Accounting Workbook For Dummies

The numbers are clear: the need for accountants is not only strong, but on the rise. With job growth projected to increase by 7% over the next 10 years, there’s no time like the present to join this growing—and profitable—profession. Accounting Workbook For Dummies, 2^nd Edition gives you the hands-on instruction you need to understand complicated concepts through demonstration problems, practice worksheets. and spreadsheets.

• Understand the role of accountants versus bookkeepers
• Develop knowledge to establish and maintain high quality accounting systems
• Dip your toes into accounting in the digital age
• Learn to properly interpret financial statements and reports
• Generate income statements, balance sheets, and cash flow statements
• Expand your knowledge on sources of business capital
• Learn how to improve profits and manage costs

Understanding the intricacies of accounting has never been easier as in today’s rapid-fire global economy, accountants have never been more important—it’s all in your hands with this plain-English workbook!

Tage C. Tracy runs a financial consulting firm offering CFO support and planning services to private companies. He is the author of Business Financial Information Secrets.

Introduction 1

About This Book 1

Foolish Assumptions 2

Icons Used in This Book 3

Beyond the Book 3

Where to Go from Here 4

Part 1: Business Accounting Basics 5

Chapter 1: Business Accounting Fundamentals 7

Keeping the Accounting Equation in Balance 8

Distinguishing Between Cash- and Accrual-Basis Accounting 10

Summarizing Profit Activities in the Income (Profit & Loss) Statement 13

Assembling a Balance Sheet 15

Partitioning the Statement of Cash Flows 17

Tracing How Dishonest Accounting Distorts Financial Statements 20

Answers to Problems on Elements of Business Accounting 22

Chapter 2: Financial Effects of Transactions 27

Classifying Business Transactions 28

Seeing Both Sides of Business Transactions 30

Concentrating on Sales 33

Concentrating on Expenses 37

Determining the Composite Effect of Profit 40

Answers to Problems on Financial Effects of Transactions 43

Chapter 3: Getting Started in the Bookkeeping Cycle 51

Constructing the Chart of Accounts 52

Distinguishing Real and Nominal Accounts 55

Knowing Your Debits from Your Credits 58

Making Original Journal Entries 62

Recording Revenue and Income 64

Recording Expenses and Losses 66

Recording Set-Up and Follow-Up Transactions for Revenue and Expenses 70

Recording Investing and Financing Transactions 72

Answers to Problems on the Bookkeeping Cycle 74

Chapter 4: The Bookkeeping Cycle: Adjusting and Closing Entries 81

Getting Accurate with Adjusting Entries 82

Breaking Down the End-of-Year Adjusting Entries 84

Recording depreciation expense 84

Recording amortization expense 87

Recording other adjusting entries 88

Closing the Books on the Year 92

Instituting Internal Controls 94

Answers to Problems on the Bookkeeping Cycle 97

Chapter 5: Accounting in the Digital Age 105

Keeping a Few Foundational Accounting Concepts in Mind 106

Using Accounting Software and the Services of an Expert 109

Controlling and Protecting Money Flows in the Electronic Age 111

Processing payroll 112

Monitoring bank accounts 112

Surveying bank forms of electronic payments 113

Checking out non-bank forms of electronic payments 113

Using enhanced accounting controls 114

Managing the Accounting Function in the On-Demand World 117

Source documentation 117

Data rooms 117

Financial reporting 118

Flash reports, dashboards, and KPIs 118

Accounting and financial analysis tools 119

Answers to Problems on Accounting in the Digital Age 121

Part 2: Preparing Financial Statements 123

Chapter 6: Understanding Basic Accounting Concepts and Methods 125

Touching on Basic Accounting Theories and Concepts 126

Providing Some Examples of Choosing Accounting Methods 128

Getting Off to a Good Start 129

Determining Whether Products Are Unique or Fungible 133

Contrasting Cost of Goods Sold Expense Methods (for Fungible Products) 133

Averaging things out 135

Going with the flow: The FIFO method 137

Going against the flow: The LIFO method 138

Appreciating Depreciation Methods 140

Timing Bad Debts Expense 143

Answers to Problems on Choosing Accounting Methods 147

Chapter 7: The Effects and Reporting of Profit 155

