Bookkeeping For Dummies

Veechi Curtis is a qualified accountant and business consultant who specialises in teaching small businesses about technology and finance. She is the author of MYOB Software For Dummies, QuickBooks For Dummies, Small Business For Dummies, and Creating a Business Plan For Dummies.

Foreword xv

Introduction 1

About This Book 2

Foolish Assumptions 2

Icons Used in This Book 2

Where to Go from Here 3

Part 1: First Steps 5

Chapter 1: Introducing the Bookkeeping Game 7

Understanding the Bookkeeping Life Cycle 8

Figuring How Often to Do the Deed 9

Working with a shoebox 9

Doing the books as you go 11

Staying on the Right Side of the Law 13

Registering as a business 13

Getting to grips with GST 14

Managing payroll 14

Developing an Attitude 14

Convince yourself this stuff matters 15

Quit counting sheep 15

Do your job well 16

Getting Skilled Up 16

Keeping your qualifications up to date 17

Joining an association 17

Signing up to a course 17

Chapter 2: Creating a Framework 19

Putting Everything in Its Place 20

Classifying Accounts 21

Building Your Profit & Loss Accounts 22

Analysing income streams 22

Separating cost of sales accounts 22

Cataloguing expenses 24

Dealing with personal expenses 26

Seeing Where the Money’s Made 27

Itemising Balance Sheet Accounts 28

Adding up the assets (ah, joy of joys) 29

Listing liabilities (oh, woe is me) 31

Accounting for equity 32

Building a Final Chart of Accounts 34

Chapter 3: Going for the Big Equation 37

Matchmaking with Debits and Credits 38

Studying a little give and take 38

Following a modern fable 40

Putting Theory into Practice 41

Moving funds in bank accounts 43

Taking a peek at sales 44

Checking out expenses 45

Viewing stock movements 45

Throwing GST into the mix 46

Playing the Double-Entry Game with Accounting Software 47

Drilling down to the debits and credits 48

Recording general journals 48

Choosing between Cash and Accrual 49

Keeping things simple with cash 49

Getting more info with accrual 50

Laying down the deal in debits and credits 51

Enjoying a half-half measure 52

Using one method for your books, and another for income tax 53

Part 2: Forming a Plan 55

Chapter 4: Playing a Bookkeeper’s Rhythm 57

Reporting for GST 58

Identifying deadlines 58

Managing cashflow 58

Staying on Top of Payroll 60

Generating Reports 61

Devising a Record-keeping System 63

Filing that needle in the haystack 63

Deciding what to keep and how long for 65

Developing a Bookkeeping Calendar 66

Chapter 5: Working with Accounting Software 69

Getting into Gear 70

Laying essential foundations 70

Understanding basic terms 70

Working in the cloud 72

Protecting your private parts 73

Matching Software to the Job in Hand 74

Starting up a new business 74

Getting ready to grow 75

Making stuff and buying stuff 75

Catering for bigger business or non-profits 76

Setting Up Accounting Software 76

Preparing for battle 76

Taking your first steps 78

Mopping up when the dust has settled 79

Protecting Your Accounting Data 80

Getting your data off the cloud 80

Storing data safely 81

Chapter 6: Understanding GST 83

Coughing Up the Difference 84

Signing Up (Do You Have a Choice?) 84

Submitting to the inevitable 85

Choosing not to register 85

Picking a reporting method to suit 86

Reporting for duty 87

Calculating GST 87

Figuring What’s Taxed and What’s Not 88

Move it, groove it, tax it 88

Transactions with no GST 89

Understanding Tax Codes 90

Creating a list of tax codes 90

Linking accounts to tax codes 92

Staying Out of Trouble 93

Avoiding traps for the unwary 94

Keeping personal matters separate 94

Dancing the Paperwork Polka 95

Brewing up a Tax Invoice 96

Checking supplier bills 96

Verifying that ABNs are correct 97

Part 3: Recording Day-To-Day Transactions 99

Chapter 7: Recording Expenses and Supplier Payments 101

Creating Order Out of Chaos 102

Getting your hands on the right info 102

Filing stuff so you can find it again 103

Working with a Micro Business 104

Automating data entry with bank feeds 105

Entering transactions one by one 107

Listing expenses on a spreadsheet 109

Recording Expenses for a Small Business 111

Deciding whether to use accrual accounting 112

Refining the process 113

Keeping tabs on who you owe 114

Dealing with EFTPOS and credit card transactions 115

Bookkeeping for a Larger Business 115

Managing supplier orders and invoices 116

Making supplier payments 118

Dealing with EFTPOS and credit card transactions 118

