Wiley Pathways Small Business Accounting

Lita Epstein excels at translating complex financial and political topics critical to people's everyday life. Building on her personal experience as a press secretary for a U.S. Congressman and her analytical skills developed as she completed her MBA from Emory University's Goizueta Business School, Lita helps people explore difficult financial and political issues.She has worked as a newspaper reporter and magazine editor. After getting her MBA degree, she served as associate director of development for President Jimmy Carter's international programs at The Carter Center. She is currently in the process of completing work toward her Certified Financial Planner designation and is a member of the Financial Planning Association.

• PART I The Foundation of AccountingCHAPTER 1. ACCOUNTING FOR YOUR BUSINESS 1Introduction 21.1. Basic Accounting Concepts 21.1.1 Separate Entity Assumption 21.1.2 Accounting Period Assumption 31.1.3 Cash-Basis and Accrual Accounting 31.1.4 Internal Controls 5Self-Check 61.2. Types of Businesses 61.2.1 Types of Business Operations 61.2.2 Legal Forms of Business Structure 7 Self-Check 121.3. Accounting Software Options 121.3.1 Overview of Software Options 131.3.2 Add-Ons and Fees 161.3.3 Setting Up Your Computerized Books 16Self-Check 19Summary 19Assess Your Understanding 20Be a Small Business Accountant 21Key Terms 22CHAPTER 2. MASTERING DEBITS AND CREDITS 23Introduction 242.1 Differentiating Debits and Credits 242.1.1 Double-Entry Accounting 242.1.2 The Accounting Equation 252.1.3 The T-Account Tool 272.1.4 Analyzing Transactions 28Self-Check 302.2 Overview of Financial Statements 302.2.1 The Balance Sheet 302.2.2 The Income Statement 32Self-Check 322.3 The Chart of Accounts 332.3.1 Account Sections 332.3.2 Account Numbers 342.3.3 Managing an Efficient Chart of Accounts 35Self-Check 37Summary 37Assess Your Understanding 38Be a Small Business Accountant 41Key Terms 42CHAPTER 3. BEGINNING THE ACCOUNTING CYCLE 43Introduction 443.1. Steps of the Accounting Cycle 443.1.1 Transactions 453.1.2 Journal Entries 453.1.3 Posting 453.1.4 Trial Balance 453.1.5 Worksheet 463.1.6 Adjusting Journal Entries 463.1.7 Financial Statements 463.1.8 Closing 46Self-Check 473.2 Introduction to Journals and Ledgers 473.2.1 Journals 473.2.2 Ledgers 49Self-Check 513.3 Keeping the Right Paperwork 513.3.1 Creating a Filing System 523.3.2 Figuring Out What to Keep and for How Long 53Self-Check 55Summary 55Assess Your Understanding 57Be a Small Business Accountant 58Key Terms 59PART II Accounting for a Service BusinessCHAPTER 4. JOURNALIZING TRANSACTIONS 61Introduction 624.1 Starting Your Business 624.1.1 Using the General Journal 624.1.2 Equity Transactions 64Self-Check 684.2 Buying and Selling 694.2.1 Buying for the Business 694.2.2 Making the Sale 72Self-Check 744.3 Other Transactions 744.3.1 Accounts Payable and Accounts Receivable 754.3.2 The Completed General Journal 75Self-Check 77Summary 77Assess Your Understanding 78Be a Small Business Accountant 80Key Terms 81CHAPTER 5. POSTING TRANSACTIONS AND PREPARING A TRIAL BALANCE 83Introduction 845.1 Updating Ledger Accounts 845.1.1 The Ledger Account Form 845.1.2 Posting from the General Journal to the General Ledger 85Self-Check 915.2 Maintaining the General Ledger 915.2.1 Calculating the Account Balances 915.2.2 Correcting Errors in a Manual System 92Self-Check 935.3 Computerized Posting 945.3.1 Several Tasks at the Same Time 945.3.2 Researching Transactions 945.3.3 Correcting Transactions 95Self-Check 975.4 Preparing the Trial Balance 975.4.1 Preparing a Manual Trial Balance 985.4.2 What