BookkeeLesson 1ping is a function of accounting.  It refers to the actual entry of transactions into the books of record for a business.  This section of the website introduces bookkeeping and teaches proper entry methods related to the various economic activities in small business.  There are a series of lessons separated into three groups.

The first group consists of  fundamental lessons that introduce bookkeeping and explain the basic concept of debits and credits and how a chart of accounts works.

The second group of lessons go into the separate functions of regular business entries and explains how these are entered into the books of records.  This includes entering bills, creating invoices, running a payroll, reconciling the bank account and creating some basic reports for management.

The final group of lessons are for more advanced subjects and include why general journal entries exists; how to reconcile more advanced accounts and how to enter purchases of fixed assets and corresponding long term debt.

  • Basic Bookkeeping – Lessons 1 – 28 cover the core fundamentals of types of accounts and their arrangement.
  • Regular Activity – Lessons 29 – 67; these lessons explain daily activities of bookkeepers and the respective entries.
  • Advanced Bookkeeping – Lessons 68 – 125 get into closing procedures, special accounts; rules and tax accounting.

Throughout each article are links to other articles on the site that support the lesson.

These lessons are free and if you find them helpful, consider donating to the site via any of the lesson pages.  On the right side of the page is a donation button and I have increments of $5, $7 and $10 as options.  In addition, if you need help with more advanced industry specific issues; go to ‘My Services’ in the footer and contact me.

Thank you in advance and if you have a specific question, feel free to send me an e-mail to dave (use the standard ‘AT’ symbol) businessecon.org.  I generally respond within three days and often the answer is in the form of an article.  So the more detailed you are with your question the more descriptive I am with my response. 

INTRODUCTION AND BASIC UNDERSTANDING 

  • Bookkeeping – Account Types (Lesson 1)

    To fully grasp the concept of accounting a bookkeeper must accept that there are six (6) different types of accounts. All the reports, ledgers, journals and entries revolve around these six types of accounts. Bookkeeping is the function of entering data based on the economic transaction into the respective type of account. This lesson identifies ...
  • Bookkeeping – Dual Entry System (Lesson 2)

    In accounting the term dual entry is used often. Other names include Double Entry and Offsetting Entry. It refers to the process of entering an economic transaction as an equation. Remember in math an equation refers to a two sided mathematical statement. Examples include 4= 2 X 2 or more complex equations such as E= ...
  • Bookkeeping – Ledgers and Journals (Lesson 3)

    Many bookkeepers are confused about how an entry is made to the books of record for a business.  Well to more easily understand this, the bookkeeper needs to understand the difference between a journal and a ledger as they pertain to bookkeeping. Many of us keep personal journals of life.  A journal acts as a chronological ...
  • Bookkeeping – Debits and Credits in Asset Accounts (Lesson 4)

    These two words are the most recognized terms synonymous to bookkeeping and accounting.  I have read over 30 different articles as to how other authors define debits and credits with bookkeeping.  Several authors try to get the reader to visualize the terms as the left side and the right side of the ‘T’-Account (I also ...
  • Bookkeeping – Debits and Credits in Liability Accounts (Lesson 5)

    To truly be successful in business you will need others.  For most businesses this refers to employees and suppliers. Whenever a business commits to purchase time or product and that employee delivers their time or the supplier delivers the product, you owe them money.  This is a liability. So the question is, ‘How do I ...
  • Bookkeeping – Debits and Credits in Revenue Accounts (Lesson 6)

    Revenue accounts are the most fun to watch as a bookkeeper.  Revenue is the lifeblood for success.  Without revenue, the company is doomed to go bankrupt.  After all, you are in business to sell your services or products and the revenue accounts are where we get to see the results of activity.  The customary entry in ...
  • Bookkeeping – Debits and Credits in Cost of Sales Accounts (Lesson 7)

    The Purchases Journal keeps track of the entries related to the cost of sales (cost of goods sold) accounts.   As with all journals, the entries are in chronological order by date and identify both the debit and credit sides of the equation.  In this case, cost of sales is customarily recorded via debits.  The offsetting ...
  • Bookkeeping – Debits and Credits in Expense Accounts (Lesson 8)

