Saturday

Filing your Business Income (US) Tax Return After Fiscal Year


Writing these mini-parts of “7 Basic Things You Need To Know During Start-up Year” has been exciting for me. I hope you find the last 5 parts helpful for your new business adventure, or even for those businesses that are already in existence and still finding ways of improvement.

Again, here’s the complete list of “7 Basic Things You Need To Know During Start-up Year”:

7 Basic Things You Need To Know During Start-up Year:

(1) Types of Business Organizations
(2) Choosing Business Products or/and Services
(3) How to keep business records
(4)
Hiring Employees or/and Contractors
(5) Year-end requirements
(6) Dealing with the tax authority (IRS)
(7) Preparing for the next fiscal period
In the last issue I wrote about year-end requirements. At this time of the year, income and expenses for the tax year being reported should have been included and presented in the financial statements. Now it’s time for the company to get ready all information for Internal Revenue Services, or other governing tax agencies (for other countries).

Each country has its own policies and procedures on their filing requirements. Most of these requirements are somewhat similar and applicable to all taxpayers worldwide. Preparing your business income tax filing requirements is mainly based on the type of business organizations you have. I wrote about types of business organizations during the first issue, and again here they are: (1) sole proprietorship, (2) partnership and (3) corporation. These 3 types are taxed according to their business formation.
Seattle Sounders and Manchester United Fans (click link)
Sole Proprietorship
An owner of a sole proprietorship will be reporting his or her business activities through inclusion to their Form 1040 – Individuals tax return. A sole proprietor will use a calendar year end (December 31st) of reporting of income and expenses, using the accrual method or cash method. Accrual method of accounting is described as recording of income when earned and expenses when incurred during the 12-months business operation activities, whereas, cash method income is reported upon received of amount and record expenses when they are paid.

The company’s Income Statement accounts will be reconciled for reporting of income for tax purposes. Not all income and expenses stated in the company’s Income Statement are included as income and allowable deductions, thus reconciliation is required. A completed Schedule C for Business or loss is attached to Form 1040. Other non-business income or loss such as capital gains or loss, other taxable income or deductible losses should be included too. Check if you need other forms like, Schedule D (Capital Gains or Loss); Form 4797 (Other gains or losses); and Schedule E (Partnerships, S corporation, estates, trusts, rents, royalties, etc) for your Form 1040.

As a sole proprietor tax filer, you can deduct 50% of Self-employment Tax paid for the taxation year. Also, 100% of the Premiums for Medical Insurance paid for the tax filer, spouse, and dependents are deductible in calculating your Adjusted Gross Income (AGI).

Filing deadline for self-employed is April 15th of each year. If extension of filing of Form 1040 is required, a four-month filing extension is automatically granted upon filing of Form 4668 by the due date. Any estimated tax payable must be paid during April 15th to avoid penalties.
During Half-time, Manchester United vs. Sounders FC 2011 Game (click link)
Partnership

Partnership taxable income is reported as a “flow through” self-employment income to each partner of the business. Partnership does not pay income tax on itself. However, a Partnership Information Return, Form 1065 is required, which include each partner’s share of partnership income or loss, and other related taxable/deductible items on each partner’s individual’s return (Form 1040). A Schedule K and a Schedule K-1 for each partner are included with the Form 1065 upon partnership return filing.

Like sole proprietorship, partnership’s Income Statement accounts will be reconciled for reporting of net income for tax purposes. A completed Schedule E will be attached to each partner’s Form 1040, with related information of partners’ share of income. Each partner’s share of net business income will be added onto individual taxpayer’s Form 1040 Income.

