On-line (Cloud) Computing for Small Business

Posted on by William A Olson, CPA

More and more office applications are moving to cloud from spreadsheets and word processing programs to accounting systems. Some are even free of charge (Google Sheets and Wave Accounting) but others are available for a subscription fee. For the small business owner who wants to be able to access all of their data from anywhere they are on any device they are using, cloud computing is becoming more and more the solution of choice.

If you are interested in learning more about the options available to small businesses, this article from PC Magazine highlights several cloud computing options available.

Most Common Bookkeeping Mistakes

Posted on by William A Olson, CPA

1. USING THE WRONG ACCOUNTING METHOD

There are two main business accounting methods: cash and accrual. Cash accounting is the simpler method because it’s based on the actual flow of cash in and out of a business. The cash method is used primarily by sole proprietors and businesses with no inventory. On the flip side, accrual accounting records income and expenses as they occur, whether cash has actually changed hands or not.

As they grow and become more complex, most small businesses should switch to accrual accounting, because this makes it easier to accurately match revenue to expenses. Otherwise, the business might look profitable during months with few expenses and unprofitable during months with large expenses, with no way of really knowing the difference.

2. COMBINING PERSONAL AND BUSINESS FINANCES

It’s critical that personal and business finances be kept separate at all times, regardless of a company’s size. That’s why one of the first things new business owners should do is open a business checking account and deposit all business income into this account.

The next step is to work with an accountant to devise an earnings management strategy dictating how cash is removed from the business to meet personal expenses and savings goals. Your earnings management strategy will be driven by such factors as how much of your profits need to be reinvested back into the company, the timing of payments for large business expenses, your cyclical or seasonal cash flow needs, and your long-term personal financial strategy.

Click here for 8 more common bookkeeping/accounting mistakes.

QuickBooks Online: A review from the CPA Practice Advisor

Posted on by William A Olson, CPA

QuickBooks Online is a product more and more of my clients are using. It’s accounting in the “cloud” which allows you to access your accounting records from anywhere you can access the internet. You can give your accountant access to view your file so that there’s a greater opportunity to review your books mid-year.

Here’s the review.

Year End Checklist for businesses

Posted on by William A Olson, CPA

Closing Your Books

As you are cleaning up your accounting records for year-end, here are some steps you can take now to make tax-time easier:

  • Verify that you have W-9 forms for each of your independent contractors or at least have their Tax Identification Number on file.  You will need this information in order to prepare 1099 forms in January. Going forward, it’s a good practice to obtain a completed W-9 form from each new vendor before you pay them.
  • Review your Accounts Receivable.  Are all of them collectible?  If you have any bona fide bad debts on your hands, it is time to write them off before year-end. You should also review your receivables to reconcile them against your customer accounts, confirming the balance of each.
  • Review your Accounts Payable. Wherever possible, you should reconcile your vendor accounts against a statement from that vendor.
  • Reconcile all of your bank accounts using the year-end bank statements. When reconciling your bank account, be careful to review any “Uncleared” transactions, as they may be duplicate entries, checks that were lost in the mail, or simply entries that should have been deleted.
  • Reconcile all of your credit card accounts, lines of credit and outstanding loans.
  • If you carry inventory, it’s time to do a physical count of your inventory and reconcile it against the inventory reported on your balance sheet. Take this opportunity to adjust your inventory for shrinkage, spoilage, or obsolescence.
  • Make a list of all new equipment and other fixed assets acquired during the year, including the purchase date, amount and description.  If you’ve disposed of any old equipment, whether by selling it or by putting it in the dumpster out back, make a note of that, too.
  • Review your payroll liability balances (941, Michigan Withholding, unemployment, etc.) and adjust if necessary. Also double-check that all payroll tax forms have been filed as necessary.
  • Similarly, review your sales tax liability balance and confirm that your sales tax filings are up-to-date.
  • For paper records, prepare to archive any records that you need to retain. For any records considered vital, make a copy that can be kept off-site.
  • Finally, make a backup of your QuickBooks file or accounting records file to be kept off-site.

