monthly business accounting procedures 1,2,and 3

Reconcile business bank statements the same way personal accounts are reconciled. Business checking may have a few differences especially if your business accepts credit cards for payment. You may also have more than one checking account on your balance sheet. Some companies keep their payroll funds in a separate checking account.

A detailed Customer Aging from Accounts Receivable should be run at the end of each month. The report balance should agree with the General Ledger Accounts Receivable balance. It should also match each Customer Statement balance if you send out monthly statements. Since cash flow is important to every business, this report is also helpful during the month. It alerts you to past due accounts or customers who have exceeded their credit limit. It’s easier to collect from slow paying customers if you begin working on them before they are seriously delinquent.

An Open Vendor Payable list from Accounts Payable should agree with the General Ledger balance. You should use this same report during the month to enable you schedule payments to your suppliers. The report will tell you what's due and to whom.

If you're overwhelmed with this give us a call or visit our site for more information:

www.woodardaccounting.com

UNDERSTANDING THE INCOME STATEMENT

Small Business Finance - How To Understand Income On The Income Statement By Bruce D Hunter An income statement a.k.a. Profit & Loss, is a summary of income received and expenses reported during a stated period. The periods are usually stated in monthly, quarterly, or annual terms. A mid-month income statement can misrepresent the data. For instance, if your business records most of your sales in the first 7 days of the month but does not record expenses till after the 20th of the month. This mid-month statement will overstate income and understate expenses. Income can also be called sales or revenue. Income can be subcategorized by type of sales. For example a fish store could have: Freshwater Fish, Saltwater Fish, Equipment, Tank Supplies, and Food. Breaking down income this way at the end of the period helps the owner look at her Income Statement and know the dollar total of each type of sale. Another tool is to know what percentage of your sales come from new customers versus existing customers. One common mistake is to track income that is not earned by selling your business' product or service in the income section of the income statement; e.g. sales of assets, loan deposits, or tax refunds. Loan deposits are tracked on the balance sheet. Other income generated from other business activity such as gain on sale of assets and tax refunds is reported at the bottom of the income statement after expenses in the area reserved for non-operational income. When is a sale a sale? A cash accounting method records the sale when the customer pays. An accrual method records the sale at the time the customer order is confirmed. Payment is handled separately on the balance sheet against the receivable generated from the sale. Why is this an issue? The accrual method attempts to match a sale's income with its expenses to better determine if the sale was profitable. Cash accounting tracks sales and expenses as they are paid by your customer or you making it harder to determine if the sale was profitable. When printing out your P&L use the feature (within software) called percent of income. What this does is divide each account for income and expenses by the total sales for the period. Monitoring this percent allows you to compare periods regardless of the amount of the income or expense. For example, if sales for the month are 50,000 for January and your payroll is 10,000, then 10,000 divided by 50,000 equals 20%. This translates to: for every dollar of sales you spend 20 cents for payroll. The next month your sales are 40,000 and your payroll is still 10,000. 10,000 divided by 40,000 equals 25% or for every dollar of sales you spent 25 cents for payroll. You can see how knowing the percent of income can be a valuable management tool. Bruce Hunter is the CEO of CORE Magazine in Denver Colorado. CORE is the leading online source for small business startup. Visit our free online resource center now to get free access to information on small business finance. Article Source: http://EzineArticles.com/?expert=Bruce_D_Hunter

Understanding the Balance Sheet

The balance sheet is a financial report that shows the condition of a company's assets, liabilities and equity. In conjunction with the income sheet, these reports give a good indication of how well the business is doing. Assets are equal to liabilities plus equity. Keep your chart of accounts

simple when starting out and add to it as needed.

Assets may include cash accounts such as checking and savings, accounts receivable (if you sell on open account), prepaid expenses (like insurance paid in advance), vehicles that the business owns, equipment and machinery, buildings (if business owned) and inventory (if applicable).

Liabilities include debt such as accounts payable (if you buy on credit as opposed to paying cash), credit card payable and loan payable.

The equity section, which shows the earnings, is simply the difference between assets and liabilities.

The balance sheet gives you a snapshot at any given time of the strength of the company. Some important facts that cannot easily be determined by viewing the balance sheet are the age of accounts receivable and accounts payable. Further examination of those accounts can determine whether problems exist. Old receivables and payables can denote cash-flow problems.