Filing deadline for reporting of partnership taxable income is the same as required for sole proprietorship, April 15th of each year. In addition, all balance amount owing must be paid on April 15th, or else penalty charges will be charged for late payment, even if Form 4668 (4 months automatic extension) is filed at due date.
During Half-time, Manchester United vs. Sounders FC 2011 Game (click link)
Corporation
As previously mention, in the US, there are two types of corporation, the C corporation and the S corporation (elected as small corporation). C corporation’s taxable income is reported by the corporation itself (Form 1120), and reported by shareholders onto their Individual (Form 1040) Income tax return upon dividends received from corporation during the year. Thus, corporation taxable income is being taxed into two levels: C corporation and shareholders, and double taxation happened.
Whereas, S corporation pays no income taxes (except on built-in gain in excess or net passive income). S corporation‘s income and allowable deductions are pass-through to a tax-exempt shareholder as unrelated business income (UBI), treated like income from a partnership entity. Also, S corporation’s income/expenses and related items are adjusted to shareholders debts and equity. Thus, S corporation has the intention not to generate earnings and profits. Any distribution by S corporation to its shareholder is accounted by the S corporation and its shareholder according to sources of income. For example, S corporation net income during calendar year was distributed to shareholder during the year. This distributed income is includable income to shareholder’s Form 1040. Also, any dividends received from a C corporation and distributed to shareholder during the year is includable as dividend income to shareholder’s Form 1040. Lastly, if the distributed funds came from shareholder’s stock’s basis (equity), the funds are considered non-taxable since it’s a return of capital to S corporation’s shareholder.
Basically, besides having a limited liability obligation to shareholders, considered as a separate entity, having unlimited life of existence and easy transferability of ownership, both C corporation and S corporation have other advantages, like the payment of taxes. Depending on shareholders’ status, location, where they file their Form 1040, both corporation and shareholders can enjoy: (1) Tax Reduction (2) Tax Deferral and (3) Income Splitting privileges.

Tax reduction is enjoyed by shareholders who have higher individual tax rate. Having a corporation, shareholders can enjoy deductions only allowable for a corporation. However, allowable deductions for individuals and corporation don’t have much difference, except items related to AGI (for individuals), charitable deduction, dividends received deduction (DRD), certain types of losses, organization expenses, and other related items. Also, Alternative Minimum Tax (AMT) for small business corporations controlled by US shareholders is available for small corporation, depending on threshold gross receipts of the corporation and other related requirement.
Tax deferral is a strategy applied by corporation in minimizing tax payments, and related to the double taxation of the C corporation’s income. The earnings are left in the C corporation instead of paying shareholders right away. It depends on retained earnings that C corporation is planning in keeping, and shareholder’s individual income tax rate, tax payment is deferred on earnings in the C corporation for lower corporate tax payment. Thus, timing of the declaration of dividends to shareholders by the C corporation is implemented.

Income Splitting is commonly used for corporations owned by family members as shareholders. Earnings are spread out and paid as dividends to family members who have lower individual income tax rates, available deductions and credits for individual taxpayers.
  
What a game that was! (click link)
C corporation must file Form 1120 tax return. Income Statements will be reconciled for tax purposes, and some items will be added back and deducted upon reconciliation process. Schedule M-1 of Form 1120 reconciles permanent difference (non-taxable/non-deductible) and temporary differences (items reflected on different periods).  In addition, Schedule M-2 of form 1120 reconciles the Retained Earnings.
Both C corporation (Form 1120) and S corporation (Form 1120S) must be filed by the 15th of the third month upon company’s year end. An automatic 6-months extension may be available upon filing Form 7004, however, estimated taxes liability for C corporation and S corporation’s built-in gains tax in excess of net passive income tax, payable on due date (15th of third month of fiscal year end).
Depending on the complexity of your individual or/and business-related tax returns, as previously mentioned, hiring a good accountant, even once a year to go over your books, not only it will give you peace of mind, but probably even save you money for business tax payments that you shouldn’t be paying in the first place. A good accountant is trained to advise, and recommend especially on year-end preparation of financial statements. An accountant can give you advices on proper accounting of income which are taxable, or deduction which are deductible.
In addition, an accountant can help you with other business transactions like preparing your income tax returns, either your individual or/and corporate return. An accountant is trained to analyze taxable or non-taxable income, deferrable income, non-inclusion of allowable expense deduction, or deferral for lower tax payments during taxation year being reported. Thus, accountant can help you with your tax filing and even with your auditing requirement as well.
Should you decide to do your own individual or/and corporate income tax return(s), please do decide wisely. Do a little research what is best for you and your business. There are few good tax preparation tools you can use, either using paper forms or electronic filing online using tax software with the Internal Revenue Service (IRS).
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Note: The continuation of this topic, “7 Basic Things You Need To Know During Start-up Year of Business?” will be continued on the next post, “Part 7 of 7: Preparing Your Business for the Next Fiscal Period".
Hope you like browsing the inserted pictures. They came from the 1000s of photos I collected. Also, make sure to "click" all the "caption/wordings" at the bottom of each picture (you'll be surprised where they are linked to!:) They are not related to the topic of this post (of course). I thought it would be nice to insert them, just to give you a break while reading this post. Until then.
Please feel free to leave comments/inquiries or you may contact me at:
___________________________________________
Contact:
Earla RiopelBSCom(USA), DipAcc(UBC)
Main Sites:  Website Twitter ; LinkedIn ; Facebook Blog



