self-Check 77 Summary 77 Assess Your Understanding 78 Be a Small Business Accountant 80 Key Terms 81 CHAPTER 5. POSTING TRANSACTIONS AND PREPARING A TRIAL BALANCE 83 Introduction 84 5.1 Updating Ledger Accounts 84 5.1.1 The Ledger Account Form 84 5.1.2 Posting from the General Journal to the General Ledger 85 Self-Check 91 5.2 Maintaining the General Ledger 91 5.2.1 Calculating the Account Balances 91 5.2.2 Correcting Errors in a Manual System 92 Self-Check 93 5.3 Computerized Posting 94 5.3.1 Several Tasks at the Same Time 94 5.3.2 Researching Transactions 94 5.3.3 Correcting Transactions 95 Self-Check 97 5.4 Preparing the Trial Balance 97 5.4.1 Preparing a Manual Trial Balance 98 5.4.2 What to Do If You’re Out of Balance 100 5.4.3 Preparing a Trial Balance Using Software 100 5.4.4 Limitations of the Trial Balance 102 Self-Check 102 Summary 102 Assess Your Understanding 104 Be a Small Business Accountant 107 Key Terms 108 References 109 CHAPTER 6. ADJUSTMENTS AND THE WORKSHEET 111 Introduction 112 6.1 Setting Up the Worksheet 112 Self-Check 114 6.2 Calculating the Adjustments 114 6.2.1 Prepaid Expenses 115 6.2.2 Depreciation 116 6.2.3 Bad Debts 120 6.2.4 The Adjusted Trial Balance 122 Self-Check 124 6.3 Completing the Worksheet 125 6.3.1 Showing Net Income on the Worksheet 125 6.3.2 Journalizing and Posting the Adjustments 127 6.3.3 Replacing Worksheets with Computerized Reports 130 Self-Check 130 Summary 130 Assess Your Understanding 132 Be a Small Business Accountant 135 Key Terms 136 CHAPTER 7. FINANCIAL STATEMENTS AND THE CLOSING PROCESS 137 Introduction 138 7.1 The Income Statement 138 7.1.1 Preparing the Income Statement 138 7.1.2 Gaining Insight from an Income Statement 139 7.1.3 Analyzing the Income Statement 141 7.1.4 Using the Income Statement Data 142 Self-Check 143 7.2 The Balance Sheet 144 7.2.1 The Statement of Owner’s Equity 144 7.2.2 Preparing the Balance Sheet 146 7.2.3 Analyzing the Balance Sheet 147 Self-Check 152 7.3 The Closing Process 152 7.3.1 Permanent and Temporary Accounts 152 7.3.2 Closing the Temporary Accounts 153 7.3.3 Preparing a Postclosing Trial Balance 158 Self-Check 159 Summary 160 Assess Your Understanding 161 Be a Small Business Accountant 163 Key Terms 164 PART III Basic Accounting Procedures CHAPTER 8. CASH, BANKING, AND INTERNAL CONTROLS 165 Introduction 166 8.1 Protecting against Internal Fraud 166 8.1.1 Types of Internal Fraud 166 8.1.2 Dividing Staff Responsibilities 168 8.1.3 Insuring Your Cash through Employee Bonding 170 8.1.4 Balancing Control Costs 170 Self-Check 171 8.2 Cash in the Bank 171 8.2.1 Checking Accounts 172 8.2.2 Savings Accounts 174 8.2.3 Bank Reconciliations 174 Self-Check 178 8.3 Cash on Hand 178 8.3.1 Petty Cash 179 8.3.2 Cash Registers 181 Self-Check 186 Summary 186 Assess Your Understanding 188 Be a Small Business Accountant 190 Key Terms 191 CHAPTER 9. EMPLOYEE PAYROLL AND DEDUCTIONS 193 Introduction 194 9.1 Staffing Your Business 194 9.1.1 Completing Government Forms 194 9.1.2 Picking Pay Periods 201 9.1.3 Determining Wage and Salary Types 202 Self-Check 204 9.2 Payroll Tax Withholdings 204 9.2.1 Social Security Tax 204 9.2.2 Medicare Tax 205 9.2.3 Federal Income Tax 205 9.2.4 State and Local Income Taxes 206 Self-Check 207 9.3 Employee Benefits 207 9.3.1 Tax-Exempt Benefits 207 9.3.2 Taxable Benefits 209 Self-Check 210 9.4 Payday 210 9.4.1 Calculating Gross Earnings 210 9.4.2 Calculating Net Pay 212 9.4.3 Recording the Payroll 213 9.4.4 Depositing Payroll Taxes 217 9.4.5 Outsourcing Payroll and Benefits Work 217 Self-Check 217 Summary 218 Assess Your Understanding 220 Be a Small Business Accountant 222 Key Terms 223 References 225 CHAPTER 10. UNDERSTANDING PAYROLL LEGALITIES 227 Introduction 228 10.1 Payroll Tax Deposits 228 10.1.1 When to Deposit Taxes 228 10.1.2 How to Deposit Taxes 230 10.1.3 Accounting for Tax Deposits 230 Self-Check 231 10.2 Payroll Tax Returns 231 10.2.1 Filing Form 941 231 10.2.2 Filing Form 940 235 Self-Check 240 10.3 Year-End Reporting 243 10.3.1 Filing the W-2 Forms 243 10.3.2 Filing the W-3 Form 247 Self-Check 249 10.4 Workers’ Compensation