ACCOUNTING FOR BEGINNERS
Learn how to become an accountant and start freelancing your services! Even with no prior experience! Transform your career path with this comprehensive introduction to learning Accounting. This course equips aspiring accountants with exact steps and knowledge needed to qualify, register and take the US CPA Exam.
Presented by Joseph DiChiara CPA
Bedrock Business Builders Corp.
JC
by JOE DICHIARA CPA
Introduction
Over twenty years ago I learned of a new technology that would allow me to do accounting remotely. It was called RDP a.k.a. Remote Desktop Protocol. It changed my life and many others starting with my mom. She had no prior bookkeeping experience and went on to help me run my CPA practice for over 15 years doing accounting, payroll and most importantly, dealing with my clients.
The objective of this course is to train the beginner. No college degree or experience required. Bookkeeping can be the stepping stone to learning US payroll and preparing tax returns.
Imagine being able to work from the comfort of your own home, making your own hours, working part-time, full time or starting your own agency. How would you feel not having to commute to a job and be away from your family? What will your family and friends think about your new found freedom?
Your Path to Accounting Success
I can teach a 12 year old how to do bookkeeping. I break it down into simple steps leading up to using sophisticated programs like QuickBooks, Xero and Waveapps. We have done it with hundreds of students that were able to reunite with their families and take care of their children.
I hope you will see the tremendous opportunities in front of you and take advantage of them. It's not just for you. It's for your family.
Course Index
Chapter 1: The Balance Sheet
A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It shows a company's assets, liabilities, and shareholders' equity.
Assets represent what the company owns and include items like cash, inventory, property, and equipment. Liabilities are the company's debts and obligations, such as loans, accounts payable, and accrued expenses. Shareholders' equity is the difference between assets and liabilities, reflecting the ownership interest in the company.
The Basic Accounting Equation
The balance sheet follows the basic accounting equation:
Assets = Liabilities + Shareholders' Equity.
It is an essential tool for assessing a company's financial health, as it gives insight into its liquidity, solvency, and overall financial strength.
Key Components of a Balance Sheet
1
Assets
These are everything the company owns that has value. Assets are usually divided into Current Assets (cash and other assets that can be converted to cash within a year) and Non-Current Assets (longer-term assets not expected to be converted to cash within a year).
2
Liabilities
These are the company's debts or obligations—what it owes to others. Liabilities are divided into Current Liabilities (short-term debts paid within a year) and Non-Current Liabilities (long-term debts due after one year).
3
Equity
This represents the owners' claim on the assets after all liabilities have been deducted. It includes Common Stock (money invested by owners or shareholders) and Retained Earnings (profits reinvested in the business).
Purpose of the Balance Sheet
The balance sheet helps stakeholders—like investors, creditors, and management—understand the financial strength of a company. It shows whether the company has enough assets to cover its liabilities and gives insight into the company's overall financial health.
In summary, the balance sheet is a simple way to see what a company owns, what it owes, and the value left for its owners at a specific moment in time.
Documentation for Balance Sheet Accounts
For every account on the balance sheet, there should be documentation substantiating the balance. For cash, it's a bank statement. For a credit card, it's the credit card statement. For fixed assets, there needs to be a purchase document. For loans, documentation must show the amount, interest rate, term, and any other relevant information. There needs to be an amortization schedule for any loans.
Technically shareholder loans should have similar documentation but for practical purposes, it's never done.
Example of a Balance Sheet
Here is an example of a balance sheet showing how assets are funded by liabilities and shareholders' equity, providing a snapshot of the company's financial position at a specific point in time.
This balance sheet example demonstrates how assets are funded by liabilities and shareholders' equity, providing a snapshot of the company's financial position at a specific point in time.
Real-World Balance Sheet Example
For a real-world example, you can refer to Google's (Alphabet) Balance Sheet, which shows how a major corporation organizes its financial position statement.
The balance sheet is fundamental to understanding a company's financial health and forms the foundation for other financial statements.
Chapter 2: The Income Statement
An income statement, also known as a profit and loss statement, is a financial statement that shows a company's revenues, expenses, and profits over a specified period, typically a quarter or a year.
Revenue represents the money earned from the company's primary business activities, such as sales of goods or services. Expenses include the costs incurred to generate revenue, such as salaries, rent, utilities, and marketing expenses.