    Expense types of accounts are the easiest to understand in bookkeeping.  In general only debits are entered in expense types of accounts. Before I delve into the debits and credits for expense accounts I first want the reader to understand some accounting language.  The key to all of this is the terminology related to expense types ...
  • Bookkeeping – Financial Statement Relationships (Lesson 9)

    Before I can explain the debits and credits related to the equity types of accounts I have to make sure you understand the relationship between the financial statements.  Specifically the relationship between the income statement and the balance sheet. In accounting there are four financial reports plus a set of notes typically included in the annual ...
  • Bookkeeping – Debits and Credits in Equity Accounts (Lesson 10)

    The equity section of the balance sheet identifies the approximate dollar value of net worth accrued to the owners/investors.  Equity type accounts can have both credit and debit balances.  By far the most preferred is a credit value.  Debit values does not mean that something is wrong, actually it can be a great sign of ...
  • Bookkeeping – Chart of Accounts (Lesson 11)

    Now comes the more interesting aspects of being a bookkeeper.  To properly create a set of ledgers there must be a list of accounts.  This list is referred to as the ‘Chart of Accounts’ or for shorthand – COA.  The COA is merely a list of accounts grouped by the type of accounts as I explained ...
  • Bookkeeping – Contra Accounts (Lesson 12)

    There are several different definitions used in the accounting world to explain ‘Contra’ accounts.  The following are three of the more commonly used interpretations: An account set up to carry the exact opposite balance that is traditionally carried in that type of an account. As an example, revenue accounts are designed to have credit balances, therefore ...
  • Bookkeeping – Debits and Credits with Parenthesis on the Balance Sheet (Lesson 13)

    In the last 12 lessons I introduced debits and credits for the six types of accounts. In addition I explained the financial statement relationship between the balance sheet and the income statement (profit and loss). In Lesson 12 I addressed contra accounts. In the examples used with contra accounts I illustrated how the contra amount ...
  • Bookkeeping – Debits and Credits in Parenthesis with the Profit and Loss Statement (Lesson 14)

    Bookkeeping entails both data entry into books (journals and ledgers) and reporting information via the two primary financial statements. In lesson 13 I explained how a debit based or credit driven account type for the balance sheet reports opposite values by using parenthesis.  Both contra and atypical values are reported with parenthesis.  The same presentation format ...
  • Bookkeeping – Complex Entries (Lesson 15)

    Many bookkeepers are initially misinformed about the dual entry accounting system. They think that based on the wording that accounting entries have only two lines of information, one line for a debit and a second line for a credit. What the words dual entry mean is that debits must equal credits. Therefore either or both ...
  • Bookkeeping – Debits and Credits with the Trial Balance (Lesson 16)

    The primary report used by accountants is the trial balance. It is the job of the bookkeeper to make sure that it is in balance and that there are no abnormal values within the respective types of accounts. This lesson sums up the prior 15 lessons and illustrates the trial balance with a condensed version ...
  • Bookkeeping – Parent–Child Accounts (Lesson17)

    When one account is fed information from several sources based on function or location, this account is referred to as a ‘Parent’ account.  The sub accounts are called ‘Child’ accounts.  The accounting profession still uses the archaic terms of Master-Slave but is converting to the parent-child term.  Some technology programs still use the term ‘Master’ ...
  • Bookkeeping – Chart of Accounts Using the Numbering System (Lesson 18)

    Up to this point in this series about bookkeeping I’ve only mentioned accounts (ledgers) by name.   To speed up the process of entering information accountants converted names to numbers.   This made it easier to enter information in the original journals. Instead of long hand written words for the particular ledger, you simply entered ...
  • Bookkeeping – Other Expenses and Revenue (Lesson 19)