Friday

Things to do at Business Year-end

Seattle Sounders FC Game was about to start, Qwest Field (click link)

I hope you have enjoyed reading the last 4 issues of the “7 Basic Things You Need To Know During Start-up Year” as much I enjoyed writing them. Again, here's the complete list:

7 Basic Things You Need To Know During Start-up Year:

(1) Types of Business Organizations
(2) Choosing Business Products or/and Services
(3) How to keep business records
(4)
Hiring Employees or/and Contractors
(5) Year-end requirements
(6) Dealing with the tax authority (IRS)
(7) Preparing for the next fiscal period
This time I will be writing about “Year-end Requirements”. I would say, for some it’s the most exciting part of the business. Why is that? This is when the company finds out if it makes profit (or loss) during the fiscal period reported.

5 Things to Do at Year-end

a) Preparation of Year-end Financial Statements and Closing of Books
b) Management’s Reports
c) Reviewer or Auditor’s Report
d) Preparation of Annual Report
e) Annual General Meeting (AGM)

Preparation of Year-end Financial Statements and Closing of Books

In Part one (1) I wrote about the 3 types of Business Organizations: (1) Sole Proprietorship, (2) Partnership and (3) Corporation. All 3 are required to keep business records (see Part 3), so at the end of the year the company can have a better picture regarding its business activities throughout the entire year in form of financial statements. These statements are used as tools for decision making, for further improvement, either it’s for expansion or seeking additional investments or financing. Usually financial statements include, Income Statement, Statement of Retained Earnings, Balance Sheet, and Statement of Cash Flow or Statement of Changes in Financial Position (if required).

Preparation of year-end financial statements becomes easier if the company has done most of the regular bookkeeping/data entries throughout the fiscal period. So by the end of the year, all it needs is to do a few steps and that includes the preparation of the year-end financial statements. For some who have chosen not to use accounting software, and decided to prepare their financial statements from scratch (manual accounting system), there are a few steps before financial statements are prepared, called the Phases of Accounting Cycle. These phases can be group into two: (1) Prepared throughout the year and (2) Prepared during the end of year.

Throughout the year includes collection of raw data, and related business information transactions and events happened. This information is analyzed and recorded for journalizing. These journal entries (JE) are then posted to each general ledger (GL) accounts.

At the end of the year, unadjusted trial balance (TB) for each GL account is listed. Then adjusting entries are performed for accurate, unbiased, and reliable presentation of amounts in the financial statements. Adjusting entries are usually performed for few accounts like accrued income and expenses; depreciation of fixed/tangible or intangible assets, bad debts expense, supplies used, and prepaid expenses. For example, accounts which are affected by more than one fiscal period such as: interest expense for long-term liability, rent expense for lease paid for more than a year, tax expense incurred for the current year but not yet paid. Also, insurance expense paid for more than one year, wages accounted and still owing at the end of fiscal period. Lastly, overstatement or/and understatement of amounts are also done during adjusting entries before preparation of year-end financial statements are performed.