Allocating Transactions 119

Selecting allocation accounts 119

Getting things right: five top tips 121

Nitpicking over Petty Cash and Out-of-Pocket Expenses 123

Storing cash under lock and key 123

Robbing Peter to pay Paul 125

Keeping tabs of expenses on the run 128

Chapter 8: Recording Receipts and Sales 129

Keeping Track of Sales and Payments 130

Recording customer sales 130

Entering customer payments 132

Working on a Cash Basis 133

Recording cash receipts using accounting software 134

Listing income on a spreadsheet 135

Combining income and expenses on the same spreadsheet 137

Bookkeeping for Other Kinds of Income 138

Recording miscellaneous receipts 138

Dazzling everyone with your brilliance 139

Bringing Home the Bacon 140

Dealing with Tricky Situations 142

Dishing out discounts 142

Dealing with prepayments 142

Giving credits or refunds 143

Writing off bad debts 144

Making Sure Cash Doesn’t Go Astray 145

Separating powers between bookkeepers and the cash 145

Putting in good controls 146

Chapter 9: Paying Employees 149

Staying Squeaky Clean 150

Hiring a New Employee 151

Step One: Complete a tax file declaration 152

Step Two: Supply a Fair Work Statement 152

Step Three: Cover against mishaps 153

Step Four: Subscribe to super 153

Step Five: Ensure your software is up to speed 154

Checking Minimum Pay and Conditions 155

Getting to Pay Day 156

Paying folks their dues 156

Checking timesheets are accurate 158

Taxing pay (no mercy shown) 159

Dealing with deductions 160

Calculating superannuation 161

Submitting to Single Touch Payroll 162

Taking Leave 163

Calculating leave on a percentage basis 164

Calculating hours per pay period 165

Maintaining Proper Records 166

Keeping tabs on employee details 166

Recording pays correctly 166

Issuing legit pay slips 167

Chapter 10: Reconciling Accounts 169

Getting Started 170

Deciding what bank accounts to reconcile 170

Calculating your true bank balance 170

Recording your opening bank balance using accounting software 172

Doing Your First Reconciliation 173

Reconciling accounts when you’re not using bank feeds 173

Reconciling accounts when you have bank feeds 175

Reconciling accounts with spreadsheets 176

Keeping Proof that You’ve Done the Deed 177

Troubleshooting Tricks 178

Balancing Other Kinds of Accounts 180

Part 4: Pulling It All Together 183

Chapter 11: Reporting for Payroll 185

Paying Tax and Super 186

Reporting and paying PAYG tax 186

Paying superannuation 186

Reporting for other payroll liabilities 188

Ensuring You Pay the Right Amounts 188

Understanding what goes on behind the scenes 188

Balancing your payroll accounts 189

Troubleshooting when things don’t balance 190

Calculating Other Payroll Expenses 193

Splitting hairs with fringe benefits 193

Hitting the payroll tax threshold 194

Reporting for workers comp 195

Finalising Pays at Year’s End 196

Making sure things are tickety-boo 196

Submitting your finalisation declaration 197

Generating payment summaries 199

Reporting for Taxable Payments (TPAR) 200

Chapter 12: Managing Inventory and Other Assets 201

Buying In, Stocking Up and Selling Out 202

Buying inventory to fill the shelves 202

Selling inventory to make a buck 203

Measuring the profits 204

Calculating the value of inventory 204

Organising Stocktakes 205

Balancing Your Inventory Account 207

Accounting for Assets 208

Figuring out if something is an asset or an expense 208

Recording new asset purchases 209

Recording the sale of assets 210

Dealing with personal assets 212

Depreciating Assets, One by One 213

Calculating depreciation 213

Depreciating using asset pools 215

Recording depreciation 216

Allowing for depreciation throughout the year 216

Checking your schedule 218

Chapter 13: Mastering Tricky Situations 221

Recording Journal Entries 222

Plunging Into Debt 222

Going into the red 222

Aiming towards the black 224

Recording loan interest and fees 224

Working with Hire Purchase, Leases and Chattel Mortgages 225

Taking on a new hire purchase debt 225

Recording hire purchase payments 227

Living it up with a new lease of life 228

Signing up with a chattel mortgage 229

Adjusting the Bottom Line 229

Reallocating prepaid expenses 230

Accruing future expenses 230

Figuring out leave provisions 233

Separating private expenses from business ones 235

Bringing Income into Line 237

Shifting income received in advance 237

Grossing up dividends 238

Chapter 14: Checking Your Work 241

