Bookkeeping All-In-One For Dummies - Dummies Consumer For Dummies

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to the operation of company vehicles.

      Setting Up Your Chart of Accounts

      You can use the lists of accounts provided in this chapter to get started setting up your business’s own Chart of Accounts. There’s really no secret – just make a list of the accounts that apply to your business.

      

Don’t panic if you can’t think of every type of account you may need for your business. It’s very easy to add to the Chart of Accounts at any time. Just add the account to the list and distribute the revised list to any employees that use it. (Even employees not involved in bookkeeping need a copy of your Chart of Accounts if they code invoices or other transactions and indicate to which account those transactions should be recorded.)

      The Chart of Accounts usually includes at least three columns:

      ✔ Account: Lists the account names

      ✔ Type: Lists the type of account: asset, liability, equity, income, cost of goods sold, or expense

      ✔ Description: Contains a description of the type of transaction that should be recorded in the account

      Many companies also assign numbers to the accounts, to be used for coding charges. If your company is using a computerized system, the computer automatically assigns the account number. Otherwise, you need to plan out your own numbering system. The most common number system is as follows:

      ✔ Asset accounts: 1,000 to 1,999

      ✔ Liability accounts: 2,000 to 2,999

      ✔ Equity accounts: 3,000 to 3,999

      ✔ Sales and Cost of Goods Sold accounts: 4,000 to 4,999

      ✔ Expense accounts: 5,000 to 6,999

      This numbering system matches the one used by computerized accounting systems, making it easy at some future time to automate the books using a computerized accounting system. A number of different Charts of Accounts have been developed. When you get your computerized system, whichever accounting software you use, all you need to do is review the chart options for the type of business you run included with that software, delete any accounts you don’t want, and add any new accounts that fit your business plan.

      

If you’re setting up your Chart of Accounts manually, be sure to leave a lot of room between accounts to add new accounts. For example, number your Cash in Checking account 1,000 and your Accounts Receivable account 1,100. That leaves you plenty of room to add other accounts to track cash.

Figure 2-1 is a Chart of Accounts from QuickBooks 2014. Asset accounts are first, followed by liability, equity, income, and expense accounts.

      © John Wiley & Sons, Inc.

       Figure 2-1: The top portion of a sample Chart of Accounts.

Chapter 3

      The General Ledger

       In This Chapter

      ▶ Understanding the value of the General Ledger

      ▶ Developing ledger entries

      ▶ Posting entries to the ledger accounts

      ▶ Adjusting ledger entries

      ▶ Creating ledgers in computerized accounting software

      As a bookkeeper, you may be dreaming of having one source that you can turn to when you need to review all entries that impact your business’s accounts. (Okay, so maybe that’s not exactly what you’re dreaming about.) The General Ledger is your dream come true. It’s where you find a summary of transactions and a record of the accounts that those transactions impact.

      In this chapter, you discover the purpose of the General Ledger. It tells you how to not only develop entries for the Ledger but also enter (or post) them. In addition, it explains how you can change already posted information or correct entries in the Ledger and how this entire process is streamlined when you use a computerized accounting system.

      The Eyes and Ears of a Business

      Of course, the book known as the General Ledger isn’t alive, so it can’t actually see or speak. But wouldn’t it be nice if it could just tell you all its secrets about what happens with your money? That would certainly make it a lot easier to track down any bookkeeping problems or errors.

      Instead, the General Ledger serves as the figurative eyes and ears of bookkeepers and accountants who want to know what financial transactions have taken place historically in a business. By reading the General Ledger – not exactly interesting reading, unless you just love numbers – you can see, account by account, every transaction that has taken place in the business. (And to uncover more details about those transactions, you can turn to your business’s journals, where transactions are kept on a daily basis. See Chapter 5 for the lowdown on journals.)

      

The General Ledger is the granddaddy of your business. You can find all the transactions that ever occurred in the history of the business in the General Ledger account. It’s the one place you need to go to find transactions that impact Cash, Inventory, Accounts Receivable, Accounts Payable, and any other account included in your business’s Chart of Accounts. (See Book I Chapter 2 for more on setting up the Chart of Accounts and the kinds of transactions you can find in each.)

      Developing Entries for the Ledger

      Because your business’s transactions are first entered into journals, you develop many of the entries for the General Ledger based on information pulled from the appropriate journal. For example, cash receipts and the accounts that are impacted by those receipts are listed in the Cash Receipts journal. Cash disbursements and the accounts impacted by those disbursements are listed in the Cash Disbursements journal. The same is true for transactions found in the Sales journal, Purchases journal, General journal, and any other special journals you may be using in your business.

      At the end of each month, you summarize each journal by adding up the columns and then use that summary to develop an entry for the General Ledger. That takes a lot less time than entering every transaction in the General Ledger.

      Book I Chapter 4 introduces you to the process of entering transactions and summarizing journals. Near the end of that chapter, this entry for the General Ledger appears:

Note that the Debits and Credits are in balance – $2,900 each. Remember all entries to the General Ledger must be balanced entries. That’s the cardinal rule of double-entry bookkeeping. (For more details about double-entry bookkeeping, check out Book I Chapter 1.)

      In this entry, the Cash account is increased by $2,900 to show that cash was received. The Accounts Receivable account is decreased by $500 to show customers paid their bills, and the money is no longer due. The Sales account is increased by $900, because additional revenue was collected. The Capital account is increased by $1,500 because the owner put more cash into the business.

      Figures 3-1 through 3-4 summarize the remaining journal pages prepared in Book I Chapter 4, resulting in the following entries for the General Ledger:

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