Once adjusting entries are recorded on the Journal and posted on the General Ledger, Financial Statements are prepared from the adjusted accounts. After the financial statements have been prepared, then closing entries can be done to close the books.

Closing of books is performed by transferring the income and expenses balances to Income Summary, which closed to Owner or Partners’ Investment (for sole proprietorship and partnership) or Retained Earnings (for corporation). After posting, only the Balance Sheet accounts will show up. There would be no income and expenses balances from Income Statement that will show. The income and expense accounts will have zero balances, and being ready for the next fiscal period. Only current Balance Sheet accounts will be carried forward for the next fiscal period.

Lastly, Post-Closing Trial Balance is performed. This is to check the debits and credits of the adjusting entries and closing entries, whether they are done properly, and reflected in the Balance Sheet amounts that will be carried forward for next fiscal period.
Manchester United vs. Seattle Sounders FC game, Qwest Field (click link)
Management Report

Though management report is not usually required for a one-person managed company, but it is advisable for a company that has a manager, who is usually responsible for the day-to-day managing of the business operation. Besides the financial statements presented, it is another useful tool for related parties for their decision-making as to the best interest of the company.

This report is the representation of the manager (s) of the company, usually signed by the highest position related to the management of the business. For bigger companies, management report is usually signed by a Chief Operating Officer, Chairman or President, Chief Operating Officer, Vice President, Chief Financial Officer, or just your only staff, your business manager of your business.

Management Report is usually based from the financial condition of the company. If they are bigger companies, management staff usually applied the Management Discussion and Analysis (MDA) method. MDA is a more detailed discussion of accounting principles used in the preparation of the Balance Sheet and Income Statement accounts, and if parent company has subsidiaries, these accounting principles are being applied for consolidated financial statements of the subsidiaries as well.

It will likely include the liquidity of its resources, recent accounting standards applied in the preparation of the financial statements. Also, it might include information related to investments and the market risk of exposure involvement associated, and information related to Securities Exchange Commission, like SEC new rules.

Basically, management report will include these items on their report:
- Management taking responsibility of the financial related information presented in the annual report.
- Management is responsible for the objectivity, reliability, integrity and consistency of information in the financial statements.
- Management is stating that the financial statement have been prepared in accordance of Generally Accepted Accounting Principles (GAAP) in US (or country being reported to, usually the parent company’s business is located).
- Management has exercised reasonable judgment and best estimate appropriate for the situation have been applied.
- Management responsibility on reliability of company accounting systems, related internal control to support procedures, and provide reasonable assurance of the financial statements.
- It will also include how the management safeguard the company assets, and staff accountability to the company as a whole.
- If applicable, it might include information regarding the role of the Audit Committee of the Board of Directors of the company, their responsibilities in the financial reporting, internal control systems and other related matters with the company’s internal auditor and external auditor.
- Basically, it is the management statement and representation of the company.
Manchester United vs. Sounders FC Game (click link)
Compilation, Review or Auditor’s Report (If required)

Your company might not need a professional accountant to audit, review or compile your financial statements. However, for some companies which are seeking loans and possible investments, most prospective creditors and investors preferred to have an audited, reviewed, or compiled financial statements.

Out of the 3 reports (Compilation, Review and Auditor’s report) the auditor’s report has the highest reasonable assurance, then review, and then compilation. These types of reports, especially auditor’s report, just give extra credibility to the company’s financial statements on top of good accounting systems used in the preparation of these financial statements.

Companies on stock markets are required to have audited financial statements (it can be consolidated with parent’s subsidiaries’ financial statements) by their investors, and governing agencies like the Securities Exchange Commission (SEC).

An auditor can give a company’s financial statements a reasonable assurance that the financial statements being presented are appropriately recorded based on specified criteria and truly reflect the transactions and events happened during the fiscal period.



