Tuesday, May 25, 2010

Bookkeeping

Hello my name is Dave and yes I'm a bean counter. No I didn't say alcoholic, that's a soft drink not a beer in my hand, and this is not a meeting of Alcoholics Anonymous. For those of you that don't know a bean counter is slang sometimes used to refer to a bookkeeper. I've searched the web for good free bookkeeping and accounting tutorials and came to the conclusion that they're hard to find so this is my attempt to try and fill the void. What qualifies me to attempt this task ? I guess you can tell it's not my fancy dress code. I have over 30 years experience in business and even taught at a small business college for a couple of years. My method of passing on knowledge is to make the subject easy to understand and to use simple examples and terminology to illustrate the concepts being presented. If you're anything like me I learn a lot easier when I can see an example of what we're talking about. Tell me and show me too.

This free bookkeeping tutorial is geared to business owners, managers, and individuals who have not had any formal bookkeeping training or on the job experience and need or want to learn the basics of bookkeeping. In other words, this tutorial is for beginners (newbies) or those needing a quick refresher and is only an introduction into the world of accounting. They say a little knowledge is a dangerous thing. Well my goal is to make you dangerous.

Tutorial Navigation
A menu of all the lessons is presented at the top and bottom of all the lessons. A back and next arrow also allow you to go back to the prior lesson or on to the next lesson. In addition, some Lessons contain Interactive Tables, Forms, and Lists. These sections include Navigation Instructions. The Lessons also include Links to additional learning materials and quizzes.

# Additional Needs My bookkeeping and accounting quizzes and games require Adobe's Free Macromedia Flash Player which is normally already installed on your computer.
Get Adobe's Free Flash Player.
# My Skill Tests require Javascript to be enabled in your browser. Most computers also already have this feature enabled.

What's Covered ?

This Introduction discusses the types of business organizations, types of business activities, users of financial information, bookkeeping systems, accounting rules, and the cash and accrual basis of accounting.

Lesson 1 The Bookkeeping Language introduces you to some of the terminology and definitions used in the accounting and bookkeeping language.

Lesson 2 Property and Property Rights explains Property & Property Rights, the Accounting Equation, double entry bookkeeping, and how business transactions affect the equation.

Lesson 3 Debits and Credits introduces and explains Debits and Credits and how they affect the Accounting Equation and are used to record business transactions.

Lesson 4 Recording Business Transactions explains and uses examples to illustrate how business transactions are properly analyzed, recorded, and summarized.

Lesson 5 The General Ledger and Journals explains what General Ledger and Journals are, how they're used, and what bookkeeping purposes they serve.

Lesson 6 Financial Statements explains what financial statements are, how they're created, and how they're used.

Lesson 7 Review of Major Concepts reviews the major definitions, concepts, and bookkeeping records previously discussed and necessary for an understanding of bookkeeping.

Introduction

Why Learn Bookkeeping ?
Why would you want to learn bookkeeping and keep up to date financial records anyway ? Can't you hire an accountant to come after the end of the year and get your check book and shoe box and do your taxes ? Sure you can ! And yes you will have adequately fulfilled your taxpayer obligations. But in order to run a business and know what, where, and when to take corrective actions requires business information. How do you get and where do you find this information ? You don't if you don't keep accurate and current records about your business financial activities (bookkeeping).

Users of Financial Information
Who needs financial information about a business besides the owner(s) ?

Users can be grouped into two broad categories namely internal users and external users. Internal users are the managers and the owners and employees who actually work for the business. External users include lenders and other creditors (suppliers), investors, customers, and governmental regulatory and taxing agencies.

Why do they need financial information ?
Users need this information to make knowledgeable decisions. Lenders and other creditors want to make sure that they will be paid back for the credit that they have extended to a business. Even lenders that offer alternatives to small business loans like credit card factoring, more commonly known as business cash advances, will need this information because they will base their funding decisions on your credit card receivables history. By analyzing financial information, they at least have something to base their lending or credit decision on. The days of the "friendly" banker are gone. You need to provide them with financial information as a basis for their loan decisions. A "good ole boy" handshake won't cut it now. Similarly, customers want to make sure that the business they're buying products or services from is going to be around and not be in such a poor financial position as to have to close its doors. Other users have their own reasons for using this financial information.

Since users require financial information to base their decisions on, let's determine what is required to fill this need.

Let's begin with a definition for accounting.
Accounting is the art of analyzing, recording, summarizing, reporting, reviewing, and interpreting financial information.

Let's also define what bookkeeping is and is not. I hate to admit this but I'm going to tell a true story about myself in high school. I thought I was fairly smart back in my high school days and took all the college prep classes. My high school offered bookkeeping classes but I had no clue as to what that course was about. I thought bookkeeping was a course on how to properly organize and stack the reading books in the proper place and shelves in the library using that Dewey decimal code. That is keeping the books isn't it ? Well kinda, but that's not the bookkeeping you're going to learn here. Bookkeeping is one of the components of accounting. Think of accounting as the mom and bookkeeping as one of her children.

Bookkeeping is the process of recording and classifying business financial transactions (activities). In simple language-maintaining the records of the financial activities of a business or an individual. Bookkeeping's objective is simply to record and summarize financial transactions into a usable form that provides financial information about a business or an individual.

Accountants normally plan and set up the accounting and bookkeeping system for a business and turn over the day to day record keeping to the owner or one of his/her employees. In this age of computers, more and more of the daily bookkeeping is being done using bookkeeping software and computers although some businesses still maintain manual records. Due to the reasonable cost of computers and software, I recommend an automated (computer) bookkeeping system. Visit my site for some recommended software. In order to illustrate and understand what is actually being recorded and summarized by a computer bookkeeping system (behind the scenes) my lessons will illustrate the manual method of recording a company's financial information.

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