Do you procrastinate when it comes to doing your bookkeeping? Between operating your business, marketing your business, and spending time with family and friends finding the time to keep your financial records up to date is a daunting task. So, you think it’s time to get some help.
Should you hire someone to work in the office or outsource your bookkeeping? What are the advantages and dis-advantages of both?
- Transactions are entered into your accounting software system on-site
- Original documents stay on-site
- You have an employee in your office to assist with other tasks
- Cost – employer taxes: medicare, social security, federal and state unemployment, worker’s compensation insurance
- Reporting requirements – payroll returns, census burea surveys, worker’s compensation audits, new hire reporting, Affordable Care Act’s (Obama Care) reporting requirements
- Space – office desk
- Equipment – computer, phone, calculator
- Software – license for the each software for the user
- Education – training on office procedures and on-going training for the software
- Cost – no employment taxes – outsourced bookkeeper pays their own taxes
- Space – work done at outsourced bookkeeper’s location
- Equipment – outsourced bookkeeper has their own equipment
- Software – outsourced bookkeeper pays for their licensing needs
- Education – outsourced bookkeeper pays for their own education for keeping updated on software and other laws
- Flexibility – use the outsourced bookkeeper only when needed
- Communication – the outsourced bookkeeper is not sitting in the next room available to answer questions immediately
- Quality – may suffer depending on the outsourced bookkeeper’s knowledge and experience
As you can see there are more advantages to outsourcing a bookkeeper than hiring an in-house bookkeeper. You only need to outsource the parts of the bookkeeping that you don’t want to do, don’t have time to do, or know how to do. Your outsourced bookkeeper can work as often you need them to work: daily, weekly, monthly or annually.
You will save money, which is the ultimate goal when outsourcing!
You’ve seen those commercials where the business owners have started their new business and needs to organize their finances. They purchase QuickBooks, install it on their computer, run around with big grins on their faces swiping credit cards to receive payments from their customers and look at the reports that are generated on the screen. It really does seem simple, so you went and purchased QuickBooks too.
If you are good with numbers then learning to use QuickBooks may not take too long. But, if you are not good with numbers you may spend hours and hours setting your company up, your chart of accounts, your items (you did set up items, didn’t you?), employees, sales tax, customers, vendors, etc. I could go on and on with a list of things that need to be set up in order to have a company file that will function correctly.
But, once you get everything set up, the rest is easy. All you have to do is write checks, pay bills (they aren’t the same thing), create invoices or sales receipts (which one should you choose?), pay employees (don’t forget payroll taxes), receive payments and record deposits (be careful that you don’t do this twice), reconcile your bank statements and credit card accounts (yes, even the credit card accounts need to be reconciled).
Okay, you’ve done all this for the first month and you are ready to run reports. You are so anxious to see how your business is doing. You run a Balance Sheet and Profit and Loss. Uh-oh, not quite what you expected see? You have a balance in the Accounts Payable account. But you paid all the bills you entered so why do you still have a balance? Did you pay the bills in the Pay Bill screen or Write Check screen. Makes a big difference in how the transactions are posted.
Do you have a balance in the Opening Balance Equity account? That should always be zero. What about Undeposited Funds? This is a holding account until you make the transaction that records the deposits. A balance could mean that the deposit just has not been recorded yet and will be recorded the following month. If all deposits have been recorded to the checking account, the method they were recorded may have been incorrect leaving a balance in this account. Is there a balance in your Payroll Liabilities but you have paid them? Did you pay them by using the Write Check window instead of Pay Payroll Liabilities?
These are just a few of the many, many different reasons your reports may be incorrect. Now you need to fix everything. How do you do that? By now you probably have figured out you can double click on the transaction and just change it. But that may not fix it. You can also void or delete (not recommended) it, but again, that may not fix it. You could search through the Help, the Intuit Community Forum, or watch the training tutorials Intuit offers through the Help menu. But, all this will take up more of your precious time.
As mentioned before you may or may not be good with numbers, or even working with software. You are good at what you do, at operating your business, knowing the ins and outs of your industry. What could you have been doing if using QuickBooks had been as easy as the commercial made it appear to be? You could have been doing something productive for your business or spending time with your family and friends, not spending time on bookkeeping.
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Congratulations, you have started your own business. You have purchased or rented property for your business. You have furnished the space with everything you need to run your particular business. You have hired employees to work for you. Now you are ready to set up your accounting system.
One of the first things you will need is a chart of accounts. A chart of accounts will allow you to organize your transactions into categories. When you record transactions, you will post them to an account and then you can print various reports using some or all the these accounts.
Depending on your industry there are some accounts you will need and others you don’t need. For example, if you are in construction, you will need a WIP (work in process) account, if you are a retailer, you will need an inventory and COGS (cost of goods sold). A not-for-profit business will need restricted and un-restricted funds account, a law firm will need a retainer account to record deposits from clients. These are just a few examples of the different accounts a business may need.
Depending on your accounting software, you may be able to choose your industry when setting up your chart of accounts. If this is the case, choose your industry or the one closest to it. Go through the accounts and delete the accounts you know you will never use. Edit some of the other accounts, giving them names that make sense for your company.