Sounders FC just before the game with Manchester United (click link)
Preparation of Annual Report

The annual report is the most anticipated report by all parties concerned. Why is that? It is the report that contains information (not just the set of financial statements) occurred during the fiscal year. It is sort of a special newsletter by the management to their shareholders or/and other concerned parties (creditors or prospective investors) related to the annual operation activities of the company. Annual report will likely include:
- Opening letter addressed to Shareholders, or Members, or related parties
- Highlights of the financial and operating activities during the year.
- Management Discussion Analysis (MDA) of financial and operating activities of the company
- Management Report
- Auditor, Review or Compilation (if required)
- List of Financial Statements (Income Statements, Balance Sheet, and Statement of Changes in Financial Position (or Statement of Cash Flows)
- Notes to Financial Statements will likely include items such as: type and description of the business, reorganization (not applicable on new start-up business), IPO information (if applicable), significant accounting estimates, new acquisitions, receivables and payables important information, financing, net capital requirement, stock options (if any), employees’ benefit plans (if any) , income taxes information, off-Balance Sheet items and credit risk, fair value of investments like financial instruments, and probably will include related party transactions (if any).
- It will likely include owners/shareholders/investors, board of directors, officers information as well

Please note that above listed items for compiling an Annual Report are not applicable to all companies, especially in a sole proprietorship and partnership types of business organization. Just pick the items that applied to your company accordingly.
Just before the kick-off, Manchester United vs. Seattle Sounders FC (click link)
Annual General Meeting (AGM)

AGM can have mixed feelings to all parties involved. But whatever result you are expecting, hopefully it is the best for yourself and most all for the entire company. Tension in an AGM is just normal, especially if it involves voting and re-electing of Board of Directors by shareholders, and appointing of officers by the Board of Directors. It’s not all that nerve racking though, since part of the AGM is the presentation of the company’s annual report. As mentioned previously, this report gives all related parties information on how the company’s performed during the fiscal period reported. Also during the AGM, some companies will pick this time of the year to do their giving of awards to those who went beyond their call of duties.

I always think AGM is a good way of starting fresh. People involved have another chance of proving themselves (if they didn’t fully accomplish everything in the last fiscal period). It is another chance to do their best for the company, and working with the best people, who have the same common goal, making healthy profits and at the same time serving the community.

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Note: The continuation of this topic, “7 Basic Things You Need To Know During Start-up Year of Business” will be continued on the next post, “Part 6 of 7: Filing your Income Tax Return After the Fiscal Year."

Hope you like browsing the inserted pictures. They came from the 1000s of photos I collected. Also, make sure to "click" all the "caption/wordings" at the bottom of each picture (you'll be surprised where they are linked to!:) They are not related to the topic of this post (of course). I thought it would be nice to insert them, just to give you a break while reading this post. Until then.
Please feel free to leave a comment or you may contact me at:
_______________________________________________
Contact:
Earla RiopelBSCom(USA), DipAcc(UBC)
Main Sites:  Website Twitter ; LinkedIn ; Facebook Blogg



Things to Know When Hiring Employees or/and Contractors

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Men and women in uniform, holding US flag, Qwest Field (click link)
So far, it has been so much fun writing these “7 Basic Things You Need To Know During Start-up Year”. Again here they are, stated as follows:

7 Basic Things You Need To Know During Start-up Year:

(1) Types of Business Organizations
(2) Choosing Business Products or/and Services
(3) How to keep business records
(4)
Hiring Employees or/and Contractors
(5) Year-end requirements
(6) Dealing with the tax authority (IRS)
(7) Preparing for the next fiscal period
Now, I will be writing about the fourth item, “Planning to have Employees or Sub-contracting”.
If the hiring process is done properly, all parties involved will definitely benefit from the hiring.

Depending on the business type, size, product or service that the company provides, hiring an employee might not be applicable to all businesses. However for those that need to hire, the following are important suggestions on Hiring Employees or Contractors.

4 Suggestions on Hiring Employees or/and Contractors:

a) Have a company’s policies and guidelines manual on hiring employees or/and contractors
b) Do regular evaluation and continued monitoring on new hires
c) Retention of good employees/contractors
d) If the business does well, take time to show your appreciation
Qwest Field Stadium was starting to get full (click link)
Have a Company’s Policies and Guidelines Manual on Hiring Employees or/and Contractors

Establishing a good company’s policies and guidelines on hiring an employee or contractor will likely include: (1) questionnaire (2) cost analysis schedule (3) payroll information and (4) company’s policies manual for new hire.