    In accounting sometimes an extraordinary  event occurs.   When this happens the associated revenue and expense is recorded in the expense type of accounts.   There are two different methods used to record this transaction – gross or net.   This lesson explains extraordinary events and how they are posted to the books.   In ...
  • Bookkeeping – Proper Balance Sheet Presentation (Lesson 20)

    The balance sheet serves as an historical report.   It identifies the accumulated change in value since inception.   The balance sheet is organized into two halves and both sides must be equal in value.   In addition, the balance sheet is a snapshot of the financial condition at a single moment in time along ...
  • Bookkeeping – Proper Income Statement Presentation (Lesson 21)

    The income statement presents information over a period of time.   This time period is referred to as an accounting cycle.   Most small businesses use a monthly cycle for regular reporting purposes and an annual cycle for reporting to outside creditors and the government. As the bookkeeper it is your job to present the report ...
  • Bookkeeping – Control Accounts (Lesson 22)

    Control accounts are used when there are multiple third parties interacting with the business in regards to similar function.   Control accounts reduce the workload for bookkeeping by using subsidiary accounts or schedules *.   The aggregated value is reported as one line of value on the financial report. * Schedules are explained in Lesson 23. The ...
  • Bookkeeping – Schedules (Lesson 23)

    In accounting there are books (journals) and ledgers for source entry of information.  A trial balance is used to monitor the types of accounts.   With the use of parent-child accounts and control accounts bookkeepers can generate a wide array of reports.   Unfortunately this still lacks the breath of supporting information needed.   So ...
  • Bookkeeping – The Accounting Equation (Lesson 24)

    The accounting equation is a simple formula used frequently in business.   The formula is: Assets = Liabilities plus Equity OR Equity = Assets minus Liabilities The owner is interested in increasing the equity position as this is his wealth in the business.   There are only two ways to increase the equity value. One the owner may ...
  • Bookkeeping – Cash or Accrual (Lesson 25)

    Generally Accepted Accounting Principles (GAAP) advocates using the accrual basis of accounting over cash basis.   The difference between the two methods is important to understand as a bookkeeper. In general, cash basis focuses on the bank account, entries are only made whenever there is any form of an economic impact on the business.   A ...
  • Bookkeeping – Various Terms (Lesson 26)

    In the previous 25 lessons I covered a lot of different terms and this lesson is merely a summary of the various terms a bookkeeper encounters. (Lesson 1) Account types – There are six major sets of accounts; three (assets, liabilities, equity) used with the balance sheet and three (revenue, cost of sales, expenses) found on ...
  • Bookkeeping with QuickBooks (Lesson 27)

    QuickBooks by Intuit is by far the best all around accounting software for small business.   Intuit even creates industry specific versions of QuickBooks.  I personally endorse the Pro version due to the payroll feature and class accounting abilities. There are multiple positive benefits of QuickBooks for the business and directly for the bookkeeper too.   ...
  • Bookkeeping – You are a Bookkeeper Now (Lesson 28)

    After having read the first 27 lessons and if you feel that you have grasped the concepts conveyed; then you are more qualified than most bookkeepers. There really is no undergraduate degree program for bookkeeping.   So nobody has a college diploma from an accredited institution for bookkeeping; accounting yes, bookkeeping no.   There are some ...

REGULAR BUSINESS ACTIVITY

  • Bookkeeping – Accounting Cycles (Lesson 29)

    The bookkeeping cycle is like a huge giant clock with several dozen gears from a multiple cog gear rotating the most frequently turning cog cascading into the one large gear that once turned changes the timer one year forward.   The bookkeeper’s job is to make all the gears click and keep the system lubricated. ...
  • Bookkeeping – Payroll Structure (Lesson 30)

    Every bookkeeper needs to understand how to process a payroll.   This is one of the many regular tasks in the bookkeeping cycle.   In this lesson I’m going to illustrate a payroll structure as it pertains to the chart of accounts.   But prior to illustrating a payroll structure a bookkeeper needs to understand ...
  • Bookkeeping – A Simple Payroll (Lesson 31)

