Recordingkeeping organizing

Recordkeeping & Organizing BUS 210_Recrdkpng Spring 2006 copyrigh WHY, should we maintain good records?  To manage our business more effectively & efficiently  To identify the trends in our operations (what is happening in your business)  To have supporting documentation for tax returns (or, an audit?)  To have information (historical data) to assist in financing from a 3rd party  For documentation if we wish to sell the venture Other Reasons for Accurate Recordkeeping • We may be able to maximize our business deductions • Provide evidence to support our side in case of litigation • Maintain information to pass on to our family (family business) • We have archives to help us write an autobiography…should we want to in the future  Who should your Recordkeeping? • You, the owner, should be personally involved because it makes you aware of what is going on in your business • If you delegate many of the tasks, you still need to attempt to understand what is going on in your business • Learning how to read records and financial statements allows you to make better decisions in your business When Does Recordkeeping Begin?  When your business idea is refined!  You need not wait until you have a license to start with recordkeeping  Many of your initial expenses are deductible (if you are actively pursuing your business)  Checkout the IRS tips for small business recordkeeping! Do You Need an Accountant or a Bookkeeper?    Special expertise is needed at the end of the year You can use a CPA (Certified Public Accountant) Enrolled Agent (Tax Accountant), or non-certified bookkeeper A CPA or Tax Accountant could represent you in an IRS Audit Tips Develop a good working relationship with your accountant Shop around for a professional that specializes in small business Many small business owners are afraid of the costs and try to it all themselves…but remember… Getting things done right the first time costs less in the end! Accounting Software  First rule, use what you understand and feel comfortable with  Start with a manual system and you can later translate it into a computer application  Many industries have “tailored systems”  KISS - Keep it Simple - Systematic Computerized Accounting Packages Computerized Accounting Information Systems can - • save time • be more detailed than manual systems • improve traceability • have increased timeliness of statements Make sure you select appropriate hardware for your software and have the program properly installed & frequently backedup Computer Applications for Small Businesses Several small business-focused packages include:  QuickBooks Pro, Peachtree Complete Accounting, MYOB Plus and Simply Accounting  QuickBooks Pro is currently the market leader It offers over 100 customizable reports that can be exported to an Excel spreadsheet It automates check-writing, invoicing, billing, payroll & receipts Income vs Expenses: Basic Facts Income or Revenue is all the monies received by your business in any given period of time 1986 Tax Reform Income = Deposits Expenses are all monies paid out for your business Those paid by check & cash Expenses require careful recording! General Ledger & Chart of Accounts The General Ledger is a summary book that records all transactions and balances It is organized into distinct categories With a computerized accounting it is essential that these are set-up accurately in relationship to your Chart of Accounts – Assets - a record of all item the business owns – Liabilities - a record of all debts the business owes – Capital - a record of all ownership or equity – Revenue or Sales - a record of all income earned for a specific period – Expenses - a record of all expenditures incurred during a given time Inventory Controls & Inventory Records  Inventory Records help you track an important asset (probably one of your largest investments)  Inventory (by the way) affects your net profit How much or how little you stock at tax time will not lower your taxes (check out the Tax laws for retailers…Accrual Method)  Accurate recording also allows you to determine the selling trend of goods Inventory Records (Continued) • Computerized registers assist retailers in tracking what is purchased and should be measured against the inventory record you keep on a timely basis • It is not uncommon for retailers to “lose” inventory through employee pilferage or other losses like spoilage This can make or break a business! • Business owners that regularly track their inventory are more profitable Accounts Receivable & Accounts Payable Records  Credit is a wonderful thing…even in business  If your business is going to use credit with wholesalers or distributors or suppliers you will need to track credit extended to you through Accounts Payable records  A/P records are essential for keeping your business in good standing with your creditors which allows you to use your CASH more wisely and better leverage your finances  If you, as a business, extend credit to your customers