The questionnaire will likely include questions like these ones:
- Does the company really need to hire?
- Will the new hire be an asset to the company?
- Does the company have policies and guidelines on hiring and terminating new people?
- How long does the company want to keep the new hire?
- Can the company offer the new hire additional incentives if they want to move up?

Furthermore, it is important to include a cost analysis schedule for each prospective employee. Cost analysis schedule will likely include other related cost during the hiring process and once hired. This schedule can show the employer the advantages and disadvantages of hiring a new employee or contractor.

This cost analysis will likely include payroll information of the employee and employer. Payroll Information will include employer’s amount of wages and taxable benefits that will be paying to the employee. Items that you normally see on a pay stub of an employee (this is more applied for at least a mid-size company) are: (1) Gross Earnings - includes: Regular Pay, Salary, Overtime, Commissions, Vacation (Paid out), and Taxable Benefits; (2) Employer Payroll Taxes such as: Federal Insurance Contribution Act (FICA), Federal Unemployment Tax Act (FUTA), State Unemployment Insurance (SUI), and other related deductions such as: Medicare, and Pension Plan Contribution, Union dues and others.

Depending on the numbers of people in your company, payroll accounting can be time consuming, thus some companies use other payroll service company and have their payroll done for them. But if you are planning to do your own payroll accounting, having the required information makes payroll work a lot easier.  First, contact the governing agency that has the most current information about doing payroll.
There is no guarantee that both employer and employee or contractor will have a 100% success as the result of the hiring. However, by having these policies and procedures, the company will have more chances that it will turn out well, especially if both parties have done their end of the bargain, agreed during the hiring process. Though it is not mandatory, but it is advisable for both parties: employer and employee to have a written employer-employee contract. I think it is a good start of having a long lasting successful employer-employee relationship.

Once an employee is hired, a company should implement a “buddy system” with the new hire during the probation period (at least 3 months) since every workplace is different on how they do things. A manual on company’s policies and guidelines for a new hire is another way of getting to know the company and what are expected from the new hire.

Too far to figure out who this team was? Qwest Field (click link)
Do Regular Evaluation on New Hires

Besides on having a cost analysis schedule per employee during the hiring process, it is also good to have a regular evaluation and continued monitoring system as part of the company’s internal control. Employees are considered as added assets to your company, thus doing a regular evaluation on their performance will only benefit your company.

Likewise, this is also the employees chance to communicate with the company as well. Regular evaluation is the best time to communicate, especially if the new hire is not meeting the expectation yet. You can suggest on improvements and best way of doing things with the company as a whole. Employer-employee relationship is sort of like a team. If the company does its share and so as the employee, both will be successful. The company can enjoy good profit, and at the same time the employees can keep their jobs.

Retention of Good Employees or Contractors

Each time a company hired a good employee, it is considered as an added asset to the company. Can you imagine of not having any help, and the type of your business, you need to have at least a full-time sales person, service personnel, receptionist/ administrative/ data entry personnel or a bookkeeper? As a sole owner you might be able to do all of them, but your success of doings things and expanding your business will either be limited, slow or not be so well. Thus in this case, hiring an employee or a contractor is more like an advantage to the employer. So once you find good employees, try your best to keep them.
Can you recognize any of these players and from which team? Qwest Field (click link)
If the Business Does Well, Take Time to Show Your Appreciation

When the business is doing well, probably it is because you have a good demand of products or services that your company provides. Of course, part of this success comes from the result of your good employees’ (if you have any) hard work. Most employees are always thinking for the best interest of the company, since they want to be employed at all times, especially with a good employer like you. As an employer you might be busy at all times, but take time to show appreciation for the hard work that your employees do. Besides of their regular wages, if it is not too much for the company, you can either give your employees an additional benefit. It can either be a small monetary bonus on Christmas, or even a small amount of gift certificate, or even an occasional company picnic party. These small little things make your employees feel like their hard work are appreciated by the company. It is the thought that counts.

