I’d love to introduce today’s guest blogger, Sharon Epple! She is a member of The Hive’s mastermind group, the president of Benchmark Administrative Support Services, Inc. and Niche Marketing Company, Inc. and she is an Intuit QuickBooks ProAdvisor with over 25 years’ experience in bookkeeping. Sharon has been kind enough to compile a list of her top 12 year end bookkeeping tips just for handmade businesses! Once you finish reading, if you have any questions for Sharon, please feel free to post them in the comments or join our wonderful mastermind group and post your bookkeeping questions there!
Getting Ready for Year End Bookkeeping
Today is the last day of 2016. And what a year! As we look forward to an even better 2017, now is the time to gather all of your business bookkeeping information and get down to the fun task of updating your accounting system through December 31, 2016 so that you can meet with your tax accountant. The earlier you meet with your accountant, the sooner you’ll know whether or not you have to pay or will be receiving a refund.
There is an added push this year to get this job done in January as the IRS is now requiring all businesses to issue W-2’s and 1099 – Miscellaneous Income forms to recipients by January 31, 2017 AS WELL AS submitting Form W-3 – Transmittal of Wage and Tax Statements and Form 1096 – Annual Summary and Transmittal of U.S. Information Returns by January 31, 2017.
This is also an excellent opportunity for you to make a commitment to yourself to handle your business money better in 2017 by setting up new bookkeeping practices that will keep you better informed in the new year and make your year-end process for 2017 MUCH easier!
Disclaimer: We recommend that you always run your accounting questions through your accountant before you spend hours entering transactions into your accounting system that may be incorrect. An experienced and qualified bookkeeper or your accountant can help you get your accounting system set up correctly and guide you in entering your transactions the right way. The suggestions in this article are not meant as a replacement for getting good sound advice from your accountant.
Okay, let’s get started…
- Gather All Deposits and Vendor Bills – It’s critical to keep good accounting records. Gather all customer invoices and payment deposits, vendor bills and payments, receipts for money you spent out of your pocket on your business, bank and credit card statements. You’ll need to refer to these as you enter in all of the transactions in your accounting system.
- Record all Transactions – Be sure you have recorded all customer invoices, payments, vendor bills and payments in your accounting system. If your business has employees, you must record wages, payroll tax liabilities, and payroll tax expense in your accounting system. If you use a payroll service provider like ADP, Paychex or other services, they will provide you with reports that summarize the figures you need to record. (If you need help with this, talk with your bookkeeper or accountant and they’ll either do it for you or give you the journal entries needed.)
- Get QuickBooks – If you don’t have an accounting system, but instead keep everything in a shoebox and on spreadsheets that you give to your accountant, NOW is the time to get QuickBooks. Using an accounting system and keeping it up to date helps you to better understand your business throughout the year and make sounder business decisions. There are various versions of QuickBooks Online that are specific to your size business that will help you to not only automate some of the bookkeeping process, but give you the ability to issue customer invoices, process customer payments, scan and enter vendor bills, and see your accounting system on the fly right from your smartphone. This saves you an amazing amount of flexibility, time, and money. Also, QuickBooks Online can be synced with PayPal, Square, Shopify and other applications that will help you automate your accounting process. Here’s an article by Shopify on this subject.
- Record Loans and Paid-in Capital – If you’ve paid money into your business out of your pocket, you can record it as a loan to your business from you or paid-in capital (equity account).
- Record Owner Draws – Non-salary money you take out of your business is considered an “owner’s draw” and must be recorded. Draw is taxable to the owner. If your business pays you a salary (payroll) your payroll taxes cover your tax liability for your salary from the business.
- Record Your Business-related Mileage – You should track and deduct all business-related mileage. If you use your personal car for business-related trips, you should record the date of the trip, the total mileage, and multiply it by $.54/mile. More information about business mileage can be found here.
- Review Your Receivables – Review all outstanding customer invoices, send out reminders to those customers. Any outstanding invoices that you have not been able to collect may be written off. Please consult with your accountant on this before you do the write-off to ensure it qualifies.
- Review Your Inventory – Review your current inventory and determine the value of the items you haven’t sold as of 12/31/2016. You will need to review this with your accountant to see if any inventory should be written down as a tax deduction.
- A Word About Product Supplies – When you purchase materials to produce the products you sell, you must record the purchases of those supplies as Cost of Goods Sold. You can simplify this by creating a Cost of Goods Sold – Materials account in your accounting system. When you purchase these supplies, you’ll want to record the “expense” to this Cost of Goods Sold – Materials account. I don’t want to oversimplify this, but also don’t want to make the recording of these supplies so tedious that it discourages you from recording these costs in your accounting system. Best rule of thumb is to keep it simple and keep it consistent. By doing so, it makes it easier for your accountant to see what you have recorded and make any adjustments to your accounting system.
- A Word About Equipment – When you purchase equipment for your office or to make the products you sell, you must record the equipment as an Asset. The equipment should be “material in amount,” which means that if it costs more than $200 (for example), you would record it as an Asset under the Asset account Equipment. If it costs less than that, you could record it as an Equipment Expense. Always consult with your accountant if you have questions about how to record particular equipment you’ve purchased. If it is a larger piece of equipment, your accountant may depreciate it in one year or over the course of several years, depending on the equipment.
- Reconcile Your Accounts – All bank and credit card statements must be reconciled to ensure you have recorded all business income or expense. The reconciliation process also alerts you to errors and duplications in your accounting system that should be corrected.
- Prepare 1099s for Independent Contractors – Be sure you have a current W-9 completed by every non-incorporated independent contractor you do business with before you issue their 1099. This ensure you have the correct information to put on their 1099. If you paid $600 or more to an independent contractor, you must report this to the IRS on a 1099 and 1096. If you would like official information on what constitutes an “independent contractor,” please read this helpful IRS.gov article.
About the Author
Sharon Epple is president of Benchmark Administrative Support Services, Inc. and Niche Marketing Company, Inc. She has over 25 years’ experience in bookkeeping and using various accounting systems including QuickBooks desktop and online versions. Sharon is an Intuit QuickBooks ProAdvisor.
*If you have any questions for Sharon, please feel free to post them in the comments below or join our wonderful mastermind group and post your bookkeeping questions there!