Here is an example of Googles Income Statement
Understanding the Income Statement
The income statement calculates the net income or net loss by subtracting total expenses from total revenue. A positive net income indicates that the company's revenues exceed its expenses, resulting in a profit. Conversely, a negative net income indicates a loss.
The income statement provides valuable insights into a company's profitability, operational efficiency, and performance over a certain period. It is a crucial financial statement that helps investors, analysts, and stakeholders evaluate the company's financial health and make informed decisions.
Relationship Between Financial Statements
The Balance Sheet Foundation
The Balance sheet must be verified first as it forms the foundation of accurate financial reporting. If the Balance sheet is not correct, any other financial statement derived from it becomes suspect.
Income Statement Accuracy
The income statement shows the results of operations for a specific time period. Its reliability correlates directly to the accuracy of the Balance sheet data from which it draws.
The Financial Connection
Before getting into an Income Statement, the Balance Sheet has to be verified. The relationship between these statements is critical - inaccuracies in one propagate to the other.
Example of an Income Statement
This example shows a three-year comparison of a company's financial performance, demonstrating growth in sales and profitability over time.
Real-World Income Statement Example
For real-world examples, you can refer to Google's (Alphabet) Income statement for 2023, which demonstrates how a major corporation reports its revenues, expenses, and profits.
Understanding how to read and analyze income statements is crucial for assessing a company's operational performance and financial health.
Chapter 3: The Trial Balance
A trial balance is a financial statement that lists all the general ledger accounts of a company and their respective debit or credit balances. The purpose of a trial balance is to ensure that the total debits equal the total credits in the accounting records, thereby verifying the accuracy of the recorded data.
The trial balance includes a list of all accounts, such as assets, liabilities, equity, revenues, and expenses. Each account shows its balance as either a debit or a credit.
Preparing a Trial Balance
To prepare a trial balance, all the debit balances are added together, and all the credit balances are added together separately. The totals of both sides should be equal if the accounting entries are recorded correctly and the double-entry accounting system is being followed. Any discrepancies in the trial balance may indicate errors in the accounting records that need to be identified and corrected.
While a trial balance is a useful tool for detecting errors, it does not guarantee the absence of mistakes in the accounting records. Therefore, it is typically prepared before the financial statements are finalized to ensure the accuracy of the data before preparing more detailed financial reports.
Example of a Trial Balance
This trial balance example shows how all accounts balance with equal debits and credits, confirming the accuracy of the accounting records.
Importance of the Trial Balance
The trial balance serves as a crucial checkpoint in the accounting cycle. It helps identify potential errors in the recording process before financial statements are prepared. By ensuring that debits equal credits, accountants can have greater confidence in the accuracy of their financial records.
However, it's important to note that a balanced trial balance doesn't guarantee error-free accounting. Some errors, such as omissions or incorrect classifications, may not affect the balance of debits and credits.
Chapter 4: The Chart of Accounts
A chart of accounts is a structured list of all the accounts used by a company to record its financial transactions in an organized manner. Each account in the chart of accounts corresponds to a specific category, such as assets, liabilities, equity, revenues, and expenses.
The chart of accounts typically includes a numerical or alphanumeric code assigned to each account for easy reference and organization. This allows for consistency in recording transactions and categorizing financial information accurately.
Purpose of the Chart of Accounts
The chart of accounts provides a framework for organizing and classifying financial transactions, making it easier for accountants and financial professionals to track and analyze the company's financial activities. By following the chart of accounts, businesses can ensure uniformity in recording transactions, preparing financial statements, and generating reports for internal and external stakeholders.
Overall, the chart of accounts serves as the foundation for a company's accounting system, helping to streamline financial record-keeping, facilitate financial analysis, and ensure compliance with accounting standards and regulations.
Example of a Chart of Accounts
This is a partial example of a chart of accounts showing the organization and numbering system for different account types.
Chart of Accounts (Continued)
This continuation shows liability accounts in the chart of accounts structure.
Chart of Accounts (Final Section)
This final section shows equity, revenue, and expense accounts in the chart of accounts structure.
Expense Accounts in the Chart of Accounts
This section shows various expense accounts and their subcategories in the chart of accounts.
Chapter 5: Where to Start
We always start with prior periods. You want to see 2 years worth of tax returns and 2 years worth of financial reports. Obtain an understanding of the business and its financial history.
Next, determine the sources of transactions. In other words, bank accounts, credit cards, various payment platforms such as PayPal, etc.