W-2s and 1099s

1. If you have employees, you must send W-2s to your employees by January 31st.

2. If you make payments to non-corporate taxpayers in excess of $600 for services or rent, you must file form 1099 to your subcontractors and/or landlord. If you have not already obtained the tax ID of the subcontractor or landlord, use form W-9. 1099s are also due to the recipients on January 31st.

If you would like me to fill out your W-2s or 1099s, please contact me with the appropriate information. If I have already been preparing your payroll and payroll tax returns, I will automatically prepare your W-2s, but will most likely need the information to prepare any 1099s you are required to issue.

Common Small Business Mistakes

Posted on by William A Olson, CPA

According to the U.S. Small Business Administration (SBA), a small business is one that employs fewer than 500 employees, a definition that applies to a wide swath of companies. In fact, the SBA says that small businesses account for 99.7% of employer firms, making them a significant sector of the economy. There are many challenges for small businesses, however. If you are a small business owner or have plans to be one, the Oregon Society of CPAs offers these tips on three common mistakes to avoid.

Mistake # 1: Act First, Plan Later

Forging ahead without knowing where you’re going is always a bad idea, but it’s especially true with a small business. Whether you’re launching a start-up or thinking about the near-term prospects of an existing company, it’s wise to set down a formal business plan or strategy for the near term. The plan will be essential for new ventures that are seeking outside financing, and it can also provide a crucial reality check that will help clarify your goals and decisions no matter how long your company has been around. It may also be a good idea for a mature company to create a new business plan if, for example, you need additional funding or investments, if you are experiencing a meaningful rise or decline in demand or new competition or if you’re considering a change in management or a merger or acquisition. The plan should include financial statements that give you a sense of where you stand and insights into the company’s strengths and weaknesses, as well as an overview of the market for your products or services and the competition you face, among other things. It should also describe your business, including your top executives and other key employees and their experience. The plan elements may vary depending on your goals, which may include making strategic decisions, attracting investments or financing or recruiting new employees. The SBA offers details on business planning that can introduce you to the process. For help in crafting a plan customized for your organization and understanding how to put it to work in your business, turn to your CPA.

Mistake # 2: Fail to Set Goals

Your business plan offers a blueprint of your organization, all that it has going for it and the challenges it may face. Many people drop it in a drawer once it’s done, but that’s a tremendous waste of valuable information and insights. Instead of setting your plan aside, use it to set near- and long-term goals and to diagnose any roadblocks that may stand in the way of future success. Your business plan can be the centerpiece of a strategic planning session in which your company executives, and perhaps your investors, plot a course for your future. Remember that including your CPA in this planning session can provide you with valuable financial and market insights. If the company is a solo or very small operation, consider sharing your plan with trusted advisors, including your CPA, to gather their input.

Mistake #3: Forget Your Purpose

When you launched your company, you probably had very clear goals in mind. Are you still on target to meet them? Sometimes, given the day-to-day demands of running a business, it’s possible to forget the reason you started the company in the first place. Or perhaps a challenge in one area of the business has made you lose sight of opportunities or threats in other areas. If you’re not sure that your company is still on the right path, an objective observer, like your CPA, can offer some worthwhile perspective.

Turn to Your Local CPA

CPAs work hand in hand with hundreds of thousands of small companies across America, offering them advice and information that enables them to meet the challenges they face and achieve their goals. Be sure to consult your CPA with all your financial questions.

Dollars & $ense is a regular column on personal finance prepared and distributed by certified public accountants, produced in cooperation with the Oregon Society of CPAs (www.orcpa.org) and the American Institute of CPAs (www.aicpa.org).

Compiled Financial Statements

Posted on by William A Olson, CPA

The most frequent use of a compiled financial statement by a small business is to obtain bank financing or comply with loan covenants. But what is a compiled financial statement and how is it different than an audit?

Difference Between Compiled and Certified Financial Statements

  • A certified financial statement has been audited or reviewed and certified as materially accurate by an outside accountant (CPA). A compiled financial statement has not been audited or reviewed by a third party, but rather it has been assembled from information provided by the business typically without verification. Small companies often release compiled financial statements to obtain bank financing or comply with loan covenants.