Understanding the Nature of Profit 156

Keeping standards of reporting in mind 156

Following profit 157

Choosing the Income Statement Format 158

Deciding on Disclosure in the Income Statement 161

Examining How Sales and Expenses Change Assets and Liabilities 163

Summing Up the Manifold Effects of Profit 168

Answers to Problems on the Effects and Reporting of Profit 172

Chapter 8: Reporting Financial Condition in the Balance Sheet 179

Getting Started on the Balance Sheet 181

Building a Balance Sheet 185

Fleshing Out the Balance Sheet 188

Clarifying the Values of Assets in Balance Sheets 193

Answers to Problems on Reporting Financial Condition in the Balance Sheet 197

Chapter 9: Coupling the Income Statement and Balance Sheet 205

Rejoining the Income Statement and Balance Sheet 206

Filling in Key Pieces of the Balance Sheet from the Income Statement 209

Putting Fixed Assets in the Picture 214

Completing the Balance Sheet with Debt and Equity 215

Answers to Problems on Coupling the Income Statement and Balance Sheet 218

Chapter 10: Reporting Cash Flows and Changes in Owners’ Equity 223

Figuring Profit from the Balance Sheet 224

Reporting the Statement of Changes in Stockholders’ Equity 227

Determining Cash Effect from Profit Generating Activities 229

Presenting the Statement of Cash Flows 232

Reporting cash flows 233

Connecting balance sheet changes with cash flows 235

Answers for Problems on Reporting Cash Flows and Changes in

Owners’ Equity 239

Part 3: Managerial, Manufacturing, and Capital Accounting 245

Chapter 11: Analyzing Profit Behavior 247

Mapping Profit for Managers 248

Analyzing Operating Profit 251

Analysis method #1: Contribution margin minus fixed costs 251

Analysis method #2: Excess over breakeven 252

Analysis method #3: Minimizing fixed costs per unit 253

Analyzing Return on Capital 257

Improving Profit Performance 260

Selling more units 260

Improving margin per unit 262

Answers to Problems on Analyzing Profit Behavior 266

Chapter 12: Tackling Managerial Cost Accounting 275

Minding Manufacturing Costs 276

Product costs 277

Period costs 278

Separating period and product costs 278

Taking a Short Tour of Manufacturing Entries 280

Calculating Product Cost: Basic Methods and Problems 284

Connecting fixed manufacturing overhead costs and production capacity 285

Boosting profit by boosting production 287

Calculating Product Cost in Unusual Situations 291

Answers to Problems on Manufacturing Cost Accounting 297

Chapter 13: Business Planning and Raising Capital 309

Starting with the Business Plan 310

Realizing the Importance of Business Forecasts 313

Getting a grip on how forecasting works 313

Gaining insight into forecasting terms 314

Identifying Types of Available Capital 316

Utilizing equity to capitalize your business 317

Leveraging debt to finance business operations 326

Noting key points in raising capital 330

Answers to Problems on Managing Business Capital 332

Part 4: The Part of Tens 337

Chapter 14: Ten Things You Should Know About Business Financial Statements 339

Rules and Standards Matter 340

Exactitude Would Be Nice, but Estimates Are Key 340

Financial Statements Fit Together Hand in Glove 341

Accrual Basis Is Used to Record Profit, Assets, and Liabilities 342

Cash Flow Differs from Accrual Basis Profit 342

Profit and Balance Sheet Values Can Be and Often Are Manipulated 343

Financial Statements May Be Revised Later to Correct Errors and Fraud 344

Some Asset Values Are Current, but Others May Be Old 344

Financial Statements Leave Interpretation to Readers 345

Financial Statements Tell the Story of a Business, Not Its Individual Shareowners 345

Chapter 15: A Ten-Point Checklist for Management Accountants 347

Designing Internal Accounting Reports 348

Helping Managers Understand Their Accounting Reports 349

Involving Managers in Choosing Accounting Methods 349

Designing Profit Performance Reports for Managers 350

Designing Cash Flow Reports for Managers 350

Designing Management Control Reports 351

Developing Financial Forecast Models for Management Decision-Making Analysis 351

Working Closely with Managers in Planning 352

Establishing and Enforcing Internal Controls 353

Staying Current in the Digital Age and Global Economy 353

Index 355

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