Keeping the Books: Basic Recordkeeping and Accounting for the Successful Small Business by Linda Pinson and Jerry Jinnett is an excellent introduction to record-keeping and accounting for small business owners.
The book does a solid job introducing record-keeping. It discusses the:
- General Journal
- General Ledger
- Petty Cash Record
- Inventory Records
- Fixed Asset Log
- Accounts Receivable
- Accounts Payable
- Independent Contractor Record
- Payroll Records (though the authors recommend you hire a payroll firm to handle your payroll due to the government’s extreme demands for payroll records)
- Mileage Log
- Travel Expense Records
- Entertainment Records
Sample forms of all of the above are given and explained, as well as blank forms the authors state you can copy and use for your business. Today most of us would put such records on a computer, but we should still understand the process, the authors point out.
Keeping the Books is especially good, as it discusses, not only single-entry accounting, but also gives a decent introduction to double-entry accounting. The brief explanation, though very good, is not as good as taking an introductory class in double-entry bookkeeping.
For example, Keeping the Books casually mentions there are two sides to any business transaction and the two sides are recorded as debits and credits. Then it lists the rules for how revenue, expense, asset, liability, and equity accounts are affected by debits and credits. (Debit increases the value in an asset account; a debit decreases the value of an equity or liability account, etc.)
Debits are entered on the left-hand side of the column and credits are entered on the right hand side. But, it is never explicitly stated that the one giving in the transaction is the credit(or) and the one receiving in the transaction is the debit(or). A simple rule like that makes understanding double-entry accounting much easier.
For example, if you sell one hour of your service, Service Revenue is the giver (so it’s credited) and cash is the receiver (so cash is debited) and increased. Many people new to accounting benefit from having that point explicitly mentioned, though some might say it is obvious.
But, overall, the introduction to double-entry accounting is solid, extremely readable and not overly long. Adjusting the entries at the end of an accounting period is also discussed.
Keeping the Books goes into basic financial statements–balance sheet, income statement (or profit and loss statement), projected cash flow statement. These topics are very well-explained and will benefit the small business owner.
Pinson and Jinnett show how to put all the statements on a comparative basis to examine percentage value changes. For example, on the income statement, let sales’ revenue be 100% and, then, examine all costs and expenses (and hopefully profit!) as a percentage of sales.
Especially good is the discussion about projecting cash flow on a month-by-month basis. This is something too few business owners do. Break-even analysis is also briefly mentioned.
A chapter written by Marilyn Bartlett, C.P.A., discusses basic financial statement analysis and how it helps you understand and improve your business. Incidentally, this chapter would be good reading for someone new to investing who wants a good explanation of why and how analysts break down financial statements.
Finally, Keeping the Books mentions the basic tax forms your business will need. Though there is no discussion about actually filling out the forms. Useful tax calendars tell you when to send in what form to which agency.
Overall, this is a great book for new business owners to learn basic record-keeping and accounting. Keeping the Books is extremely readable and covers extremely important topics for the new business owner to understand.
About the Author:
- The Enthusiastic Employee: 16 Myths on Employee and Performance Management
- Good Record Keeping for Your Small Business
- Options for Small Business Payroll Management
- 4 Big Reasons to Choose In-House Payroll Software
- Benefits of Asset Management for a Small Business