    In Lesson 30 I explained the payroll account structure using parent-child accounts.   This lesson is a part of the daily operations section of bookkeeping illustrating an actual payroll entry.   If you haven’t done so yet, please read: Payroll – An Introduction.   The introduction article explains the respective math involved and the associated ...
  • Bookkeeping – Payroll Cycles (Lesson 32)

    Similar to the bookkeeping cycle, the payroll cycle has many frequent activities, fewer incremental requirements and one important end of the year report.   This lesson explains these respective cycles and how they tie together for the final year end report.   Other lessons in this section of the website go into some details about ...
  • Bookkeeping – Payroll Compliance and Documentation (Lesson 33)

    The key to success with payroll accounting is properly documenting all aspects of payroll thus complying with the various legal requirements.   There are several authorities that govern payroll including: Internal Revenue Service Respective State Department of Revenue or Taxation State’s Department of Unemployment Social Security Administration Worker’s Compensation Insurance OSHA But in reality, the most important authority is the employee.   ...
  • Bookkeeping – Quarterly and Annual Payroll Reports (Lesson 34)

    Federal and state compliance requires the filing of several different reports by certain deadlines.   In this lesson I explain the various reports, filing deadlines and best practices to comply with the law.   I’ll explain the quarterly set of reports first then the respective annual requirements. Quarterly Reports The primary quarterly report is Form 941 or ...
  • Bookkeeping – Employee Benefits (Lesson 35)

    One of the best parts of being a bookkeeper is seeing employees smile when they utilize employee benefits.  There are a multitude of different employee benefits out there including: Health Insurance Retirement Life Insurance Dental Care Vision Care Cancer Insurance Disability Insurance Child Care Transportation In small business the first three are the most commonly purchased.  The others are sometimes offered but most employees don’t ...
  • Bookkeeping – Tracking Invoices (Lesson 36)

    Now that I’m done with the employee payroll series, Lessons 30-35, it is time to explain sales.   There are five lessons for this section of daily operations. They are as follows: Tracking Invoices  – Lesson  36  (this lesson) Accounts Receivable Management – Lesson  37 Sales via Debit and Credit Cards – Lesson 38 Tracking Returns and ...
  • Bookkeeping – Accounts Receivable Management (Lesson 37)

    Several years ago I was engaged by a client to update their accounting department.  This included implementing a new process, procedures and reporting formats.  One of my staff enjoyed the culture at the business so much I hired her at her request as an employee for my client.  Anyway, the client did government contract work.  She ...
  • Bookkeeping – Sales Via Debit and Credit Cards (Lesson 38)

    In Lesson  36, Tracking Invoices I explained the value of gathering data.   One of the forms of data gathering is the method of payment.   They generally consist of four methods: * Cash * Checks * Debit Cards * Credit Cards Historically the only two forms of payment were either cash or check.   Then credit card payments became ...
  • Bookkeeping – Tracking Returns and Allowances (Lesson 39)

    Not every customer is satisfied with the product they purchase.  The old saying of ‘You can’t please everyone all the time’ is true.  This is reality and business management must accept this basic principle.  What is important is the trend involved with returns.  If they continue to increase from one period to the next, something ...
  • Bookkeeping – Tracking Sales Tax (Lesson 40)

    Many businesses especially retail have to collect sales tax as a function of their legal mandate from state governments.  In effect the business is a collection agent for the state.  If properly set up, this collection process is automated using modern retail accounting software.  This article explains the legal requirements and accounting procedures for the ...
  • Bookkeeping – Tracking Purchases (Lesson 41)

    In business purchases describes the process of acquiring the necessary goods and materials for operations.  Many novice business individuals believe the term is strictly limited to those materials purchased for resale.  In reality it is much broader in scope and encompasses all forms of expenses too.  When a company buys insurance, it is making a ...
  • Bookkeeping – Purchases Via Credit Cards (Lesson 42)

    It is more common in small business, especially small contractors, to buy materials using credit cards.  Often the credit card accounts are the owner’s personal accounts.  Sometimes the cards are merchant cards.  As the bookkeeper it is your job to keep this information organized and up to date.  This lesson explains the different types of ...
  • Bookkeeping – Accounts Payable Management (Lesson 43)