Insurance 249 Self-Check 252 10.5 Maintaining Employee Records 252 Self-Check 254 Summary 254 Assess Your Understanding 256 Be a Small Business Accountant 257 Key Terms 258 References 259 CHAPTER 11. SPECIAL JOURNALS: SALES AND CASH RECEIPTS 261 Introduction 262 11.1 Special Journals 262 11.1.1 Sales Journal 262 11.1.2 Cash Receipts Journal 264 Self-Check 271 11.2 Posting from Special Journals 271 11.2.1 Subsidiary Ledgers 271 11.2.2 Posting from the Sales Journal 272 11.2.3 Posting from the Cash Receipts Journal 275 Self-Check 278 11.3 Sales Returns and Allowances 278 11.3.1 Journalizing Sales Returns and Allowances 279 11.3.2 Posting Sales Returns and Allowances 279 Self-Check 281 11.4 Accounts Receivable Aging Summary 281 Self-Check 282 Summary 283 Assess Your Understanding 284 Be a Small Business Accountant 291 Key Terms 292 CHAPTER 12. SPECIAL JOURNALS: PURCHASES AND CASH DISBURSEMENTS 293 Introduction 294 12.1 Purchases Journal 294 12.1.1 Purchases Account 294 12.1.2 Parts of a Purchases Journal 295 Self-Check 296 12.2 Cash Disbursements Journal 296 12.2.1 Part of a Cash Disbursements Journal 296 12.2.2 Paying an Outstanding Bill 298 12.2.3 Paying Expenses 298 12.2.4 Paying Credit-Card Fees 299 12.2.5 Paying Loans and Interest 299 12.2.6 Paying Sales Tax 302 Self-Check 303 12.3 Posting Purchases and Cash Disbursements 303 12.3.1 Posting from the Purchases Journal 303 12.3.2 Posting from the Cash Disbursements Journal 306 Self-Check 308 12.4 Managing Accounts Payable 309 12.4.1 Purchases Returns and Allowances 309 12.4.2 Accounts Payable Aging Summary 310 Self-Check 311 Summary 311 Assess Your Understanding 312 Be a Small Business Accountant 316 Key Terms 317 PART IV Accounting for a Merchandising Business CHAPTER 13. MERCHANDISE INVENTORY 319 Introduction 320 13.1 Cost of Goods Sold 320 13.1.1 Perpetual and Periodic Inventory 320 13.1.2 Net Purchases 322 13.1.3 Recording Initial Cost 323 Self-Check 328 13.2 Inventory Cost Flow 328 13.2.1 Determining the Value of Ending Inventory 329 13.2.2 Inventory Valuation Methods 329 13.2.3 Choosing the Best Method 331 13.2.4 Comparing the Methods 331 Self-Check 334 13.3 Lower of Cost or Market 334 Self-Check 335 Summary 336 Assess Your Understanding 337 Be a Small Business Accountant 340 Key Terms 341 References 343 CHAPTER 14. ADJUSTMENTS AND THE WORKSHEET FOR A MERCHANDISING BUSINESS 345 Introduction 346 14.1 Setting Up the Worksheet for a Merchandising Business 346 Self-Check 349 14.2 Inventory Adjustment 349 Self-Check 350 14.3 Adjustment to Record Expenses 350 14.3.1 Allowance for Bad Debt 351 14.3.2 Accrued Payroll Expenses 352 14.3.3 Depreciation Adjustment 354 14.3.4 Adjustment for Prepaid Expenses 354 Self-Check 356 Summary 356 Assess Your Understanding 358 Be a Small Business Accountant 361 Key Terms 362 CHAPTER 15. FINANCIAL STATEMENTS AND THE CLOSING PROCESS FOR A MERCHANDISING BUSINESS 363 Introduction 364 15.1 Financial Statements for a Merchandising Business 364 15.1.1 Income Statement 364 15.1.2 Statement of Owner’s Equity 367 15.1.3 Balance Sheet 369 Self-Check 370 15.2 Closing Entries for a Merchandising Business 371 Self-Check 374 15.3 Other Year-End Tasks: Form 1099 374 Self-Check 378 Summary 379 Assess Your Understanding 380 Be a Small Business Accountant 382 Key Terms 383 References 384 APPENDIX A: DEPRECIATION 385 A.1 Depreciation for Accounting Purposes 385 A.1.1 Knowing What You Can and Can’t Depreciate 385 A.1.2 Figuring Out the Useful Life of a Fixed Asset 386 A.1.3 Delving into Cost Basis 387 A.1.4 Depreciation Methods 387 A.1.5 Using QuickBooks to Calculate Depreciation 389 A.2 Depreciation for Income Tax Purposes 389 A.2.1 Section 179 389 A.2.2 MACRS 390 A.3 Setting Up Depreciation Schedules 390 A.4 Recording Depreciation Expenses 391 APPENDIX B: INCOME TAX 392 B.1 Tax Reporting for Sole Proprietors 392 B.2 Filing Tax Forms for Partnerships 392 B.3 Filing Tax Forms for Corporations 393 B.3.1 Reporting for an S Corporation 393 B.3.2 Reporting for a C Corporation 393 B.4 Tax Reporting for Limited Liability Companies 393 B.5 Professional Tax Services 393 Glossary 395 Index 407