However, when the company is having tough times, good employees are hard to let go. Have an open communication with your employees before letting them go. Give them some options, for instance like lowering their wages or work part-time instead of full-time, just until the business starts picking up. Some employees will rather take a $10 an hour job, less $5 of their regular hourly rate than being unemployed! They know it is just temporary, and likely it will get better, especially if they work harder, and hoping that soon the company will pick up.
Now, can you recognize which team this player currently playing for? Qwest Field (click link)
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Note: The continuation of this topic, “7 Basic Things You Need To Know During Start-up Year of Business ” will be continued on next post, “Part 5 of 7: Things to do at Year-end of Business”.
Hope you like browsing the inserted pictures. They came from the 1000s of photos I collected. Also, make sure to "click" all the "caption/wordings" at the bottom of each picture (you'll be surprised where they are linked to!:) They are not related to the topic of this post (of course). I thought it would be nice to insert them, just to give you a break while reading this post. Until then.

Please feel free to leave a comment/inquiry, or you may contact me at:
____________________________________________
Contact:
Earla RiopelBSCom(USA), DipAcc(UBC)
Main Sites:  Website Twitter ; LinkedIn ; Facebook Blog

How to Keep Business Records

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At Qwest Field (looking at Downtown Seattle highrises) Washington, USA (click link)
I enjoyed writing the last 2 previous issues of the 7 parts of the Basic Things You Need To Know During Start-up Year itemized as follows:

7 Basic Things You Need To Know During Start-up Year:

(1) Types of Business Organizations
(2) Choosing Business Products or/and Services
(3) How to keep business records
(4)
Hiring Employees or/and Contractors
(5) Year-end requirements
(6) Dealing with the tax authority (IRS)
(7) Preparing for the next fiscal period
This time I will be writing about the third item, “How to Keep Business Records”. This area of business can be time-consuming and costly, if you don’t have a proper planned and implemented system right from the start of your business. Good business records keeping will definitely help your company financially, save valuable time. and extra work that you shouldn’t have in the first place. The following are recommendations for Good Business Records Keeping.
In front of the Northside of the Qwest Field, Seattle Washington, USA (click link)
 5 Recommendations for Good Business Records Keeping:

a) Make a good list of your accounts.
b) Implement a good accounting system fit for your business
c) Aim for accurate recordkeeping and keep records in order
d) Hire a good accountant if you need one
e) Regular financial statement review or audit if it benefits your business

Making a Good List of Your Accounts

Before or right from the start of your business, you have to make a list of accounts that likely your business will have. These items may include accounts that will show up on your Income Statement, Retained Earnings, Statement of Cash Flow and Balance Sheet statement. These accounts will be used for your books and for your tax purposes as well (I will write more about taxes in a later time).

Implement a Good Accounting System Fit for Your Business

Depending on your business complexity, size, type, and reporting requirements are, your accounting system should be designed according to these important factors. For a small or mid-size companies, you can get away of using an off-the-shelf accounting software or even a spreadsheet will do the job for smaller numbers of transactions. The following software are mostly used by bookkeeping people.

A spreadsheet, like Excel is an easy and inexpensive to use, and recommended for a company that only have at least a maximum of a thousand or less transactions in a fiscal period. Why is that? With a spreadsheet you actually have to design an accounting system from scratch with the help of your spreadsheet program. You can start with the list of Chart of Accounts, and once you sorted your Source Documents, then you do Journal Entries. You can continue it with the General Ledger, Trial Balance, Adjustment Entries, Income Statement, Retained Earnings, Balance Sheet, and Statement of Cash Flow (if needed).

It’s not recommended, but depending on your time and available resources, fewer transactions like a hundred or less, can wait until the end of the fiscal period to do your books. You can keep your business records with this method as long as all source documents like receipts, cheque stubs, invoices, and other related business transaction information are accounted and properly filed. Why is that? This is to save you time, instead of spending your time on doing bookkeeping, you can concentrate on your business, and bringing in more income to your company.

