Small Business AccountingGood Record Keeping HabitsSmall business accounting hasn’t changed much over the years. It is an age old system designed to keep financial records in an organized way. Use this search feature to quickly find the information you're looking for.  Custom Search
Small business or large corporation, by law, if you operate a business, you are required to keep adequate financial records. Welcome to Bookkeeping Essentials - The Practice! ... the products. The products of accounting are the financial reports. The accounting process consists of:
This process is discussed in The System and The Training. As a self-employed business owner, you want to become familiar with the accounting process. by obtaining everything you want, but by appreciating everything you have. -- Unknown --
These are the regular chores that have to be done utilizing good bookkeeping practices or everything becomes disorganized and tedious. This section of the website will cover the daily, weekly, monthly, quarterly and annual tasks of small business accounting and transactions you need to watch out for ... so you have an accurate and timely financial product - your financial statements - to help you run your business.
Instructions on the practical side of doing your books ... week in and week out throughout the year. Just click on any underlined title of your choice and you'll go right to the page. What Do I Get Out Of It? Do you ever wonder if you are following good bookkeeping practices? You’re organized, keep up with the paperwork. Do you just cross your fingers, hold your breath hoping the tax assessor won’t call? This article looks at:
An audit trail provides protection in the event of a dispute or a tax audit. It can also protect your business against fraud … and it’s a good bookkeeping practice. Here's what's covered from a small business accounting perspective:
This article discusses how some simple internal controls and segregation of duties can reduce the probability of fraud and help ensure that future tax audits go well. It only takes one bad tax audit or one successful embezzlement scheme to put your business' survival at risk.
Side step the common small business accounting problems business owners come up against so your books don’t stink. You will find how to book some basic bookkeeping entries (record keeping examples) to help you avoid the worst bookkeeping errors. Here are the journal entries I have posted so far:
You will also find a short sidebar on How QuickBooks Undeposited Funds Account Works.
How to claim the input tax credits for business use of your personal vehicle. Both sole proprietors and corporations are discussed. You will also find more information about business use of your personal vehicle in the Home Business Taxes - A Tax Planning Opportunity series. Are you looking for a filing system for your business receipts? Small business accounting organization doesn't have to be complex to work. If you just need simple suggestions to get your small business accounting organized in your office ... and eliminate stress and panic ... read this article on a Small Business Recordkeeping System. Get rid of those drawers of stashed receipts! If you operate a part of your business from your vehicle, file organization is key. This portable document filing system is perfect for you to organize your bookkeeping records! Incorporate this filing system into your home office organization and small business accounting system to manage your business receipts efficiently. If the only reason you keep bookkeeping records is for tax purposes (as opposed to helping you run your business), I suggest you look at this simple filing method. It has the added bonus of audit proofing your tax return. It will provide you with the small business accounting records you are required by law to keep. An overview of how to perform month end. These month-end procedures are intended for work from home business owners who do their own bookkeeping. You will also find these sidebars chats:
I have categorized the tasks into five different bookkeeping checklists:
This article explains what a source document (or supporting document) is. It will also discuss:
Small business bookkeeping help ... some frequently asked questions and answers for the home based business owner who does their own bookkeeping. Following is a sampling of the questions. Just click on the link to get the answer.
Or perhaps you are looking for information on vehicle and equipment purchases instead of vehicle and equipment leases. Small Business Accounting Short Articles
I've already mentioned above that small business accounting has a lot of rules. In addition to capital leases, you also need to be on the lookout for other "special" transactions that are treated differently than you would be inclined to think ... There are three types of common bookkeeping errors you need to be aware of ... so that when you come across them, you know they are treated differently. Today we'll look at one type of error ... the common error of expensing capital assets. Got your tea? Okay, here we go. Certain transactions such as purchase of equipment or inventory, and some leases are NOT expensed. Monthly loan payments, while not a capital asset (but loan payments do affect the balance sheet), should NOT be expensed either. Inventory and monthly loan payments for a vehicle or equipment are discussed in The Training section of this web site (click on the links above to go directly there). I've moved capital leases and operating leases to be discussed on their own page. Here’s how to handle equipment purchases. Vehicle and Equipment Purchases Just remember capital assets are not considered operating expenses.
