It’s been a long holiday and we hope you had enjoyed your Christmas and New Year celebrations!
Now a new year has come with new goals, hope, opportunites, and challenges.
One of the things every business owner needs to address is getting your books updated, reconciled and ready for year end tax season.
But how can you make sure your books is ready for year end tax filing? Here are 5 things we think are very important to review and make sure you have done correctly at year end.
1. Bank and Credit Card Reconciliations
Bank accounts, credit cards, and PayPal accounts should all be reconciled at year end. Floating entries should be reviewed and cleaned up.
2. Asset and Liability Reconciliations
Accounts Receivable, Prepaid Expenses, Inventory are key asset accounts that should be reviewed, adjusted, and reconciled at year end for accuracy.
3. Fixed Assets
If you bought a computer, a machine, or a vehicle during the year, you need to ensure these are put to proper fixed asset accounts. Comes year end, you need to make sure depreciation has been calculated and properly recorded.
Review big expenses for possible asset additions that has been coded to expense accounts such as: repairs, maintenance, software, equipment expense, etc.
4. Cost of Goods Sold or Cost of Sales
It’s not uncommon to see a profit and loss with only Sales or Services Income at the top, and immediately following are the Operating Expenses deducted to arrive at Net Income. Cost of Sales or even sometimes…Cost of Goods Sold is missing in the picture.
This is not a good approach, Gross Profit is very important for you to see how profitable your income generation activities are. Are you really doing a great service or selling a good product? If you will not be able to see your gross margin – it can be harder to optimize sales, adjust pricing, decide to terminate a service, or stop selling a specific product.
5. Equity Accounts
Often times, business owners mix personal transactions with business. For example, a business owner paid for travel, meals, or medical expenses using the business card. Sent money to his personal account from the business account or sent money to business from his personal account.
Equity accounts and equity transactions should be reviewed and properly categorized. LLCs, S-Corp, and C-Corp should not have personal expenses mixed into the business, should not link personal bank accounts or personal credit cards to the business company file in QuickBooks Online. You do not want the personal assets protection to be affected negatively by not following the best practices of separating personal and business activities.
There are a lot of other things that need review at year-end. It depends on the nature of your business, the status of your books, and availability of the information supporting your transactions.
As a business owner, it’s highly recommended you ask for professional help to make sure your books are tax ready and you are confident that your books is in healthy, and usable condition.