    With small business the biggest hearache for the bookkeeper is addressing the daily phone calls and letters (bills, statements and notices) related to purchases.   Vendors regulary communicate with the accounts payalbe manager wanting to know payment cycles and status of their respective account.   Think of it in reverse of how with receivables communication ...
  • Bookkeeping – Petty Cash (Lesson 44)

    So far with the daily activities section I have covered payroll, sales/receivables, purchases/payables and now I’m shifting to the cash accounts.   This is the first of a set of five lessons addressing how cash is managed daily for the bookkeeper. Petty cash is cash kept in the office in a lockbox or with staff for ...
  • Bookkeeping – Cash Disbursements (Lesson 45)

    Cash disbursements is the process of remitting payment to vendors, suppliers and third party contractual obligations.   Better managed offices pay bills in regular cycles including weekly and monthly obligations.   Preparation, reconciliation and actual check writing is commonly referred to as cash disbursements.   For the bookkeeper, this is a function of the day-to-day ...
  • Bookkeeping – Tracking Cash (Lesson 46)

    Of all the assets in business cash is the most valuable and coveted.   Keeping track of how much is available and where it goes is the responsibility of the bookkeeper.   Often owners have no idea of how much they really have nor how much of the existing cash is earmarked for certain items. ...
  • Bookkeeping – Bank Reconciliations (Lesson 47)

    An essential task of bookkeeping is making sure the ledger accounts for cash reconcile to the bank.   Your average person believes that this is a monthly task.    Well in the private world, this may be true.   But in small business, this is a daily task.   If performed daily, it shouldn’t take ...
  • Bookkeeping – Controlling Cash (Lesson 48)

    In small business, cash is almost always the number one issue.  There is simply never enough.  This is primarily attributable to growth.  Growth requires both physical assets to produce more and expansion of accounts receivable.  Technically the expansion of accounts receivable is the economic equivalent of lending cash.  So if accounts receivable grows $50,000 in one ...
  • Bookkeeping – Fixed Asset Purchases (Lesson 49)

    Every now and then management authorizes the purchase of a long-term producing asset.  This could be a vehicle, piece of equipment or real estate.  These purchases are referred to as fixed assets.  Recording of these entries is a little different and this lesson explains the entire recording process associated with fixed assets.  I’ll explain the ...
  • Bookkeeping – Introduction to Depreciation (Lesson 50)

    Depreciation is the process of allocating the initial capital outlay for fixed asset purchases over time to the income statement.   The basic principle is that any fixed asset has a predetermined lifetime based on time, usage or fair market value.   Your job as the bookkeeper is to assign depreciation expense to the respective asset ...
  • Bookkeeping – Depreciation Schedules (Lesson 51)

    When a small business purchases fixed assets two financially based opposing forces come into play.  The first is the financial reporting desire to present information in a fair manner so management can make good financial decisions.  The opposing force has to do with taxation.  Here the business desires to report less profit to reduce the ...
  • Bookkeeping – Book and Tax Depreciation (Lesson 52)

    One of the differences between book income and taxable income is depreciation.  In general Section 168 of the Internal Revenue Code allows businesses to accelerate their depreciation for tax purposes.  This increases the expenses of the business thus reducing profit for tax purposes. As explained in Lesson 51 the bookkeeper keeps track of both schedules and ...
  • Bookkeeping – Amortization (Lesson 53)

    Amortization is similar to depreciation whereby an asset’s cost is allocated to the expense over time.   There are several differences with amortization.   Amortization is used with intangible assets and the method is almost always straight line.   As a bookkeeper it is your job to maintain the amortization schedules, report the information correctly ...
  • Bookkeeping – Loan Accounting (Lesson 54)

    Almost every small business borrows money.   The most common reason is to purchase a fixed asset of some sort.   The amount borrowed is most often a long-term liability.   There are several steps involved in recording the original loan and then processing the respective payments.   This article introduces the bookkeeper to long-term ...
  • Bookkeeping – Suspense Accounts (Lesson 55)