For over a thousand transactions, I would recommend using an accounting software like Simply Accounting, QuickBooks, or other accounting software. These software are easy to use, just pick a template of Chart of Accounts that fit for the type of business you have. As an end-user, all it requires are a good knowledge of sorting of documents and appropriate account to use as per transaction happened. With these types of accounting software, they do the categorizing, grouping of accounts, calculation, and even providing an up to date financial statements’ reports whenever you need it.

For a more complex accounting system, due to the huge size, type and volume of transactions, and reporting requirement, most businesses will spend a little more or even hire a computer professional to design a special accounting system that is suited for the complexity of the business.
Took this picture from upper floor of the Qwest Stadium, Seattle Washington, USA (click link)
Aim for Accurate Record-keeping and Keep Records in Order

Believe me, an accurate recordkeeping will not only save you time, but save you money. Adjustments of miscategorised transaction is not as much as a concern to all parties involved, but missing source documents and transaction can be a problem and might cost the business money or benefits. Thus, it is so important to appoint a knowledgeable personnel right from the start, from data-entry to presentation of financial statement reports duties.

Hire a Good Accountant if You Need One

Defending on the size of your business and income that your company generates, not all businesses can afford a full-time accountant, who can give you more assurance with your business bookkeeping and better manager of your records. If you already have a good bookkeeper, a one-time annual visit or use of an accountant service won’t be too much for the business to spend. Accountants are “business accounting professionals” who are trained especially in the financial area of business.

To become a professional accountant, either in US or other part of the world like Canada, the profession requires at least 4 years of university courses, and in addition, a 1 to 2.5 years of work experience for US Certified Public Accountants (CPA)and Canadian Chartered Accountants (CA). In addition, 3 years or more work experience for Canadian Certified General Accountants (CGA) and Certified Management Accountants (CMA), especially if the candidate is working full-time and while working on their undergraduate degree and CGA or CMA level courses at the same time. Accountants are trained in the area of accounting, auditing, taxation, business law, finance and other related aspects of the business. A CPA, CA, CGA, or CGA member license is only granted to a candidate after passing a rigorous Uniform Final examination, meeting the educational, work experience, and ethics examination requirements.
Can you guess which teams were playing at Qwest Field? (click link)
Hiring a good accountant, even once a year to go over your books, not only it will give you peace of mind, but probably even save you money for business tax payments that you shouldn’t be paying in the first place. A good accountant is trained to advise, and recommend especially on year-end adjusting entries. An accountant can give you advices on proper accounting of income which are taxable, or deduction which are deductible. In addition, an accountant can help you with other business transactions like preparing your income tax returns, either in individual or/and corporate level. An accountant is trained to spot a non-taxable or deferrable income, or non-inclusion of allowable expense deduction or deferral for lower tax payments during taxation year being reported, thus it just benefits your business. Also, an accountant can help you with your auditing requirement as well.
Taking this on upper floor couldn't give you much clue:) Quest Field (click link)
 Regular Financial Statement Review or Audit if it Benefits your Business

Most big companies are required an annual financial statements review or audit depending on related parties’ requirement, especially companies that are on stock exchange, shares for public offerings. Regular reviews and audits are recommended and actually required by shareholders, investors, and members. In addition, at most of times, it is required by creditors in case of seeking loans or funding. A review, especially an audit can give your company’s financial statements extra credibility, on top of having a good accounting system internal control.
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Note: The continuation of this topic, “7 Basic Things You Need To Know during Start-up Year of Business" will be continued on the next post, “Part 4 of 7: Things to Know When Hiring Employees or/and Contractors". Until then.

Hope you like browsing the inserted pictures. They came from the 1000s of photos I collected. Also, make sure to "click" all the "caption/wordings" at the bottom of each picture (you'll be surprised where they are linked to!:) They are not related to the topic of this post (of course). I thought it would be nice to insert them, just to give you a break while reading this post. Until then.
 
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Contact:
Earla RiopelBSCom(USA), DipAcc(UBC)

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