Starting with the Bank Accounts 241

Step 1: Checking that everything reconciles 242

Step 2: Hunting for stale transactions 242

Step 3: Drilling down on dates 243

Spring Cleaning Your Debts 244

Step 4: Getting debtors spick and span 245

Step 5: Sweeping through the creditors 245

Putting GST under the Griller 247

Step 6: Hunting for coding mistakes 247

Step 7: Balancing GST liability accounts 249

Understanding Control Accounts 252

Step 8: Balancing debtors and creditors 252

Step 9: Giving inventory the once over 255

Step 10: Priming the payroll 256

Doing a Mini-Audit 257

Step 11: Scanning transaction reports 257

Step 12: Analysing summary results 258

Chapter 15: Understanding Financial Reports 259

Telling the Story with Profit & Loss 260

Putting income under the microscope 260

Weighing up gross profit 261

Watching expenses, dollar for dollar 263

Painting a Picture with the Balance Sheet 264

Sketching assets, black as ink 265

Drawing liabilities, red as blood 266

Sculpting equity, cast in gold 266

Understanding the Relationship between Profit and Cash 267

Why there’s profit but no cash 268

Why there’s cash but no profit 269

Reporting where cash came from, and where it went 269

Putting Results under the Microscope 271

Comparing this year against last year 271

Calculating ratios 272

Chapter 16: Starting a New Financial Year 277

Finalising the Old Year 278

Out with the old year  in with the new 278

Generating end-of-year reports 279

Protecting against accidents 280

Sending Data to Your Accountant 281

Matching the Accountant’s Figures Against Your Own 283

Recording year-end journals 283

Dealing with adjustments that only make things worse 284

Getting creative when the accountant gives you nothing 284

Bridging the Communication Gap 286

Starting a New Year 287

Understanding what happens when you start a new year 287

Archiving data — just one more time 289

Part 5: Running Your Own Bookkeeping Business 291

Chapter 17: Starting Up On Your Own 293

Deciding Whether You’re Ready 293

Five good things about starting your own bookkeeping business 294

Five not-so-good things about starting your own bookkeeping business 294

Thinking through the Practicalities 296

Getting qualifications in order 296

Updating your skills (and choosing software) 296

Launching Your New Business 297

Creating a plan — no excuses 297

Deciding what to charge 298

Calculating billable hours 299

Thinking about your rate of return 301

Looking for clients 301

Building a Successful Business 303

Identify what makes you different 303

Join a professional association 304

Set goals, and reach them too 304

Look to the future 305

Chapter 18: Staying on the Right Side of the Law 307

Becoming a BAS Agent 308

Figuring out whether you have to register 308

Checking out what skills and qualifications you need 309

Covering yourself with insurance 310

Acting Honestly and Independently 311

Staying squeaky clean 311

Avoiding conflicts of interest 313

Keeping stuff confidential 314

Making Sure Information Is Correct 315

Providing competent services 316

Supervising others’ work 316

Taking reasonable care 317

Ensuring tax laws are applied correctly 319

Understanding the limits of your advice 319

Setting Up Systems 319

Writing an engagement letter 319

Protecting client data 321

Part 6: The Part of Tens 323

Chapter 19: Ten Tips for Not-for-Profit Organisations 325

Know and Love Your Cost Centres 326

Become the Budget Queen 327

Get the Terminology Right 327

Report to the Board 328

Get Help with Payroll 329

Do Killer Grant Reporting 329

Be Accountable at All Times 329

Make Sure You Can Survive an Audit 330

Track Membership Dues with Care 331

Know When to use Trust Accounts 331

Chapter 20: Ten Tricks for Collecting Money 333

Draw Up a Credit Policy 334

Do Your Homework 334

Don’t Waste a Moment 335

Calculate the Cost of Debts 336

Get on the Blower 336

Don’t Give Too Many Options 337

Keep a Dossier 337

Track ’em Down 338

Stick to the Law 338

Get Drastic 339

Chapter 21: Ten Tips for Doing Your Books in the Shortest Possible Time 341

Get Connected with Bank Feeds 341

Create Bank Rules to Allocate Transactions Automatically 342

Scan Receipts 343

Create Recurring Transactions 344

Integrate Everything 344

Keep Personal Stuff Separate 344

Learn to Use all Ten Fingers 345

Set Up Your Accounting Software Properly 345

Ditch Paper Records 346

Make Customer Payments Easy 346

Glossary 347

Index 357