This information is designed for new business owners who have limited knowledge in the accounting and bookkeeping area. This list is comprised of often asked questions and is a collection of our client’s “I wish I had known that”.

Bank Accounts
It will make your life easier if you set up a separate bank account for your business. Whenever possible, try to separate your business banking from your personal banking. If you need to pay personal bills, transfer the money from your business account into your personal account. It may seem easier to just pay the expenses from your business account, but it complicates the accounting. In addition, the Internal Revenue Service likes to see a separation of your business from your personal banking.

Credit Cards
The best option for charging business expenses is to have one credit card used exclusively for your business. If you are unable to obtain a business credit card, choose one of your personal cards and use it for your business charges.

Deposits
When completing your deposits, it is important to have enough information so that you will know who paid you. You can do this through two different methods. The first, is to list each check separately on your deposit slip and write the name of who paid you somewhere on the deposit slip. The second method is to copy all of the checks before they are deposited. Write the amount of the deposit and the date on the copy.

Filing System
Many small businesses write only 5 – 20 checks per month. The one method of filing that is not recommended is to throw all of the receipts into one file or envelope for the entire year. There are two good alternatives for small businesses. The first method is to have one file for each month. The bills paid in January, will be in the January file. While this method is quick, it can be difficult to find a receipt or an invoice because you will need to know the month it was paid before you can lay your hands on the invoice. The other method is to set up vendor files for vendors that you pay on regular basis. A miscellaneous file can be started for the other vendors. To be really organized, the receipts should be filed in alphabetical order. Or, a miscellaneous file for each letter can be set up to organize your invoices and receipts. As your business grows and you pay more and more vendors, you will need to set up vendor files.

Manual or Computerized Accounting System
We recommend our clients use a computerized system. First of all, the amount of time spent on accounting will be less with a software program. At the end of the year, you can back up your file and send it to us. That is most of the information we need to prepare your return. It will also be very easy for you to pull together information for your bank or to know how profitable you are at any point in the year. It is possible (and very easy) to write checks using the software program that again reduce your time and give your business a professional image. If you have employees, it is difficult for them to cash hand written checks. There are two very good software programs available in the $100 - $250 range.

Account Names to Use
Your accounting system should give you the information you need. Set up as many accounts as you will find helpful. For instance, some business owners just want to know the total amount of telephone expense. While others may want to know how much is telephone, cell phone and long distance. There is no right or wrong answer; it depends upon the information you want.

Equipment Costs
The IRS requires that equipment with a life of more than one year be “capitalized”. Capitalizing an asset means we code it in the Balance Sheet and write it off or depreciate it over a 5 or 7-year period (generally). It probably doesn’t make sense to capitalize a calculator that costs $75 or a $10 wastebasket. We recommend you set a threshold for capitalizing equipment and code everything under this threshold to office supplies and everything over the threshold to Furniture and Equipment on the Balance Sheet. The threshold will depend upon your annual revenues and other personal criteria.

Meals and Entertainment
Meals and entertainment expenses are only 50% deductible in most cases. We recommend you set up a separate account to track these expenses to save yourself time in the long run. These expenses must be directly related to the active conduct of a business. It is a good idea to write on your receipt who attended the meeting and what business was discussed. There are a couple of common exceptions. Food and beverages provided as a benefit to employees can be fully deductible. Examples would be coffee or pop. Corporate events such a holiday party or company picnic are generally fully deductible.