While I’m on the subject of what’s in this book and how to find information, let me make four tangential points:
You’ll never read this book from cover to cover unless you’re someone who has an obsessive-compulsive personality (like me) and many hours to devote to reading. But that’s okay. This reference isn’t meant to be read from cover to cover like some Val McDermid page-turner. Instead, chapters within the eight minibooks are organized into largely self-contained descriptions of how you do the things that you need to do. You just read the paragraph, page, or chapter that provides the information you want.
I haven’t discussed in any detail how to use the QuickBooks Premier and QuickBooks Enterprise Solutions features for business planning. The wizard-based approach that QuickBooks Premier and QuickBooks Enterprise Solutions provide for business planning is not, in my humble opinion, the right way. Instead, I discuss in detail alternative, superior approaches to business planning and budgeting (using spreadsheets) in Book 6. (Just so you know: The approach I describe and recommend here is the same one that any business school teaches its students.)
At a few points in the book, you’ll find me saying things like “Well, I really don’t think you should use this part of the product.” I just want to explain here, up front, where I’m coming from. First, know that I think QuickBooks is an outstanding product, but not every feature and every command is good. I’ve already mentioned that the new business planning tools aren’t ones that I can recommend. And payroll, very frankly, is another pain-in-the-butt feature that most businesses should avoid. (I do briefly discuss payroll in Book 3, Chapter 5.) So if I think that a particular feature is one that you shouldn’t use, I don’t take up page space (or much page space) describing the feature. I’d rather use that space to describe other stuff that I believe is going to be valuable to you and other readers.
I should also mention one final thing: Accounting software programs require you to do a certain amount of preparation before you can use them to get real work done. If you haven’t started to use QuickBooks yet, I recommend that you skim Book 1 and then read Book 2 to find out what you need to do first.
Book 1
An Accounting Primer
Contents at a Glance
1 Chapter 1: Principles of Accounting The Purpose of Accounting Reviewing the Common Financial Statements The Philosophy of Accounting A Few Words about Tax Accounting
2 Chapter 2: Double-Entry Bookkeeping The Fiddle-Faddle Method of Accounting How Double-Entry Bookkeeping Works Almost a Real-Life Example A Few Words about How QuickBooks Works
3 Chapter 3: Special Accounting Problems Working with Accounts Receivable Recording Accounts Payable Transactions Inventory Accounting Accounting for Fixed Assets Recognizing Liabilities Closing Out Revenue and Expense Accounts One More Thing …
Chapter 1
Principles of Accounting
IN THIS CHAPTER
Any discussion of how to use QuickBooks to manage your business better begins with a discussion of the basics of accounting. For this reason, in this chapter and the next two, I attempt to provide the same information that you’d receive in an introductory college accounting course. I tailor the entire discussion, of course, to QuickBooks and the small-business environment. What you’ll read about here and in the next two chapters of this minibook pretty much describes how accounting works in a small-business setting when you’re using QuickBooks.
If you’ve had some experience with accounting, if you know how to read an income statement and balance sheet, or if you know how to construct a journal entry, you don’t need to read this chapter or the next ones. But if you’re new to accounting and business bookkeeping, take the time to read this chapter carefully. I start by giving you a high-level overview of the purpose of accounting. Then I review the common financial statements that any accounting system worth its salt produces. I also discuss some of the important principles of accounting and the philosophy of accounting. Finally, I talk a little bit about income tax law and tax accounting.
The Purpose of Accounting
In the movie Creator, Peter O’Toole plays an eccentric professor. At one point, O’Toole’s character attempts to talk a young student into working as an unpaid research assistant. When the student protests, noting that he needs 15 credit hours, O’Toole creates a special 15-credit independent-study course named “Introduction to the Big Picture.” In the next section, I describe the “big picture” of accounting. At its core, accounting makes perfect, logical sense.
The big picture
The most important thing to understand about accounting is that it provides financial information to stakeholders. Stakeholders are the people who do business with or interact with a firm; they include managers, employees, investors, banks, vendors, government authorities, and agencies that may tax a firm. Stakeholders and their information requirements deserve a bit more discussion.