to Do If You’re Out of Balance 1005.4.3 Preparing a Trial Balance Using Software 1005.4.4 Limitations of the Trial Balance 102Self-Check 102Summary 102Assess Your Understanding 104Be a Small Business Accountant 107Key Terms 108References 109CHAPTER 6. ADJUSTMENTS AND THE WORKSHEET 111Introduction 1126.1 Setting Up the Worksheet 112Self-Check 1146.2 Calculating the Adjustments 1146.2.1 Prepaid Expenses 1156.2.2 Depreciation 1166.2.3 Bad Debts 1206.2.4 The Adjusted Trial Balance 122Self-Check 1246.3 Completing the Worksheet 1256.3.1 Showing Net Income on the Worksheet 1256.3.2 Journalizing and Posting the Adjustments 1276.3.3 Replacing Worksheets with Computerized Reports 130Self-Check 130Summary 130Assess Your Understanding 132Be a Small Business Accountant 135Key Terms 136CHAPTER 7. FINANCIAL STATEMENTS AND THE CLOSING PROCESS 137Introduction 1387.1 The Income Statement 1387.1.1 Preparing the Income Statement 1387.1.2 Gaining Insight from an Income Statement 1397.1.3 Analyzing the Income Statement 1417.1.4 Using the Income Statement Data 142Self-Check 1437.2 The Balance Sheet 1447.2.1 The Statement of Owner’s Equity 1447.2.2 Preparing the Balance Sheet 1467.2.3 Analyzing the Balance Sheet 147Self-Check 1527.3 The Closing Process 1527.3.1 Permanent and Temporary Accounts 1527.3.2 Closing the Temporary Accounts 1537.3.3 Preparing a Postclosing Trial Balance 158Self-Check 159Summary 160Assess Your Understanding 161Be a Small Business Accountant 163Key Terms 164PART III Basic Accounting ProceduresCHAPTER 8. CASH, BANKING, AND INTERNAL CONTROLS 165Introduction 1668.1 Protecting against Internal Fraud 1668.1.1 Types of Internal Fraud 1668.1.2 Dividing Staff Responsibilities 1688.1.3 Insuring Your Cash through Employee Bonding 1708.1.4 Balancing Control Costs 170Self-Check 1718.2 Cash in the Bank 1718.2.1 Checking Accounts 1728.2.2 Savings Accounts 1748.2.3 Bank Reconciliations 174Self-Check 1788.3 Cash on Hand 1788.3.1 Petty Cash 1798.3.2 Cash Registers 181Self-Check 186Summary 186Assess Your Understanding 188Be a Small Business Accountant 190Key Terms 191CHAPTER 9. EMPLOYEE PAYROLL AND DEDUCTIONS 193Introduction 1949.1 Staffing Your Business 1949.1.1 Completing Government Forms 1949.1.2 Picking Pay Periods 2019.1.3 Determining Wage and Salary Types 202Self-Check 2049.2 Payroll Tax Withholdings 2049.2.1 Social Security Tax 2049.2.2 Medicare Tax 2059.2.3 Federal Income Tax 2059.2.4 State and Local Income Taxes 206Self-Check 2079.3 Employee Benefits 2079.3.1 Tax-Exempt Benefits 2079.3.2 Taxable Benefits 209Self-Check 2109.4 Payday 2109.4.1 Calculating Gross Earnings 2109.4.2 Calculating Net Pay 2129.4.3 Recording the Payroll 2139.4.4 Depositing Payroll Taxes 2179.4.5 Outsourcing Payroll and Benefits Work 217Self-Check 217Summary 218Assess Your Understanding 220Be a Small Business Accountant 222Key Terms 223References 225CHAPTER 10. UNDERSTANDING PAYROLL LEGALITIES 227Introduction 22810.1 Payroll Tax Deposits 22810.1.1 When to Deposit Taxes 22810.1.2 How to Deposit Taxes 23010.1.3 Accounting for Tax Deposits 230Self-Check 23110.2 Payroll Tax Returns 23110.2.1 Filing Form 941 23110.2.2 Filing Form 940 235Self-Check 24010.3 Year-End Reporting 24310.3.1 Filing the W-2 Forms 24310.3.2 Filing the W-3 Form 247Self-Check 24910.4 Workers’ Compensation Insurance 249Self-Check 25210.5 Maintaining Employee Records 252Self-Check 254Summary 254Assess Your Understanding 256Be a Small Business Accountant 257Key Terms 258References 259CHAPTER 11. SPECIAL JOURNALS: SALES AND CASH RECEIPTS 261Introduction 26211.1 Special Journals 26211.1.1 Sales Journal 26211.1.2 Cash Receipts Journal 264Self-Check 27111.2 