Small Business AccountingDeveloping Good 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.  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. 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.
I have created a separate page that deals specifically with U.S. tax compliance. It is a work-in-progress and will grow as I collect information. In general, small business accounting and good bookkeeping practices between the Canada and the U.S. are similar. Canada is getting ready to switch to new GAAP standards in January 2011. The US is not expected to converge to similar standards until 2014 ... so the accounting standards are actually in transition at the current time. Just click on any underlined title of your choice and you'll go right to the page. What Do I Get Out Of It? How Does It Benefit Me? 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:
Before you jump in to actually recording the transactions, you may want to take a few secs to read this short discussion on how to choose your accounting system ... Manual or Computerized System? - Small Business Accounting Decisions. No point in finding out after you've done hours of data entry that the system you choose wasn't a fit for your business situation. Recording The Transactions
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:
I can't stress enough how important it is in small business accounting to create an audit trail as an effective means of audit proofing your business.
Small business accounting has a lot of rules. Be on the lookout for bookkeeping transactions that are treated differently than you would be inclined to think ... Got your tea? Okay, here we go. In addition to categorizing operating and capital leases correctly, there are four types of common bookkeeping errors you need to be aware of ... so that when you come across them, you know they are treated differently. 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). Take a moment to look at one type of error ... the common error of expensing capital assets ... and learn how to handle equipment purchases. 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)
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 just some of the journal entries I have posted so far:
You will also find a short sidebar on How the QuickBooks Undeposited Funds Account Works. The Bookkeeping Forum has some questions and answers on how to deal with bank accounts denominated in foreign currency and the associated transaction gains/losses: Foreign Currency Transactions discusses the GAAP accounting treatment for translating and reporting foreign currencies on your financial statements. Foreign Exchange Transactions discusses how to book the exchange rate on a transaction in QuickBooks®.
This article looks at the difference between operating leases and capital leases ... and how to determine which category your lease falls into. Information on vehicle and equipment purchases is also briefly discussed.
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. Bookkeeping Procedures and Checklist
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 small business accounting 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.
Bookkeeping checklists are really handy so I have put together this quick article on some small business accounting and bookkeeping tasks that should be done. I have categorized the tasks into seven different bookkeeping checklists:
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 a sidebar chat on Deleting and Voiding Transactions in QuickBooks
A chat on the various types of adjusting entries booked by your professional bookkeeper or accountant. Accruals and Deferrals are included in the discussion.
Small business accounting and 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.
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!
The Practice - LinksReturn to Top - Accounting for Small Business
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There is some information in chats that is specific to Canadian sole proprietors. When possible, I try to find U.S. references for my American visitors.