Components of a Financial Statement

  • A compiled financial statement typically includes a balance sheet, cash flow statement and income statement, but can omit the cash flow statement. The income statement reports the companies revenue or sales, expenses and net profit over a period of time, and the balance sheet reports a business’s assets, liability, and net worth as of specific point in time. The cash flow statement reports the change in a company’s cash over a period of time.

Timing

  • Financial statements are usually compiled on a quarterly and annual basis. Some jurisdictions actually require that financial statements be compiled on a quarterly basis or as needed.

Source: http://www.ehow.com/facts_5050176_cpa-compiled-financial-statement.html

Why to keep good records… the IRS’s answer

Posted on by William A Olson, CPA

Everyone in business must keep records.  Keeping good records is very important to your business.  Good records will help you do the following:

  • Monitor the progress of your business
  • Prepare your financial statements
  • Identify source of receipts
  • Keep track of deductible expenses
  • Prepare your tax returns
  • Support items reported on tax returns

Monitor the progress of your business
You need good records to monitor the progress of your business. Records can show whether your business is improving, which items are selling, or what changes you need to make.  Good records can increase the likelihood of business success.

Prepare your financial statements
You need good records to prepare accurate financial statements.  These include income (profit and loss) statements and balance sheets.  These statements can help you in dealing with your bank or creditors and help you manage your business.

  • An income statement shows the income and expenses of the business for a given period of time.
  • A balance sheet shows the assets, liabilities, and your equity in the business on a given date.

Identify source of receipts
You will receive money or property from many sources.  Your records can identify the source of your receipts.  You need this information to separate business from nonbusiness receipts and taxable from nontaxable income.

Keep track of deductible expenses
You may forget expenses when you prepare your tax return, unless you record them when they occur.

Prepare your tax return
You need good records to prepare your tax returns.  These records must support the income, expenses, and credits you report.  Generally, these are the same records you use to monitor your business and prepare your financial statement.

Support items reported on tax returns
You must keep your business records available at all times for inspection by the IRS.  If the IRS examines any of your tax returns, you may be asked to explain the items reported.  A complete set of records will speed up the examination.

Here’s the link to the IRS site… Why to keep good records.

Year End Checklist for Closing Your Books

Posted on by William A Olson, CPA

As a business owner, it’s imperative to maintain accurate accounting records in order to substantiate all the items of income and expense on your tax return. A vital piece of the accounting process is the year end (or month end) closing process. Here’s a quick checklist for closing your accounting records at the end of the year:

1. Verify that you have W-9 forms for each of your independent contractors or at least have their Tax Identification Number on file. You will need this information in order to prepare 1099 forms in January. Going forward, it’s a good practice to obtain a completed W-9 form from each new vendor before you pay them. Here’s a link to form W-9: http://www.irs.gov/pub/irs-pdf/fw9.pdf

2. Review your Accounts Receivable. Are all of them collectible? If you have any bona fide bad debts on your hands, it is time to write them off before year-end. You should also review your receivables to reconcile them against your customer accounts, confirming the balance of each.

3. Review your Accounts Payable. Wherever possible, you should reconcile your vendor accounts against a statement from that vendor.

4. Reconcile all of your bank accounts using the year-end bank statements. When reconciling your bank account, be careful to review any “Uncleared” transactions, as they may be duplicate entries, checks that were lost in the mail, or simply entries that should have been deleted.

5. Reconcile all of your credit card accounts, lines of credit and outstanding loans.

6. If you carry inventory, it’s time to do a physical count of your inventory and reconcile it against the inventory reported on your balance sheet. Take this opportunity to adjust your inventory for shrinkage, spoilage, or obsolescence.

7. Make a list of all new equipment and other fixed assets acquired during the year, including the purchase date, amount and description. If you’ve disposed of any old equipment, whether by selling it or by putting it in the dumpster out back, make a note of that, too.

8. Review your payroll liability balances (941, Michigan Withholding, unemployment, etc.) and adjust if necessary. Also double-check that all payroll tax forms have been filed as necessary. Similarly, review your sales tax liability balance and confirm that your sales tax filings are up-to-date.

9. For paper records, prepare to archive any records that you need to retain. For any records considered vital, make a copy that can be kept off-site.

10. Finally, make a backup of your QuickBooks file or accounting records file to be kept off-site (if possible).