Any vehicle or equipment you purchase (as opposed to lease) is capitalized and amortized (expensed) over the life of the equipment. Amortization is accounting speak for depreciation. It is booked this way because of the matching principle. You may also hear your accountant talk about capital cost allowance (CCA). CCA is tax speak for depreciation. Revenue Canada has different rules for depreciation than generally accepted accounting principles (GAAP) or GAAP for Private Enterprises (GPE - the new Canadian standard approved and released in December 2009) ... ... so if you hear CCA ... think your tax return. If you hear amortization ... think your financial statements. The bookkeeping entry to record the purchase of equipment is found in the article How to Record Common Bookkeeping Entries. I'll go into more detail on expensing vs capitalizing in the future. We'll also look at two other common bookkeeping errors you need to be on the lookout for:
It's enough for now to watch out for these special transactions and ask your bookkeeper or accountant for help booking them ... Small business accounting can be complicated! :O)
When deciding on your small business accounting system ... how do you decide what method is best for you and your business? The article A Yardstick to Evaluate Your Book Keeping System has system criteria and questions to ask, to help you make the right decision. There are times when a manual system is a perfect fit ... but I will tell you that the reason I don't use manual books for my business, is no reporting. You spend hours compiling the data and have no reports ... and the inability to search or look up a transaction or series of transaction with the click of a mouse. It's virtually impossible to use any of the data to help me make business decisions. What a waste! Entering data, without analyzing data, is operating your business on incomplete information. The computer reports generated by small business accounting software packages systematically organizes and summarizes your data in a way that is useful to making business decisions. If you are a visual person instead of a numbers person, most small business accounting software can present the information graphically ... so you can easily see patterns or trends. Having said all that, if you are doing manual books, you might be interested in how to do a quick calculation to see if you are profitable instead of waiting for the preparation of your tax return. Make sure you follow the link at the end for a quick method to estimate your cash flow as well.
What reconciliations should be done to verify the accuracy of your accounting records … and how often? In preparation for the year-end process, every balance sheet account should be reconciled to a third party document. (A third party document is one that was created by a someone outside of your business such as an vendor invoice, a bank statement, a loan statement.) Bank statements, credit card statements, and vendor statements should be reconciled monthly. And don't forget to reconcile your loan account or your line of credit account. You may want to consider assigning all other balance sheet accounts a quarterly review. The idea is to smooth out your work flow. Divide and assign an equal number of accounts to be reconciled each month over a three month period. If done right, every balance sheet account is reconciled at least four times a year. This ensures that come year-end, you are ahead of the game. Why is it important to do reconciliations as part of your small business accounting procedures? The purpose is to verify that you have recorded everything and that your small business accounting records are accurate ... so you will know you are making decisions from good information. An added benefit of doing your small business accounting reconciliations monthly is they assist in fraud control. Reconciliations are a very simple and basic internal control procedure to implement. I was taught that if you ensure your balance sheet accounts are correct, your income statement has to be right ... it can't be wrong. Check out these two sidebars on bank reconciliations:
How do you reconcile vendor statements to your accounts payable ledger? The same way you would a bank statement or credit card statement. There are two ways to begin ... aren't there always? :0) One way is to begin is by opening your vendor sub-ledger. Your account balance should be equal to the vendor statement. The other way is to run your Aged Accounts Payable Report to get your vendor balances at a particular date ... say the date of your vendor statement or the end of a month. Regardless of the method you choose, if the balances don't match, here's what to do next:
You can also use this method to reconcile your loan account or your line of credit account. Consistency helps reduce errors and omissions. Streamlining your processes saves you time and gives you control over your numbers … freeing up your time to figure out how to make more money! Happy posting!
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