Common Cents

Working your business, selling your product and dealing with your clients takes up most of your time. The information is entered into the accounting software and that the end of the month you have reports. You wonder what exactly they are, and what are they trying to tell me.

The Financial Statement are not scary, they help to spot problems and identify ways to correct the problem. The most important reports are the Balance sheet, Income statement (profit and loss) and the cash-flow statement. Understanding these statements is very important because they tell you what has been happening in the past and what is going to happen in the future.

The Balance sheet is a listing of everything your company owns (assets) owes (liabilities) and the value of the ownership in the company (Capital). Assets = Liabilities + Capital. The balance sheet is also called a Statement of Financial Conditions, meaning it shows the financial positions of a company at a specific point in time.

The Income statement answers the question “How did we do?” This report listed the different types of revenue (sales) and expenses that have occurred from operating your business during a given time. The difference between the revenue and expenses represents the net income of loss for the time period the report is run for. The report can be run yearly, quarterly or monthly. The bottom line of this report is the bottom line of how the company did.

Income statement can be designed to show a comparison of this month vs. last month, last quarter vs. this quarter and last year vs. this year. The comparison is just another tool to help you in the decisions process for your business.

The cash flow statement explains the change in the cash balance during the accounting period. The item that increase cash are revenues collected, long term financing (money received from a loan), sales of non current assets (sale of equipment), an increase in current liabilities accounts (increase in Accounts payable) or a decreases in any current asset accounts. Uses of cash include operating losses, debt repayment, equipment purchases and increases in any current assets accounts. Having the information on the increase or decrease in cash it is useful in warding off cash-flow problems. A company that has net income may not have positive cash flow. That is why it is very important to see where the cash is going.

Most business owners do not need to handle the day-to-day processing of accounting, which is fine if you have a bookkeeper or CPA that does it for you. But you must be able to review and understand the financial position your company is in. That understanding comes from understanding the financial statements.

We all at one time or another need to issue a credit to a customer. To do this in QuickBooks use the Create Credit Memos/Refunds window to issue a credit memo or refund check when a customer returns items for which you have already recorded an invoice, customer payment, or sales receipt.
To do this task
1. Go to the Customers menu and click Create Credit Memos/Refunds.
2. In the Customer:Job field, choose the customer and job for which you are creating the credit memo or refund check.
Important: If you have created more than one job for the customer, be sure to assign the credit memo to the correct job. You can apply the credit memo only to the same job for which it was created.
3. Select a template.
4. Click the Account drop-down list and choose which Accounts Receivable account to use.
This field appears only when you have more than one accounts receivable account (most companies have only one).
5. Enter the items being returned in the line item area.
Use the same information that was on the original invoice or billing statement. QuickBooks decreases the income accounts of the invoice items by the amount of the return.
6. (Optional) Assign a class to this credit memo.
7. (Optional) In the Customer Message field click a message from the drop-down list, or enter a new message to your customer.
8. (Optional) Enter a memo for this transaction.
The memo does not print on the credit memo, but it does appear in the Accounts Receivable register and in the customer register.
9. (Optional) Print the credit memo.
10. Save the credit memo.
The Available Credit window opens, where you tell QuickBooks how to use this credit.
11. Choose one of the following:
o Retain as an available credit
When you choose this option, QuickBooks enters a negative amount in your A/R register for the credit memo. Later, if you receive a payment for this customer, you can use this credit.
o Give a refund
When you choose this option, QuickBooks opens the Issue a Refund window. Here, you can issue the refund as cash, a check, a credit card refund.
o Apply to an invoice
When you choose this option, QuickBooks opens the Apply Credit to Invoices window, where you can select an invoice to which you want to apply this credit.
This item and more can be found in the Help center in the Quickbooks software.

Receiving an NSF check from one of your customers can be an unfortunate reality of doing business.

You received a notice from the bank that one of your customer’s checks has been returned. Most business at one time or another has experienced this. You need to take the monies out of your checking account and also put it back on the customer’s account to show that they still owe you. One way to handle this is as follows:

1. Create an Item in Quickbooks select Other Charge and call it Bounced Check or NSF. In the description field you can say “Your check # has been returned, please remit replacement payment immediately.” For the Account enter your Checking account.

