It’s that time of year when clients
come into my office and confess that they haven’t kept very good
accounting records. Usually, when I take a look at their information,
it isn’t as bad as they think.
However, there are a few things that you can do before handing your
financial information over to your CPA, EA, or other tax professional to
save time and money on your Federal and State Tax Returns.
Here are some ways to prepare the books or to get them in order.
(This is an extremely simplified checklist, since every business is
Step One: Are all the Sales entered?
Step Two: Are all debit card charges, checks, and
bank fees entered? HINT: Quickbooks, Peach Tree and other accounting
programs allow business owners to automatically transfer bank
transactions to the accounting system, so this might be easier than you
Step Three: Is all the payroll information entered
correctly? Do the amounts of the accounts for Salary
Expense, Employment Tax Expense or Tax Liabilities equal the totals on
the payroll reports? If this part makes no sense to you, this is an
appropriate question to ask your CPA or Bookkeeper about how the payroll
expenses and liabilities flow through to your financial statements.
Step Four: Did you purchase any fixed assets during
the year? Has the transaction been recorded as a Fixed Asset and not
an expense? A Fixed Asset is an item that will last longer than a year
and provide a means of generating future income. Office Furniture,
Equipment, Vehicles, Leasehold Improvements, Computers, Software are all
common categories of Fixed Assets. This can be a technical question at
times, so ask your tax advisor if you have questions.
Step Five: When you took the books to your CPA last
year, did they have any questions? Do you have those same questions
answered for the current year?
Step Six: Bank Reconciliation. Everyone hates this
step. What it does is that you compare your financial records to your
banking information. Any transactions that haven’t cleared or posted
at the bank are added to list of outstanding transactions. If there are
a large amount of these transactions, it would be a good idea to double
check your processes to make sure it is being entered correctly. A
common mistake is to enter checks multiple times. (Especially Quickbooks
since it has a few different ways to enter checks.) The bank
reconciliation will help to ensure that your financial information is
correct. This last step is the biggest money saver of all. It helps
prevent double posting of expenses and revenue, ensures the Cash Account
is accurate, and helps prevent banking mistakes.
As I mentioned above, this is an extremely simplified list. For
instance, if you had inventory, it would be a good idea to do physical
count of items in stock. In addition, any outstanding loans need to be
properly recorded. Once the basics are completed, your advisor can help
you with the finer points of financial statement presentation and tax
These steps do take time and effort, however, they can be the key to
receiving a gold star from your CPA, Enrolled Agent, or tax
professional. In addition, these steps usually make people more
confident about their financial information.