If you have to set your chart of accounts up manually, it’s easy. The first group of accounts are your Balance Sheet accounts. All your asset accounts will be listed first. List your current assets first, other current assets next, and finally other assets. Next are your liabilities, listing your current liabilities first, then your short-term liabilities, and finally long-term liabilities. Next on your list are your equity accounts. Depending on your entity depends on the name of these accounts. You will have at least two, your retained earnings (the accumulative sum of your net income (loss)) and your net income (the current year’s sum of your net income (loss)). You may have other equity accounts such as a draw(s) account, treasury stock, etc.
The next group of accounts are the Income Statement accounts. List your revenue accounts first, followed by COGS accounts and then the expense accounts. If your software allows, you can assign numbers to your accounts with numbers starting with a #1 your asset accounts, starting with a #2 your liabilities, #3 your equities, #4 your revenues, #5 COGS, and #6 your expenses.
Some accounting programs will also let you use segmented account numbers, you can define how many segments your company needs, how many digits each segment is, etc. This would be good for tracking revenues and expenses for departments, locations, etc.
I personally like to use sub-accounts when I set up a new chart of accounts. The two accounts I use these on the most are the payroll liabilities and payroll expense accounts. With the payroll liabilities account, the main account is called payroll liabilities and then each of the sub-accounts are named whatever the withholdings are, i.e. FICA & Fed W/H Payable, State W/H Payable, etc.
Don’t forget, when setting up your chart of accounts, to set up any contra-accounts you may need, for example, if you have a fixed asset account, you will also need an accumulated depreciation account. But, don’t go crazy on creating your chart of accounts. Only set up the accounts you know you need, you can always add more later.
What exactly is a reimbursable expense? It can be an expense a company incurs when performing work for a client, such as postage, mileage, meals. It can also be an expense when an employee purchases either goods or services for the employer. Or it can be when a company bills out material and labor costs on a cost plus basis.
There are two types of reimbursable plans, accountable and non-accountable. With an accountable plan, the employee or company saves all receipts and is reimbursed for the expenses. Anything without a receipt becomes taxable either to the employee or company. For example, an employee may go out of town on a business trip. The cost of the gas, or airfare is reimbursable, along with meals and other incidentals related to the trip.
An advance would not be taxable to the employee until after all receipts were turned in and reconciled with any cash returned. If the receipts do not match up with the amount of the advance, then the difference owed the company becomes wages to the employee subject to federal, medicare, social security and futa tax.
An advance should be posted to an Expense Advance account on the Balance Sheet. After the receipts are turned in, then the Expense Advance account is credited and the proper expense accounts are debited. Other types of reimbursements would be cell phone usage, if for the benefit of the company, meals, mileage, tolls, and parking.
A non-accountable plan is just like it sounds. There is no accounting for the expense. Instead, the company will give an employee an allowance for the benefit. This allowance is a taxable fringe benefit to the employee. These fringe benefits are taxable for federal, social security, medicare and futa tax.
A company that incurs expenses on behalf of their client will bill their clients for those expenses. Some companies, like lawyers, accountants, and doctors will not bill separately for postage, copies, travel, etc., but rather include the cost in their fees. Other companies will bill their clients for the exact amount of the expense. In this case the expense will be credited for the amount of the reimbursement.
Contractors, builders, and other service type companies may offer their clients a “cost plus” contract. The reimbursable expenses will have an additional cost added to it. This additional cost is income for the company.
There really is no right or wrong way to record a reimbursable expense. It just depends on how the company wants to view the financial statement. All of the reimbursement can be credited against the expense or credited to an income account. You could also split the account if you use the “cost plus” method and record the actual expense reimbursement to the expense and the amount above the reimbursement to an income account.
However you plan to record your reimbursable expenses, remember to record your meals in an account by itself because it is treated differently on your tax return.
As a business owner you may hire individuals to help you with the running of the operations of your business. Are the individuals working for you classified correctly? The IRS has rules on how a worker needs to be classified. Misclassifying a worker can cause you, the employer, penalties.
The IRS has seven tips that an employer should know when classifying a worker.
- There are three characteristics the IRS uses to determine whether a worker is an employee or independent. They are:
Behavioral Control – do you, the business, have the right to direct or control the worker’s activity through training or instructions?
Financial Control – do you, the business, have the right to control the financial aspect of the worker’s financial status?
Type of Relationship – what do you, the business owner, and the worker perceive the relationship to be?
- Your workers are most likely employees if you are controlling their activities, directing their activities and giving them deadlines on when the work needs to be completed.
- If you are only controlling the result of the work, but not the means and methods or reaching the results, then they may be an independent contractor.
- If you misclassify your workers you may be faced with high tax bills, along with failure to file penalties, late fees, etc.
- If you are a worker, you could pay less taxes if you are being misclassified incorrectly as an independent contractor. As an independent contractor you are subject to self-employment tax. As an employee, the employer pays part of the social security and medicare tax.
- If you are unsure of how to classify a worker you can request help from the IRS by filling Form SS-8.
- You may qualify for relief under Section 530. which states that you are treating your workers as independent contractors because it is an industry standard for that worker, or you have relied upon advise from an attorney or accountant. To qualify for this relief you will have to have mailed the required 1099 Misc. forms and treated all workers in the classification the same way.
More information can be found in the IRS Website by clicking on the Business link.