2. Now, Invoice the customer for the Item Bounced Check and enter in the check #, Invoice # and other information about the check. This takes the money out of your checking account and puts it back on the customer A/R

3. Create an Other Charge Item called NSF Fee and charge the customer for any service charge you received from your bank. You can use the account for Bank Service Charges to offset what your bank charged you or can use Misc. Income account.

4. When the customer sends a replacement check, Receive Payment as usual and makes your deposit.

You do not t want to delete the returned check from the original deposit, that may seem the easiest thing to do but you did deposit the check. If you delete it your deposits in QuickBooks will not match the bank statement. Creating the items and recording the NSF allows you to keep your original deposit intact, subtract the amount of the returned check from your checking account and record who owes you for the returned check

When your QuickBooks account doesn’t balance with your statement, here are some tips for resolving the differences.
First, answer some basic questions:
1. Are you trying to match the wrong account?
If you are trying to match the wrong account, switch to the correct one and start again.
2. Does the beginning balance on the statement match the beginning balance on the Begin Reconciliation window?
Check to see if the initial state of your account (entered when you created the account) is correct. Have you inadvertently made changes to previous reconciliations, changed the amount, changed the account, deleted a transaction, or changed the cleared state? You must correct any of these issues to continue.
3. Are all transactions on your statement marked with a checkmark in your Reconcile window?
Look for missing transactions and correct them. Also, enter and clear any transactions that don’t yet appear in QuickBooks.
4. Does the ending balance in the Reconciliation window match the one on the statement?
Click Modify and correct the ending balance so that it matches.
5. Are there checkmarks on transactions in the Reconciliation window that don’t appear on your statement?
Clear the checkmarks on any transactions that don’t appear on the statement.
Look for the following typing or data entry errors:
• Transposed numbers
• Incorrectly categorized transactions (deposits should be added, checks should be subtracted)

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This artical came from The American Institute of Professional Bookkeepers Bookkeeping Tips from their May addition. BOOKKEEPING TIPS is a weekly e-letter published by The American Institute of Professional Bookkeepers (aipb.org), Suite 500, 6001 Montrose Road, Rockville, MD 20852. Tel.: 800-622-0121, Fax: 800-541-0066, email: info@aipb.org.

Firms owned by parents that employ their children. Owners’ children can work for the firm, regardless of age, number of hours worked or time of day—if the parent(s) own 100% of the business. Children under 16 cannot do hazardous work such as use lawn mowers, sewing machines, etc., work where food is cooked, or work near flammable or hazardous material.
Minimum wage: 100% of owners hiring only immediate family members need not pay the minimum wage. But if owners regularly employ nonfamily members, they must pay even family members the minimum wage.

Owners’ children under 21: Wages are exempt from FUTA.

Owners’ children under 18: Wages are exempt from FICA—if the parents are sole owners or sole partners—but FIT must be withheld on W-2s filed for the children.

Other children under 18: Obtain an age certificate recognized by the U.S. Department of Labor (DOL) and your state Wage and Hour Division (WHD) and return it to the workers upon termination. DOL generally accepts a state age certificate, but ask your state WHD to be sure. These workers may not perform hazardous work.

Other children aged 14-15 can work 8 hrs/day, 40 hrs/wk, June 1-Labor Day, between 7 a.m. and 9 p.m. if school is not in session. Exceptions: These limits do not apply to news carriers or children who are employed exclusively by a parent/sole-proprietor. For agricultural jobs, contact the DOL.

Other children under 14 cannot be hired unless they work for a parent/sole owner.

Paid holidays. Under federal law, paying part-time and summer help for holidays is optional any time of year.

Paid vacation. No law requires paid vacation, but if you give paid vacation, some federal and state laws apply.

Benefits. Providing health insurance or other benefits to temporary and part-time employees is optional; if not available, it should be so stated in a written benefits plan.

Federal W-4. Obtain from all summer employees, even students working part-time and foreign students.

FITW. Withhold from all summer employees unless their W-4 results in no withholding.

FICA. Withhold from all workers, even those receiving Social Security benefits and high school students, unless under 18 working for sole-owner parents.