Transaction Recording
Identify and record all business transactions for the accounting period. These transactions must be systematically documented in a general journal, whether through accounting software or manual entry.
Proper transaction recording is the foundation of accurate financial reporting. Each transaction should be categorized according to the chart of accounts and include all relevant details.
Reconciliations
A bank reconciliation is a crucial financial process where a company compares its internal financial records against its bank statements to ensure accuracy and identify any discrepancies in cash positions. This systematic comparison helps businesses maintain accurate financial records and detect potential issues.
Purpose and Benefits of Reconciliation
Fraud Detection and Error Prevention
Bank reconciliation helps identify unauthorized transactions and catch potential fraud or theft from bank accounts. It also helps catch simple accounting errors, duplications, and accidental discrepancies that could affect financial and tax reporting.
Financial Accuracy
The process verifies that:
- All payments have been processed correctly
- Cash collections have been properly deposited
- Bank fees and charges are accounted for
- Outstanding checks and deposits in transit are tracked
The Reconciliation Process
Step 1: Compare Statements
Place bank statements and company accounting records side by side to review all transactions and final balances.
Step 2: Identify Discrepancies
Common sources of differences include deposits in transit (recorded in books but not yet shown in bank), outstanding checks (written but not yet cleared), bank fees and charges, and timing differences between transaction recording dates.
Step 3: Make Adjustments
After identifying discrepancies, necessary adjustments are made to align both records. The final adjusted bank balance should match the adjusted book balance.
Best Practices for Reconciliation
For effective bank reconciliation:
1
Regular Schedule
Perform reconciliations regularly, ideally monthly
2
Dedicated Accounts
Use a dedicated business bank account to simplify the process
3
Detailed Records
Keep detailed records of all transactions
4
Prompt Resolution
Address discrepancies promptly
Categorizing Transactions
This will be based off of the chart of accounts. We like to do what I call a "Vendor Mapping" where we list all the different vendors and determine where they normally belong before we start trying to guess where items belong.
Once everything is reconciled and categorized there may be some adjustments to be made such as depreciation, interest and payroll. The depreciation will be calculated from the Fixed Asset schedule and interest from a Loan Amortization Schedule. Payroll is usually entered through what we call "The Gross Up Method"
The Payroll Gross Up Method
When salaries and payroll taxes are paid, the transactions don't represent the full amount of payroll. What's paid to employees are their "Net Salaries". It's their "Gross" minus their withholding taxes. When the payroll taxes are paid it includes the employers share of expenses plus what was withheld from the employees paycheck. The way to account for this is through a payroll journal entry.
For instance, let's say we pay John $1,000 a month. John only gets $700 because $300 is withheld. At the end of the month the $300 withheld plus the employer's share of Social Security has to be paid so a payment of $375.60 is paid to the government.
Payroll Journal Entry Example
So how are these amounts categorized? With the Payroll Gross Up Method the $700 goes into a payroll exchange account along with the tax payment. So the amount in the payroll exchange account is $1,075.60. We prepare a payroll journal that would look like this:
The Payroll Entry would be this:
Now the Payroll Exchange account will be zero, the gross salary and payroll tax expenses have been adjusted.
Chapter 6: Introduction to Accounting Software
The relationship between technology and accounting is more nuanced than simple automation. While technology has revolutionized accounting practices, its true value lies in how it's implemented and utilized alongside professional expertise.
The Evolution of Client Relationships
The traditional "Trusted Advisor" role hasn't disappeared - it has transformed. While technology has reduced the need for frequent face-to-face meetings, accountants can now provide more strategic value by focusing on analysis and advisory services rather than manual bookkeeping. The automation of routine tasks should free up time for more meaningful client interactions and strategic planning.
Technology as an Enabler, Not a Replacement
Software's True Purpose
Modern accounting software serves as a powerful tool that enhances efficiency and accuracy, but it shouldn't replace professional judgment. QuickBooks and similar programs are designed to streamline processes, not substitute for accounting expertise.
