This will give you a basic understanding of what goes into your bookkeeping for your accounting purposes.
Accounting is actually the preparing financial statements. Bookkeeping is keeping track of your daily transaction, incoming and out going monies.
Without bookkeeping you will not know if your business is making a big profit or a loss at the end of the year.
You must always keep your records straight, this aiding if there is ever a discrepancy with your books or the IRS you can find the information quickly and easily. If the IRS comes for information and you can not provide it in a timely manor they can fine you.
Make sure your bookkeeping is accurate if not you could be loosing money with out knowing it.
You basically have to track every purchase you make from cars to pencils so you know exactly what your profits and losses are along with to report to the IRS.
Inventory
If your company has inventory you must keep track of it. The IRS wants to know what you have in stock at the end of the year. Also it is good to know what you have and don't have in your inventory. Keeping a physical count of the products you have monthly is a good idea. This also helps you in preventing theft in your company. If your employees know you keep count they will be less likely to steal from you, because they know you will find out. This will also help you keep things in stock for when they are needed.
Cash basis and accrual accounting differences.
Cash basis accounting is when you record the money taken in when a purchase is made in real time. Example the customer comes in, purchases items and pays for them on the spot, before leaving the store. Don't use cash basis if you have inventory or let people buy now pay later.
Accrual Accounting is used when your customers can pickup now and pays later for the product or service. Example a landscaping company mows your yard and sends you a bill in the mail.
Double entry bookkeeping
Accounting services usually use double entry bookkeeping. Double entry bookkeeping is when you use both debits and credits to keep track of your incoming and outgoing monies. Whenever money is moved in or out of the business it will be debited from somewhere and credited somewhere. Example is you take money out of your bank account to pay a gas station bill. Your bank account is debited and your gas station account is credited.
Double entry bookkeeping helps to make sure everything balances out correctly and let you know quickly if there are any mistakes.
Some Terms to know
Assets are things the company already owns and has paid for completely. This also includes cash on hand that is not owed to anyone else.
Liabilities are anything the company owes money, products or services to others.
Equity is any investments by the owners of the company. This can be money put in by the owners or stocks.
A balance sheet is your assets, liabilities and equity shown in one place.
Income statement is any money that has come in to the business shown in one place.
Revenue is the money that came in to the business through goods or services provided by the company.
Cost of goods sold is any money that was spent to make the product or to purchase the product that will be sold to the end customer.
Expenses are any money spent to keep the business up and running such as electric, water, phone bills, etc.
Accounts receivables are for any money that is owed to the business for products or services rendered by the customer. Kind of like a credit card, but the credit is through the business and not a credit card company.
Accounts payable is money that the business owes others for services or products the purchased. Most liabilities can be paid any where from 15 days to 120 day.
Other things you need to keep track of
- Advertising expenses
- Any expenses such as cars, trucks or forklifts
- Any reference numbers, such as receipt numbers, transaction number, vendor numbers and invoice numbers.
- Bank service charges
- Cell phones and telephones expenses
- Credit card purchases
- Dates the any transactions were made on.
- Deposits and withdraws from bank accounts.
- Entertainment expenses
- Incoming and out going check numbers.
- Insurances coverage's
- Interest income is any income from interest such as bank accounts.
- Magazine subscriptions
- Miscellaneous expenses
- Office expenses
- Other income is from income that comes from other places other than the main service or products you provide.
- Petty cash
- Post office fees such as freight charges are any thing you have shipped in the mail or by truck.
- Purchase discount, some companies offer a discount if you pay their bill before the end of the grace period. Usually with in a certain amount of days after the purchase.
- Purchase returns are any thing you bought and returned to the store.
- Rental equipment
- Rental expenses
- Sales discounts are any discounts you give to the customer for what ever reason.
- Sales returns are any money you give back to the customer for unsatisfied services or products.
- Supplies for the business
- Travel
- Utilities
- What account the transactions were made on.
- It is best to keep track of every dollar, incoming or out going.
- Automatic payments are very easy to over look sometimes. Keep a watch to make sure you are still using the services the payment are going towards.
Taxes
There are many taxes you will need to keep track of city tax, state tax, sales tax, federal, social security, Medicare just to name a few.
Before you hire any accountant
Interview them, be sure to find out before you set up the interview it there is a charge for the interview.
Interview a few of them, and see how well you get along with them. You need to be sure you can communicate clearly with them.
Make sure you talk to the advisor and not the assistant for the interview.
Bring anyone else that will be communicating with the accountant to the interview. That way you can make sure they get along also.
Get some references from the accountant and contact them to see what others have to say.
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