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Bookkeeping For Canadians For Dummies
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About This Book
Bookkeeping is an essential skill required in every industry, with a certain concentration in wholesale and retail trade, manufacturing, payroll services, accounting and tax preparation. If youâre a small business owner looking for clear and concise instructions on keeping the books, tracking transactions, recognizing assets and liabilities and keeping ledgers and journals, this book is your one-stop guide to making it easier.
The book covers how to create financial statements and also shows how to operate accounts for businesses. In addition, it will help you recognize the assets and liabilities of the business. Learn how to:
- Keep the books
- Track transactions
- Compete against larger competitors
- Stay on top of journals.
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Yes, you can access Bookkeeping For Canadians For Dummies by Lita Epstein, Cecile Laurin in PDF and/or ePUB format, as well as other popular books in Business & Business General. We have over one million books available in our catalogue for you to explore.
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Part 1
Basic Bookkeeping: Why You Need It
IN THIS PARTâŚ
Discover the basics of how bookkeeping works.
Set up your books.
Read about terms you may already know but that have a unique meaning in the world of bookkeeping, such as ledger, journal, posting, debit, and credit.
Set up the roadmap for your books, the Chart of Accounts.
Chapter 1
So You Want to Do the Books
IN THIS CHAPTER
Few small-business owners hire accountants to work full time for them because that expense is probably excessive for a small business. Instead, the owner hires a bookkeeper who serves as the business accountantâs eyes and ears. In return, the accountant helps the bookkeeper develop good bookkeeping practices and reviews his or her work periodically (usually monthly).
In this chapter, we provide an overview of a bookkeeperâs work. If youâre just starting a business, you may be your own bookkeeper for a while until you can afford to hire one, so think of this chapter as your to-do list.
Delving into Bookkeeping Basics
Like most businesspeople, you probably have great ideas for running your own business and just want to get started. You donât want to sweat the small stuff, such as keeping detailed records of every penny spent; you just want to quickly build a business that can make a lot of money.
Well, slow down â starting a business isnât a race! If you donât carefully plan your bookkeeping operation and figure out exactly what financial detail you want to track, and how, you will have absolutely no way to measure the success (or failure, unfortunately) of your business efforts.
Bookkeeping, when done properly, gives you an excellent gauge of how well your business is doing. When done in a timely manner, bookkeeping gives you quick feedback on how your business is doing. It also provides you with a lot of information throughout the year so that you can test the financial success of your business strategies and make course corrections as soon as possible, if and when necessary, to ensure that you reach your year-end profit goals.
Choosing your accounting method
You canât keep books unless you know how you want to go about doing so. The two basic accounting methods you have to choose from are cash-basis accounting and accrual accounting. The key difference between these two accounting methods is the point at which you record sales and purchases in your books. If you choose cash-basis accounting, you record transactions only when cash changes hands. (Only a very limited number of Canadian businesses are allowed to use cash-basis accounting to report taxes.) If you use accrual accounting, you record a transaction when the products are delivered or services are provided, even if cash doesnât change hands.
For example, suppose your business buys products to sell from a vendor but doesnât pay for those products for 30 days. If youâre using cash-basis accounting, you donât record the purchase until you lay out the cash to the vendor. If youâre using accrual accounting, you record the purchase when you receive the products, and you also record the obligation to pay the vendor in an account called Accounts Payable.
We talk about the pros and cons of each type of accounting method in Chapter 2.
Understanding assets, liabilities, and equity
Every business has three key financial parts that you must keep in balance: assets, liabilities, and equity. Assets include everything the business owns and uses, such as cash, inventory, buildings, equipment, and vehicles. Liabilities include everything the business owes to others, such as vendor bills, credit card balances, and bank loans. Equity includes the claims that owners have on the assets, based on each ownerâs portion of ownership in the business.
These three elements make up the formula for keeping your books in balance:
Assets = Liabilities + Equity
Because balancing your books is so important, we talk a lot about how to keep your books and accounting records in balance throughout this book. You can find an introduction to this concept in Chapter 2.
Introducing debits and credits
To keep the books, you need to revise your thinking about two common financial terms: debits and credits. Most non-bookkeepers and non-accountants think of debits as subtractions from their bank accounts and credits as additions to their accounts (in most cases, in the form of refunds or corrections in favour of the account holders).
Well, forget all you thought you knew about debits and credits. Debits and credits are different animals in the world of bookkeeping. Because keeping the books involves a method called double-entry bookkeeping, you have to make a least two entries â a debit and a credit â into your bookkeeping system for every transaction. Whether that debit or credit adds or subtracts from an account depends solely on the type of account.
We know that all this debit, credit, and double-entry stuff sounds confusing, but we promise you can understand it if you work through this book. We start explaining this critical, yet somewhat confusing, concept in Chapter 2.
Charting your bookkeeping course
You canât just enter transactions in the books willy-nilly. You need to know exactly where those transactions fit into the larger bookkeeping system. This is where your Chart of Accounts comes in; itâs essentially a list of all the accounts your business has and what types of transactions go into each account.
We talk more about the Chart of Accounts in Chapter 3.
Recognizing the Importance of an Accurate Electronic or Paper Trail
To keep the books, you need to create an accurate electronic or paper trail. You want to track all your businessâs financial transactions so that if a question comes up at a later date, you can turn to the books to figure out what went wrong or answer a query about an amount or a balance reported in your books.
In the general ledger, you summarize all your businessâs financial transactions, and you use journals to keep track of the tiniest details of each transaction. You can make your information-gathering more effective by using a computerized accounting system, which gives you access to your financial information in many different formats. Controlling who enters this financial information into your books and who can access it afterwards is smart business and involves critical planning on your part. We address all these concepts in the following sections.
Maintaining a ledger
The granddaddy of your bookkeeping system is the general ledger. In this ledger, you keep a summary of all your accounts and the financial activities that took place involving those accounts throughout the year.
You draw upon the general ledgerâs account balances to develop your financial statements and reports on a monthly, quarterly, or annual basis. You can also use these account balances to develop internal reports that help you make key business decisions. We talk more about developing and maintaining the general ledger in Chapter 4.
Keeping journals
Small businesses conduct hundreds, if not thousands, of transactions each year. If you recorded every transaction in the general ledger, that record would become unwieldy and difficult to use. Instead, most businesses keep a series of journals that detail activity in their most a...
Table of contents
- Cover
- Table of Contents
- Introduction
- Part 1: Basic Bookkeeping: Why You Need It
- Part 2: Keeping a Paper or an Electronic Trail
- Part 3: Tracking Day-to-Day Business Operations
- Part 4: Preparing the Books for Yearâs (or Monthâs) End
- Part 5: Reporting Results and Starting Over
- Part 6: The Part of Tens
- Appendix: Glossary
- Index
- About the Authors
- Advertisement Page
- Connect with Dummies
- End User License Agreement