    When bookkeepers face an unknown variable with a transaction and don’t know where to place the debit or credit, they use a temporary account to hold the value.   This is called the ‘Suspense’ account.   There is a suspense account for each of the types of accounts.  The suspense accounts are created in the ...
  • Bookkeeping – Meals Tax (Lesson 56)

    A major source of local government revenue is the meals tax.   Most states authorize the right of local governments to raise revenues utilizing a meals tax.   It is defined differently in each state.   If a business is involved in the food service sector the bookkeeper needs to grasp the fundamental concepts of ...
  • Bookkeeping – Franchise Fee and Revenue Taxes (Lesson 57)

    Lesson  56 through 59 cover various business and income taxes along with the appropriate bookkeeping functions.   This lesson focuses on the accounting procedure for franchise fees and the formula used for revenue taxes    What is interesting is that in some states, one affects the other.  To fully grasp this accounting nuance, I’ll first explain ...
  • Bookkeeping – Tracking Income Taxes (Lesson 58)

    It is important for the bookkeeper to track income taxes for the business and the owners.  Tracking includes apprising management of current status and pending obligations.  In addition, the bookkeeper must make sure the payments are made to the correct authority for the proper amount and assigned to the appropriate federal identification number.   To fully understand this ...
  • Bookkeeping – Other Taxes (Lesson 59)

    There are several more taxes that small businesses must adhere to each year.   This lesson explains these other taxes including: * Real Estate Taxes * Business Property Tax * State Franchise Tax * State Licenses or Fees * Unique Production or Consumption Taxes * Assessments These taxes are not expensive in comparison to income taxes.   They are ...
  • Bookkeeping – Vehicle Operations and Accounting (Lesson 60)

    The Internal Revenue Service authorizes two different methods to deduct expenses for vehicle operations.   The most commonly used method in small business is the mileage reimbursement method explained in Lesson 61.   The second method is the actual cost of vehicle operations which is explained and illustrated here.   This lesson explains the fundamental requirements for ...
  • Bookkeeping – Mileage Reimbursement (Lesson 61)

    Some small businesses manage transportation costs in incremental payments by utilizing mileage reimbursement.   It is a very advantageous system if used correctly.   Other small businesses augment their existing vehicle fleet by paying employees via mileage reimbursement for the use of the employee’s automobile.   Some simply take advantage of the tax benefit of the mileage ...
  • Bookkeeping – Auto Costs Related to Owners and Family Members (Lesson 62)

    In the prior two lessons actual costs and mileage reimbursements were explained.  In addition, I identified that owners, directors, family members and key personnel are treated differently related to auto expenses.  Why?   The Internal Revenue Service scrutinizes expenses that can and often are benefits to owners.   The most common benefit is the use of a company ...
  • Bookkeeping – Other Transportation Costs (Lesson 63)

    There is much more to transportation with bookkeeping than accounting for vehicle operations, addressing mileage reimbursements or tracking auto costs related to owners and family members.   Bookkeepers must track the following too: A) Parking and Tolls B) Use of Rental Vehicles C) Travel Including Lodging and Meals Many new bookkeepers and accountants believe that auto leases are a ...
  • Bookkeeping – Charitable Giving (Lesson 64)

    non profit workMany small business owners are actively involved in the community and thus donate time and money to their favorite cause.   In almost every case the owner believes the donation is a business deduction.     It is NOT a business deduction for tax purposes except under the C-Corporation status; however, the business is still ...
  • Bookkeeping – Recurring Entries (Lesson 65)

    Every day bills arrive from vendors that are mere repetition like the electric or phone bill.   They basically recur every so often (mostly monthly).   The bookkeeper must create a new entry as a part of his/her  daily functions.   This repetition consumes time and is a nuisance.   In addition, because they repeat so frequently, bookkeepers often ...
  • Bookkeeping – Complex Entries Expanded (Lesson 66)