Chart of Accounts

Every purchase, every item sold, and every dollar received must be allocated to an accounting category. These categories come from your chart of accounts. Many small business owners try to be too specific when setting up their accounts. Most businesses begin with a basic chart of accounts and add others that are specific to their type of business as they grow. Accounting software programs usually have sample charts. For example, Quickbooks utilizes a setup wizard that guides you through a series of questions about your type of business.

The following list is a good starting point but is not all inclusive.

BALANCE SHEET

Assets:

• Checking Account
• Accounts Receivable
• Inventory
• Fixed Assets

Liabilities:

• Accounts Payable

Equity:

• Equity
• Current Earnings
• Retained Earnings

INCOME STATEMENT
Revenue:

• Sales
• Cost of Goods Sold

Operating Expenses:

• Advertising
• Amortization
• Bank Fees
• Depreciation
• Insurance:
• General Liability
• Workers Compensation
• Health Insurance
• Interest Expense
• Licenses and Permits
• Office Supplies
• Payroll Wages
• Payroll Taxes
• Postage or Freight
• Professional Services:
• Accounting
• Legal Fees
• Meals and Entertainment
• Rent Expense
• Travel
• Utilities:
• Electricity, Gas and Water
• Telephone
• Trash Pickup
• Vehicle Expense:
• Fuel
• Maintenance and Registration

Accounting Doesn't Have To Be Hard Or Complicated

To be your own boss is the dream of many. It involves much hard work in many areas, but small businesses are the backbone of society. They generate tremendous amounts of commerce and help drive the economy. While you strive to obtain new customers, the accounting side of the business may seem less important. Bookkeeping is probably the least glamorous part of running a business, but one of the most important. Proper bookkeeping will help you determine pricing for your products, help you decide if you can afford to hire additional employees, and tell you whether you are making a profit. You have to account for every sales dollar and every expense.

Bookkeeping doesn't have to be an overwhelming task. It may be the last thing you want to think about, but it is vital. Your company may consist of only one or two people, and most of your valuable time is spent seeking new business or performing the work when you get the project. However, you can't afford to ignore the record keeping side of your business.

ANNOUNCEMENT: IRS is now accepting electronic formats

WASHINGTON, D.C.
(OCTOBER 27, 2010)

BY WEBCPA STAFF

The Internal Revenue Service has started accepting taxpayer records in electronic format from small businesses using Intuit’s QuickBooks and Sage’s Peachtree accounting software for audits and examinations. Like what you see? Click here to sign up for WebCPA's daily newsletter to get the latest news and behind the scenes commentary you won't find anywhere else.

Business owners and tax professionals have been advocating that the IRS begin accepting taxpayer records in electronic format instead of continuing to use traditional paper books and records for audits, the IRS noted. The IRS Small Business/Self-Employed Examination Division is responding to those wishes expressed in tax practitioner focus group interviews conducted at the 2008 Nationwide Tax Forums and from other stakeholders.

The IRS has recently completed training for revenue agents on QuickBooks Premier Accountant Edition 2010 software. Approximately 1,100 agents were trained and are now being encouraged to request and accept taxpayers’ QuickBooks files, as appropriate. The IRS is also able to accept electronic records from Peachtree accounting software.

Electronic files should be provided on a CD, DVD, or flash/jump drive to ensure security of the files. E-mail should not be used to transmit the electronic records.

The IRS said that obtaining a taxpayer's accounting records in electronic format provides significant advantages, including reducing the burden on taxpayers because taxpayers don’t have to print records stored electronically. The electronic files also provide a complete set of the taxpayer’s accounting records, decreasing the number of items included in the initial document request and follow-up requests. The IRS said the electronic accounting records also increase the efficiency of a revenue agent’s analysis and testing of the books and records, resulting in faster audit resolution.

The legal authority for requesting a taxpayer's QuickBooks backup files and accounting records in electronic format is based on IRC Section 6001, Regulation 1.6001-1(a) and -1(e), Revenue Ruling 71-20 and Revenue Procedure 98-25. Rev. Proc. 98-25 does not prevent or exempt a taxpayer from providing electronic records, if such records exist.

“Electronic information management has become the standard in business and will now be used to enhance the examination process,” said the IRS. “The ability to conduct audits using these software options will be available on an increasing basis as revenue agents begin to work with the new software. It is anticipated that this new audit tool will increase the speed and efficiency of field examinations, reduce taxpayer burden, and be a positive development for taxpayers, their representatives and the IRS.”

The IRS added that it is not endorsing, recommending or favoring any specific commercial products.