Quality Control Remains Essential
The fundamental principles of accounting remain unchanged:
- Bank reconciliation verification
- Financial report review
- Documentation of balance sheet accounts
- Data accuracy validation
The Path Forward
Balanced Approach
The key is striking a balance between technological efficiency and professional oversight. Accountants should:
- Use automation to handle routine tasks
- Leverage analytics for deeper insights
- Maintain rigorous quality control processes
- Focus on high-value advisory services
Enhanced Value Delivery
When properly implemented, technology enables accountants to:
1
Real-time Insights
Provide real-time financial insights
2
Pattern Detection
Detect patterns and anomalies more effectively
3
Advanced Planning
Offer more sophisticated financial planning
4
Timely Reporting
Deliver more accurate and timely reports
The future of accounting lies not in replacing human judgment with software, but in using technology to augment professional expertise and deliver superior value to clients.
Program Descriptions: Zoho Books
Zoho Books is a cloud-based accounting software designed for small and growing businesses. It manages finances, automates business workflows, and enables collaborative work across departments. The platform offers features like invoice creation, payment processing, expense tracking, and inventory management.
Program Descriptions: QuickBooks Online
QuickBooks Online is Intuit's web-based accounting solution that provides comprehensive financial tracking capabilities. It opens to a customizable dashboard showing your company's financial position and offers features like banking integration, automated transaction downloads, and extensive reporting options.
Program Descriptions: Xero
Xero is a cloud-based accounting platform targeting small and medium-sized businesses. It operates on a subscription model and works across multiple platforms including mobile devices and computers. The software helps reduce manual accounting tasks and offers real-time financial tracking capabilities.
Software Comparison: Pros and Cons
This comparison highlights the key strengths and limitations of each accounting software option.
Best Software Fit by Business Type
Zoho Books is ideal for:
- Small to medium-sized businesses
- Companies needing integrated inventory management
- Businesses looking for cost-effective solutions
QuickBooks Online is perfect for:
- Small businesses with up to 25 users
- Companies needing strong bank integration
- Businesses requiring multiple user access
Xero is best for:
- Small to medium-sized businesses
- Companies needing cloud-based accessibility
- Businesses requiring strong collaboration features
- Organizations wanting extensive third-party integrations
Getting Started with Accounting Software
Step 1: Evaluate Your Needs
Consider your business size, industry, budget, and specific accounting requirements before selecting software.
Step 2: Set Up Your Chart of Accounts
Customize the default chart of accounts to match your business structure and reporting needs.
Step 3: Import Historical Data
Transfer previous financial records if available, or establish opening balances for a clean start.
Step 4: Connect Financial Accounts
Link bank accounts and credit cards to automate transaction imports and reconciliation.
Daily Accounting Practices
1
Transaction Recording
Enter or import all financial transactions promptly, categorizing them according to your chart of accounts.
2
Invoice Management
Create, send, and track invoices to maintain healthy cash flow and accurate accounts receivable.
3
Expense Tracking
Record all business expenses with proper documentation and categorization for tax purposes.
4
Bank Reconciliation
Regularly compare your accounting records with bank statements to catch discrepancies.
Monthly Accounting Procedures
1
Week 1: Close Previous Month
Ensure all transactions from the previous month are recorded and categorized correctly.
2
Week 1-2: Reconciliations
Perform bank and credit card reconciliations to verify accuracy of financial records.
3
Week 2-3: Financial Statements
Generate and review monthly financial statements including balance sheet and income statement.
4
Week 4: Analysis and Planning
Analyze financial performance against budgets and adjust strategies as needed.
Quarterly Accounting Tasks
Tax Estimates
Calculate and pay estimated quarterly taxes for the business and/or owner.
Financial Review
Conduct a more comprehensive review of financial performance compared to quarterly goals.
Payroll Reports
File quarterly payroll tax returns and make required tax deposits.
Inventory Assessment
For product-based businesses, reconcile physical inventory with accounting records.
Annual Accounting Procedures
1
Year-End Closing
Finalize all transactions, reconciliations, and adjustments for the fiscal year.
2
Financial Statement Preparation
Generate comprehensive annual financial statements for stakeholders and tax purposes.
3
Tax Return Filing
Prepare and file annual business tax returns with all required schedules and forms.
4
Strategic Planning
Use annual financial data to inform budgeting and strategic planning for the coming year.
Common Accounting Mistakes to Avoid
1
Mixing Personal and Business Finances
Always maintain separate accounts for business and personal transactions to ensure clean financial records.
2
Neglecting Reconciliations
Regular reconciliation of accounts prevents errors from compounding and ensures accurate financial reporting.
3
Poor Documentation
Maintain proper documentation for all transactions, especially for tax-deductible expenses.
