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Accounting Book

For quite a while now (several years) I have been researching starting my own company.  Working for other people and watching them make mistakes has been a valuable learning experience.  I recently decided that this is the year to act and I've begun to wrap up my research and have plans to incorporate in the next couple months and begin taking on small projets.

I actually have a very small amount of business already from a construction company doing things such as a basic website and some brochures.  Fortunately my uncle works for this company and is sending the work my way.  Talking to him is helping me gain insight into this type of company and I'm considering targeting my services at these companies to begin with.  I have noticed a couple useful things that I could write that would be helpful to many other companies in the industry.  My eventual goal is to sell a commercial software product (I have a couple in mind, unrelated to the construction industry) and taper off the consulting work.

Recently I found a recommendation somewhere (can't remember where) for a business law book titled The Entrepreneur's Guide to Business Law by Bagley and Dauchy.  This book turns out to be exactly what I have been looking for in terms of a business law book.  It provides a good depth of information mixed with useful anecdotes.  From what I have read so far I highly recommend this book to anyone looking to start a business who needs a better understanding of business law.

Now that I've provided you with more information than you probably wanted to know, here is my question.  Can you recommend an accounting book that gives a good overview of accounting knowledge needed to run a business that doesn't assume I want to become an accountant?  I plan on hiring an accountant (I have actually already chosen one), but I do want to know what she is talking about and what questions I should be asking her.  Any additional comments about what I have explained would be appreciated as well.

Anonymous
Sunday, February 29, 2004

Not offhand -- but what you're looking for is a bookkeeping book, not necessarily an accounting book. Check out the small business section of your local supermegabookstore.

Joel Spolsky
Fog Creek Software
Monday, March 01, 2004

As a former accounting student, and employee at an accounting firm, I second what Joel has said, it is bookkeeping you are after, rather then accounting (although 60 years ago these were considered very alike, ie the guy in the back room with the green visor).

A good software package is what you need to get started (ie MYOB, or quickbooks), however it is better to have a sound knowledge of Debits, Credits, Debtors, Creditors, General Ledger, journals, reversals, P&L accounts, Balance sheet accounts and double-entry bookkeeping in general prior to touching that software package.

So I would actually suggest you take a college subject on the matter rather then try to read a book. I can testify, I am a smart girl and studied this stuff externally (ie read from the book) ended up very confused, but by the end of my first day of residential school lectures I was set and ended up with a HD and an award from the australian CPAs. My point, go to a class.

Aussie Chick
Monday, March 01, 2004

Having started my own business and knowing what you are talking about, I can tell you this- it doesn't matter.

Which is to say- don't let this perceived lack of knowledge prevent you from starting. You seem to have a problem with that anyway- if you are 3 years into thinking about it. The truth is, for a small business starting out- the hurdle is making some sales, not making sure you know how to properly record the transaction.

Just go file for a business license, open a checking account with the business name, and start booking sales. If it goes anywhere, then in 6 months, when you have some money to worry about, you can figure out how much you want to know about accounting and how much you want to outsource.

But the point is, right now, it doesn't matter at all. 

Getting Rich Slowly
Monday, March 01, 2004

A quick "programmer's guide" to accounts/bookkeeping:

* A ledger is a record of money flows

* Every flow has a "from" side (credit) and a "to" side (debit): money flows "from" one place "to" another, in some amount.

* Money *cannot* be created or destroyed, only moved

* When you take money "from" an account, you subtract it from the balance, and vice versa.

* Income, Liability, and Equity account balances are actually negative numbers, but are negated before display.  If they weren't, it would be easy to see that the sum of all your accounts is always *zero* (a "zero-sum game").  However, since they are negated, there is a different formula used to "balance" the books:  A = L + E  (assets = liability + equity).  Since L and E are negated, this is actually saying A = -(L+E).

* Instead of continuing to get larger and larger income and expense totals, one usually zeros those accounts by transferring the net profit or loss to a "retained earnings" account, thus rebalancing the books to a zero-sum state for the next month.

In a way, you can think of all this as being like memory management: every alloc (credit) must have a matching free (debit) in order for there to be no leaks (the books balance).

Once you understand these principles, most everything else is a matter of applying and/or enforcing them, if you ignore the separate matter of preventing embezzlement.  :)

Phillip J. Eby
Monday, March 01, 2004

I actually do have a basic understanding of bookkeeping (although I'm not sure I'll ever get used to the way the terms credit and debit are used).  What I was looking for is a book to explain things like asset depreciation, what types of things can be considered expenses, and what types of things need to be done on a quarterly basis to satisfy the government.

Anonymous
Monday, March 01, 2004

You might want to check out the article and subsequent links found in said article.  The articles are by Eric Sink and how he built up his Source Gear company...

http://msdn.microsoft.com/library/default.asp?url=/library/en-us/dnsoftware/html/software11242003.asp

..watch the line break.

-Rich

Rich
Monday, March 01, 2004

If you're planning on starting a small business, http:\\www.nolo.com has LOTS of good information to check out.

Boofus McGoofus
Tuesday, March 02, 2004

If you are going to start a company, you really need to be able to read financial statements (Balance Sheet, Income Statement, Cash Flow Statement) and understand how they are inter-connected and influence one another.

It is likely you will hire a bookeeper to keep your books (why would you do this if you can bill $100 a hour and you can pick a good bookeeper up for $25 a hour?), but you need to be able to read and understand what they are generating an what it means for your business.

So, I would pick up, "How to Read a Financial Report" by John A. Tracy:

<http://www.amazon.com/exec/obidos/tg/detail/-/0471327069/qid=1078266981//ref=pd_ka_1/103-9420994-5939856?v=glance&s=books&n=507846>

Yours,

Jordan

Jordan Dea-Mattson
Tuesday, March 02, 2004

"Keeping the Books : Basic Record Keeping and Accounting for the Successful Small Business" by Linda Pinson

http://www.amazon.com/exec/obidos/tg/detail/-/0793179297/qid=1084212593/sr=1-1/ref=sr_1_1/002-6759647-1627261?v=glance&s=books

Data Miner
Monday, May 10, 2004

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