Overtime pay under federal law. Pay overtime for all hours physically worked over 40 hours in the workweek. When computing overtime, you need not include paid time-off (e.g., holidays or vacation days). Do not try to substitute paid nonwork hours for work hours to make all hours straight time, thus avoiding overtime pay.

Estimated Tax Payments for 2009
The Recovery Act reduces the 2009 required estimated tax payments for certain owners of small businesses.

An individual’s required estimated tax payments must generally equal the lesser of (1) 90% of the current year’s tax or (2) 100% of prior year’s tax (110% for individuals with adjusted gross income of $150,000 or more for the preceding year).

The new law reduces the required payments for qualifying individuals to the lesser of (1) 90% of current tax or (2) 90% of the prior year’s tax [IRC Sec. 6654(d)(1)].

To qualify an individual must (1) have adjusted gross income of less than $500,000 for the prior year, and (2) certify than more than 50% of his or her adjusted gross income comes from a small business. For this purpose, a small business is one that employs less than 500 employees.

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WASHINGTON — The Internal Revenue Service announced March 30, 2009 that taxpayers who buy a new passenger vehicle this year may be entitled to deduct state and local sales and excise taxes paid on the purchase on their 2009 tax returns next year.

“For those thinking about buying a new car this year, this deduction may give them a little more drive to make their purchase this year,” said IRS Commissioner Doug Shulman. “This deduction enables taxpayers to buy now and get cash back later on their tax returns.”

The deduction is limited to the state and local sales and excise taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home or motorcycle.

The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.

IRS also alerted taxpayers that the vehicle must be purchased after Feb. 16, 2009, and before Jan. 1, 2010, to qualify for the deduction.

The special deduction is available regardless of whether a taxpayer itemizes deductions on their return. The IRS reminded taxpayers the deduction may not be taken on 2008 tax returns.

http://www.irs.gov/newsroom/article/0,,id=205863,00.html?portlet=7

While doing accounts payable have you ever wondered how much money you would save if you paid the invoice in time to take the discount? Or do you take the discount when you can?

A good way to track discounts is to record missed discounts in a Purchased Discount Loss account using the net-price method.

Your company receives and invoice for $2,000.00 with a credit term of 2/10, n/30. Under the net price method, the following entry is recorded:

Entry to record invoice:
Purchases $1,960.00
Accounts Payable $1,960.00

To record payment:
Accounts Payable $1,960.00
Cash $1,960.00

If the bill was not paid in time to take the discount, the entry is:
Accounts Payable $1,960.00
Purchase Discounts Lost 40.00
Cash $2,000.00

The Purchase Discounts Lost not only simplifies bookkeeping, but it calls attention the money-saving discounts you may be missing.

5 Basics of a Bookkeeping System
A bookkeeping system is essential for any business, no matter how small. You have several options in setting up a basic bookkeeping system. The five basics of a bookkeeping system are:
Check register - records each check, much like a personal checking account.
Cash-receipts journal - tracks incoming money.
Sales journal - will show each business transaction, what business took place, the amount of the invoice and the sales tax.
Accounts Payable register - records bills, money owed, the date of bill, who it is from and what service was given.
General journal - allows you to adjust the entries in the other four registers.
Computerized systems do the math easily and accurately

Most small businesses choose software over manual bookkeeping systems. For about $200 or less, you can get a good package for your startup business. Don’t buy a system that’s too complex, but also avoid a system that will have to be replaced in two or three years when your business has grown. I recommend QuickBooks Pro or Simple Start.

Paper systems are convenient for very small businesses

If you’re just starting your business, a manual, or paper, bookkeeping system may be the way to go. Setting up the 5 registers in Excel spreadsheet will be helpful with the math.

Additional Tips and Tactics

Even if you choose a computer program for bookkeeping, you still have to maintain appropriate backup paper files. Those should include paid invoices and receipts from vendors, purchase orders, paid bills and deposit records from customers.
Maintain a clean audit trail of information.
Record the date paid, check number and amount paid on each invoice you pay.
Keep a copy of each check received from customers and attach that to deposit slips so you have a record of each payment received.
Keep as detailed a record as possible of the invoices sent to customers, and the outstanding amounts due.