4
DIY Tax Preparation Without Expertise
Consider professional assistance for complex tax situations to avoid costly errors.
Building Your Accounting Career
1
2
3
4
1
Professional Certification
Pursue relevant certifications like Certified Bookkeeper or CPA
2
Practical Experience
Gain hands-on experience through employment or volunteer work
3
Software Mastery
Become proficient in popular accounting software
4
Continuous Learning
Stay updated on accounting standards and tax laws
Building a successful accounting career requires a combination of formal education, practical experience, and ongoing professional development. Start with mastering the fundamentals and gradually expand your expertise into specialized areas.
Starting Your Freelance Accounting Business
Define Your Services
Decide which accounting services you'll offer based on your expertise and market demand.
Set Up Your Business
Register your business, obtain necessary licenses, and set up professional liability insurance.
Establish Your Rates
Research market rates and determine your pricing structure (hourly, fixed fee, or retainer).
Build Your Client Base
Network, create a professional website, and leverage referrals to attract your first clients.
Marketing Your Accounting Services
Online Presence
- Professional website highlighting your services and expertise
- Active social media profiles on LinkedIn and other relevant platforms
- Client testimonials and case studies demonstrating your value
Networking
- Join local business associations and chambers of commerce
- Attend industry events and small business meetups
- Build referral relationships with complementary professionals
Value-Added Content
- Share accounting tips through blogs or newsletters
- Offer free workshops or webinars for potential clients
- Demonstrate your expertise through helpful content
Client Relationship Management
1
1
Onboarding
Establish clear expectations and processes
2
2
Regular Communication
Maintain consistent updates and check-ins
3
3
Proactive Advisory
Offer insights beyond basic accounting
4
4
Performance Review
Evaluate results and gather feedback
Successful client relationships in accounting go beyond technical accuracy. They require clear communication, proactive problem-solving, and a genuine interest in your clients' business success. Building trust through reliability and adding value through insights will help you retain clients long-term.
Scaling Your Accounting Practice
1
Standardize Processes
Create documented workflows and procedures for consistency and efficiency.
2
Leverage Technology
Implement practice management software and automation tools to handle increased workload.
3
Build a Team
Hire staff or contractors to expand capacity while maintaining quality.
4
Specialize Services
Focus on specific industries or service areas where you can provide unique value.
Continuing Education for Accountants
Professional Requirements
Many accounting certifications require continuing education credits to maintain active status. Track your requirements and plan accordingly.
Tax Law Updates
Tax regulations change frequently. Stay current through IRS publications, tax journals, and specialized courses.
Technology Training
As accounting software evolves, invest time in learning new features and capabilities to maximize efficiency.
Industry Specialization
Develop expertise in specific industries (healthcare, construction, nonprofit, etc.) to provide more valuable services.
Work-Life Balance for Accountants
Managing Seasonal Workloads
Accounting often involves busy seasons, particularly around tax deadlines. Plan ahead by:
- Preparing clients and systems before peak periods
- Considering temporary help during busy seasons
- Setting realistic expectations with clients and family
Technology for Flexibility
Leverage cloud-based tools to enable:
- Remote work capabilities
- Flexible scheduling
- Automated routine tasks
Self-Care Practices
Maintain your wellbeing through:
- Regular breaks and physical activity
- Clear boundaries between work and personal time
- Scheduled vacations, especially after busy periods
The Future of Accounting
1
Automation and AI
Routine tasks will increasingly be automated, shifting accountants' focus toward analysis, strategy, and advisory services.
2
Real-Time Financial Intelligence
Cloud-based systems will continue to evolve, providing more immediate insights and enabling faster business decisions.
3
Remote Collaboration
Virtual accounting teams and client relationships will become more common, expanding opportunities beyond geographical limitations.
4
Specialized Expertise
As basic accounting becomes more automated, the value of industry-specific knowledge and strategic financial guidance will increase.
Your Accounting Journey Begins Now
As you've seen throughout this course, accounting offers a versatile career path with opportunities for independence, professional growth, and work-life balance. Whether you're looking to develop bookkeeping skills for your own business, start a freelance practice, or build toward becoming a CPA, the fundamentals you've learned provide a solid foundation.
Remember that accounting is both a science and an art - it requires technical knowledge and professional judgment. As you continue your journey, focus on building both aspects through education, practice, and mentorship.
Thank you for joining us in this introduction to accounting. We wish you success in your accounting endeavors!