Posting from Special Journals 27111.2.1 Subsidiary Ledgers 27111.2.2 Posting from the Sales Journal 27211.2.3 Posting from the Cash Receipts Journal 275Self-Check 27811.3 Sales Returns and Allowances 27811.3.1 Journalizing Sales Returns and Allowances 27911.3.2 Posting Sales Returns and Allowances 279Self-Check 28111.4 Accounts Receivable Aging Summary 281Self-Check 282Summary 283Assess Your Understanding 284Be a Small Business Accountant 291Key Terms 292CHAPTER 12. SPECIAL JOURNALS: PURCHASES AND CASH DISBURSEMENTS 293Introduction 29412.1 Purchases Journal 29412.1.1 Purchases Account 29412.1.2 Parts of a Purchases Journal 295Self-Check 29612.2 Cash Disbursements Journal 29612.2.1 Part of a Cash Disbursements Journal 29612.2.2 Paying an Outstanding Bill 29812.2.3 Paying Expenses 29812.2.4 Paying Credit-Card Fees 29912.2.5 Paying Loans and Interest 29912.2.6 Paying Sales Tax 302Self-Check 30312.3 Posting Purchases and Cash Disbursements 30312.3.1 Posting from the Purchases Journal 30312.3.2 Posting from the Cash Disbursements Journal 306Self-Check 30812.4 Managing Accounts Payable 30912.4.1 Purchases Returns and Allowances 30912.4.2 Accounts Payable Aging Summary 310Self-Check 311Summary 311Assess Your Understanding 312Be a Small Business Accountant 316Key Terms 317PART IV Accounting for a Merchandising BusinessCHAPTER 13. MERCHANDISE INVENTORY 319Introduction 32013.1 Cost of Goods Sold 32013.1.1 Perpetual and Periodic Inventory 32013.1.2 Net Purchases 32213.1.3 Recording Initial Cost 323Self-Check 32813.2 Inventory Cost Flow 32813.2.1 Determining the Value of Ending Inventory 32913.2.2 Inventory Valuation Methods 32913.2.3 Choosing the Best Method 33113.2.4 Comparing the Methods 331Self-Check 33413.3 Lower of Cost or Market 334Self-Check 335Summary 336Assess Your Understanding 337Be a Small Business Accountant 340Key Terms 341References 343CHAPTER 14. ADJUSTMENTS AND THE WORKSHEET FOR A MERCHANDISING BUSINESS 345Introduction 34614.1 Setting Up the Worksheet for a Merchandising Business 346Self-Check 34914.2 Inventory Adjustment 349Self-Check 35014.3 Adjustment to Record Expenses 35014.3.1 Allowance for Bad Debt 35114.3.2 Accrued Payroll Expenses 35214.3.3 Depreciation Adjustment 35414.3.4 Adjustment for Prepaid Expenses 354Self-Check 356Summary 356Assess Your Understanding 358Be a Small Business Accountant 361Key Terms 362CHAPTER 15. FINANCIAL STATEMENTS AND THE CLOSING PROCESS FOR A MERCHANDISING BUSINESS 363Introduction 36415.1 Financial Statements for a Merchandising Business 36415.1.1 Income Statement 36415.1.2 Statement of Owner’s Equity 36715.1.3 Balance Sheet 369Self-Check 37015.2 Closing Entries for a Merchandising Business 371Self-Check 37415.3 Other Year-End Tasks: Form 1099 374Self-Check 378Summary 379Assess Your Understanding 380Be a Small Business Accountant 382Key Terms 383References 384APPENDIX A: DEPRECIATION 385A.1 Depreciation for Accounting Purposes 385A.1.1 Knowing What You Can and Can’t Depreciate 385A.1.2 Figuring Out the Useful Life of a Fixed Asset 386A.1.3 Delving into Cost Basis 387A.1.4 Depreciation Methods 387A.1.5 Using QuickBooks to Calculate Depreciation 389A.2 Depreciation for Income Tax Purposes 389A.2.1 Section 179 389A.2.2 MACRS 390A.3 Setting Up Depreciation Schedules 390A.4 Recording Depreciation Expenses 391APPENDIX B: INCOME TAX 392B.1 Tax Reporting for Sole Proprietors 392B.2 Filing Tax Forms for Partnerships 392B.3 Filing Tax Forms for Corporations 393B.3.1 Reporting for an S Corporation 393B.3.2 Reporting for a C Corporation 393B.4 Tax Reporting for Limited Liability Companies 393B.5 Professional Tax Services 393Glossary 395Index 407