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    Bookkeeping Basics
    Bookkeeping Basics
    Bookkeeping Basics
    Ebook84 pages1 hour

    Bookkeeping Basics

    By J.H. White

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    About this ebook

    Bookkeeping Basics" is not a textbook. It's a plain and simple explanation of how basic accounting works and what it is to "keep the books," so that you can do it for yourself, your company, or any other business.
    While accounting programs have solved the problems inherent in manual bookkeeping and made it far easier and faster, they have created a different kind of problem. Just how much accounting are you required to know? Some programs need users to know some accounting in order to use them. Other programs require little or no bookkeeping skill but confine users to simple entries provided by the program while keeping them isolated far from the double entry functions going on in the background.
    With "Basics" you need not be excluded from using any accounting program, nor become captive to another. Written by a career bookkeeper, "Basics" makes bookkeeping easy to understand, simple and easy to do.

    LanguageEnglish
    PublisherJ H White
    Release dateMar 4, 2012
    ISBN9781889206547
    Bookkeeping Basics

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      Book preview

      Bookkeeping Basics - J.H. White

      BOOKKEEPING BASICS

      by

      JHWhite

      JHWhite Copyright 2012

      Smashwords Edition

      Smashwords Edition, License Notes

      This ebook is licensed for your personal enjoyment only. This ebook may not be re-sold or given away to other people. If you would like to share this book with another person please purchase an additional copy for each recipient. If you’re reading this book and did not purchase it, or it was not purchased for your use only, then please return to Smashwords.com and purchase your own copy. Thank you for respecting the hard work of this author.

      Warning-Disclaimer

      This publication is designed to provide information on the subject matter covered and is not intended to render legal or accounting services. For services relevant to any particular business entity, readers should consult an attorney, accountant or CPA. While the information provided is as accurate as possible, it should be used as a general guide only. The author and publisher shall have no responsibility or liability to any person or entity for any alleged loss or damage caused directly or indirectly by the information contained herein.

      ISBN 1-889206-54-7

      JHWhite PubsCo,

      PO Box 66471,

      Burien WA USA 98166

      Table of Contents

      Introduction

      Cash vs Accrual Basis

      Major Problems with Cash Basis

      Set up the Books

      Cash

      Sales, etc.

      Receivables

      Payables

      Payroll

      Costing

      Alternative Inventory Methods

      Depreciation

      Prepaid and Amortized

      Year end

      Financial Statements

      About the author

      INTRODUCTION

      WHAT'S HAPPENING?"

      Every transaction makes a statement: This happened because/therefore that happened. Accounting is the recording of these statements in financial terms.

      ACCOUNTING IS AN INVENTION

      As such, it operates according to a rule. The rule for double-entry bookkeeping is simply this: There are two sides to every transaction recorded — and they must be equal.

      THE TWO SIDES HAVE NAMES

      DEBIT is the name given to any left-handed entry. CREDIT is the name given to any right-handed entry. In short, Debit stands for 'left' and Credit stands for 'right.'

      WHY?

      The inventor said so!

      To understand Bookkeeping, it is only necessary to think of it as a record of what happened. If it was necessary to write out in language - add this to that or subtract that from this - or even to use appropriate symbols for add and subtract - record keeping would be time consuming, prone to error and none too clear.

      We need a method that is clear, concise in its meaning and not prone to personal interpretation - a method that will be understood by everybody, and one that is simple and fast, there being many transactions. In short, we need a numerical shorthand.

      Double-entry bookkeeping is a numerical shorthand. It operates using numbers, the principle of balance, and a symbol.

      Imagine a scales with 5 on each side: Since 5 is equal to 5, the scales are in balance. If, however, I wish to indicate one particular 5, I have to say 'the one on the left' or 'the one on the right.' Clumsy. We'll name them. We will call the one on the left the DEBIT 5 and the right one the CREDIT 5. (Back in the days of manual bookkeeping, a ledger page had two sides, a left side and a right. The names debit, for the left-hand side, and credit for the right are derived from these pages.)

      Suppose we now remove the scales entirely and one of the 5's. We have one 5 left. Which one is it? Mystifying. Let us use a symbol to stand for CREDIT. Let's use the minus sign or the color red or brackets ( ). A CREDIT 5 would now appear as -5 or 5 or (5). Having none of these, our 5 must then be a DEBIT 5. How about that for numerical shorthand? We can know at a glance the name of a number. Knowing this, we can tell whether to add numbers together or subtract them.

      Add likes. Subtract unlikes and take the sign of the larger.

      Add debits to debits.

      Add credits to credits.

      COMBINE debits with credits by subtracting the smaller from the larger and taking the sign of the larger.

      Remember your arithmetic? If you combine plus 5 and plus 5, you get plus 10. But to combine plus 5 and minus 3, you must subtract the 3 from the 5 and take the sign of the larger and thus your answer is plus 2. The total of plus 5 and minus 7 is therefore minus 2 or (2).

      ADD LIKES. SUBTRACT UNLIKES and TAKE THE SIGN OF THE LARGER.

      An account is a collection of figures all related to the same thing and they are normally either a debit account or a credit account. That is, an account’s normal balance will always be the same and its place will be the same in every set of books.

      When an account is already in use, it is easy to tell whether it is a debit account or a credit account but how can you tell in the very beginning? And why?

      Since double-entry bookkeeping is an invention, the inventor could declare that the first account could be anything he wanted it to be and so he declared that CASH WILL BE

      A DEBIT ACCOUNT. All other accounts follow from this.

      If CASH is a DEBIT account, any ADDITION TO CASH MUST BE A DEBIT.

      Because we can only add likes, an increase to a debit requires another debit.

      Assume: You make a sale for cash of $50.00. The money in your cash drawer increases by $50.00 and your total sales have increased by $50.00. We have established that you must

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