    A journal entry with multiple lines of entry affecting several different ledgers (accounts) is commonly referred to as a complex entry.   Many bookkeepers shy away from them as they feel intimidated by the difficulty involved and do not want to make an error.   This lesson helps the bookkeeper understand how to break the complex ...
  • Bookkeeping – Adjusting Journal Entries (Lesson 67)

    One of the many tasks for bookkeeper in their daily operations is reconciling accounts including bank accounts, accounts receivable, accounts payable and many others.   Invariably, the balances are off and need adjusting.   To reset or balance the account the bookkeeper must use an adjusting journal entry.                   ...
  • Bookkeeping – Trial Balance Advanced Concepts (Lesson 68)

    The trial balance is a special report used by accountants and bookkeepers.   It is NOT a management nor a financial report.   Its primary purpose is verification of account balances and compliance to the dual entry system (debits equal credits).   It is generally utilized as the first step in the closing process for interim and annual ...
  • Bookkeeping – Closing the Books (Lesson 69)

    All the lessons to date lead into this one long and arduous task with bookkeeping called ‘Closing the Books’.   Closing of the accounting records is performed at the end of interim and fiscal year periods.   The end of the year process is more involved than interim periods; but the procedure is the same. The closing process ...
  • Bookkeeping – Advanced Skillsets (Lesson 70)

    Lessons 1 through 28 covered the fundamentals of bookkeeping.  This includes the six different types of accounts and their relation to the dual entry system.  In addition, debits and credits were explained in how they impact the financial reports.   Finally various kinds of account structures were explained and why they are used with the chart of accounts.   Those fundamental ...

     ADVANCED BOOKKEEPING

  • Bookkeeping – Departmental Accounting (Lesson 71)

    One of the goals of accounting is to report to management performance results, specifically financial performance.   Since most businesses sell more than one product or render more than one service, management is interested in understanding the performance of the respective products or service.   To successfully report this information, the accountant uses departmental accounting to divide the ...
  • Bookkeeping – Project (Job) Costing (Lesson 72)

    Another tool used by accountants to evaluate financial performance is project costing.   It is also referred to as contract or job costing.   This lesson uses the term ‘job’ throughout.   Job costing focuses on a specific long-term project customarily associated with a contract signed with a customer.   It is never used in retail or rarely used ...
  • Bookkeeping – Phase Costing (Lesson 73)

    Phase costing takes accounting to the next level.   Phase accounting (costing and accounting are interchangeable at this level of detail) can only be used with job costing.   It is designed to break a job down into distinct functions (stages) for analysis.   It is a tool to identify discrepancies from estimates.   Basically management compares actual results ...
  • Bookkeeping – Percentage of Completion Method (Lesson 74)

    In project accounting there are two different methods of accounting used.   The first is the completed contract method which is explained in more detail in Lesson 75.  The second and the focus of this lesson is the percentage of completion method of accounting.  This method is an advanced skill for accountants and requires knowledge of its proper ...
  • Bookkeeping – Completed Contract Accounting (Lesson 75)

    A second and easier method of accounting with project accounting (construction) is the completed contract method.  This method does not utilize an engineering or detailed production schedule (chart) like the percentage of completion method.  It works well with any duration for project timelines.  In a similar fashion as the percentage of completion, completed contract utilizes ...
  • Bookkeeping – Retail Accounting with Item Tracking (Lesson 76)

    Prior lessons focused on the construction or project driven industries.  Other industries require different methods of accounting based on their particular function.  One of these business sectors sells multiple products to a wide array of consumers – the retail sector.  The retail business is interested in what sells well, not how well something performs against ...
  • Bookkeeping – Cost Accounting (Lesson 77)

    The science of calculating the actual costs of manufacturing is known as cost accounting, a.k.a managerial accounting.  Unlike traditional accounting which records economic transactions after they occur, cost accounting identifies all underlying costs associated with the production of a single unit.   These costs include the unit’s allocated share of fixed, variable, mixed and overhead costs.  ...