Understanding Business Accounting For Dummies, 2nd Edition (15 page)

Bad debts

Charitable contributions

Compensation of directors

Cost of goods sold

Depreciation

Employee benefits

Interest

Pensions and profit-sharing plans

Rents

Repairs and maintenance

Salaries and wages

Taxes and licenses

You must provide additional information for some of these expenses. For example, the cost of goods sold expense is determined in a schedule that also requires stock cost at the beginning of the year, purchases during the year, cost of labour during the year (for manufacturers), other costs, and stock cost at year-end.

Where do you start? Well, if it's March 1 and the tax return deadline is March 15, you start by panicking - unless you were smart enough to think ahead about the kinds of information your business would need to report. In fact, when your accountant first designs your business's accounting system, he or she should dissect every report to managers, the external financial statements, and the tax returns, breaking down all the information into categories such as those we just listed.

For each category, you need an account, a record of the activities in that category. An account is basically a focused history of a particular dimension of a business. In bookkeeping this means a basic category of information in which the financial effects of transactions are recorded and which serves as the source of information for preparing financial statements, tax returns, and reports to managers.