an Accounts Receivable tracking system is important to implement Often a separate A/R record is set up for each individual or “account.” The A/R is generated from the invoices Mileage Log or Mileage Book  These are those ordinary and necessary expenses getting to/from work, or using a vehicle for your work  If you use a car for your business you may be able to deduct car expenses…but you have to keep good records  Actual expenses include every expense associated with the use of a car (gas, oil, maintenance, licenses, insurance, leases) for work This works best if you use your car predominately for business  Standard Mileage Rate allows you to deduct a specific expense (in 2004 was 37 cents/mile, up to 8/31/05 40.5 cents/mile, now until the end of 2005 it is 48.5 cents/mile) for the business use of your vehicle Entertainment / Travel Expense Record • Use something like an MS Excel for expenses • As you put expenses on the Excel spreadsheet it can act as a running “budget” • This allows you to track all your expenses (assists you to know if you have enough deductible expenses at the end of the year in this category) Payroll Records • Many small business owners don’t want employees because of the cumbersome paperwork • In addition to having the hiring responsibility, you also have the responsibility to withhold, report and pay federal and state (and sometimes local) taxes • Many small businesses are choosing to “outsource” their payroll duties to professionals • Working through a temp agency is also an option • Think twice before you choose to go with Independent Contractors… • These options can free up time, to allow you to your job and grow your business Hiring New Employees: The Paperwork • File for a FEIN federal employee identification number Form SS-4 • Obtain the IRS Employee Tax Guide • Have employee fill out a W-4 and an I-9 (employment eligibility form) • Post “Official Notice” in your ADA acceptable bathroom or employee lounge Paying Employees The Tribulations of FICA, FITA, FUTA and the rest! What you must do:  Determine frequency of payroll  Determine Gross wage  Calculate FICA (social security)  Determine the Federal Income Tax (from W-4)withholding  Quarterly determine the FUTA (unemployment) and report wages to IRS  Annually report FUTA and W-2 By the way, the IRS and Social Security cross-check your payroll withholdings! Types of Accounting • • • Accounting can be defined as the process of recording, classifying, reporting and interpreting the financial data of an organization Financial accounting is concerned with the preparation of financial statements Cost accounting is concerned with the reporting of costs (assets and expenses) as accurately as possible Managerial accounting is concerned with decision making and the preparation of special reports to be used in making those decisions If a company buys a new truck, Does it record the purchase price with or without tax (cost accounting)? After five years, does it spend $4,000 on repairs, or does it sell the truck (managerial accounting)? What amount has been reported on the financial statements for the truck in the last five years (depreciation - financial accounting)? Financial Statements three most important • Income Statement - Represents a period of time Evaluates gains versus losses • Balance Sheet - Represents a “snapshot in time” Evaluates an entities net worth • Cash Flow Statement - Represents a period of time Evaluates the sources and uses of cash within an entity Financial Statements • Good Recordkeeping will allow you to develop Financial Statements • Savvy business owners use their financial statements to evaluate the condition of their businesses and determine strengths & weaknesses • Bankers utilize these statements to determine if you are bankable A = L + OE What is a Credit (CR) and what is a Debit (DR)? Increasing an Asset Decreasing an Asset DR CR Increasing a Liability Decreasing a Liability CR DR Increasing Owner’s Equity Decreasing Owner’s Equity CR DR Increasing a Revenue Decreasing a Revenue CR DR Increasing an Expense Decreasing an Expense DR CR Analyzing your Records  One of the major reasons for keeping accurate records is so that you can analyze and chart the progress of your business Looking at your records, you should be able to answer these questions: Why are certain expenses at a particular level? Are there any ways to reduce or avoid expenses? Should I incur (show as an expense) all my expenses? Does the level of profit justify the investment of my time and effort? How long should I keep records? • Keeping your documents organized and safe is an important element of good record-keeping • Your Record Retention Schedule may depend on the complexities of your business (whether you are a sole proprietor or incorporated, whether you have employees or not, etc.) • There will be some records that you need to keep for years, and some that you need to keep permanently! • Setting up a safe retention system can save you anguish in the future!