Is there something I should write on those receipts?

From: Business School 101

and Alamo Bookkeeping Associates

So now you know that you should keep your receipts. Because you may accumulate so many, you may want to write a note on them to remind you why you bought them. For instance, you went to the art supplies store to buy sign making supplies. Write on the receipt, "supplies for store sign", or "advertising materials". Or you bought food for a promotional event. Write down what the event was to jog your memory later.

I also recommend that you write down at least the month, year and the amount. Why? Because a lot of these receipts fade quickly. I don't know how many receipts I have looked at that have faded off, or the ink was very light. Or it is on that cheap fax paper that if you touch it, it smears and you have no idea what it says. Again to save yourself the headache a year later when you are reviewing your receipts for tax purposes, if some have faded, chances are the pen ink did not.

Amazing, isn't it? Computers and cash registers cost a fortune, yet the paper they use is so cheap it doesn't preserve the ink. I see a great opportunity for an inventor of ink that does not fade, no matter the paper type. Call me when you invent it.

Next: What other things should I be keeping track of?

What to do with those receipts

From: Business School 101

and Alamo bookkeeping Associates

Those big and little receipts. You are going to probably accumulate a lot of them. We were suppose to become a paperless society with the advent of the computer but it seems that now we just produce more paper a lot faster.

Receipts are important and there are different views on this. I believe that you should keep all your receipts because a lot of small purchases soon add up to big numbers.

For instance, you buy coffees at Starbucks for business client meetings. Most of those purchases individually are small, however if you add up 4.75 daily for coffees for 20 days you wind up with $95.00 in coffees for clients from Starbucks. Then multiply that by 12 months and it becomes a lot more. Therefore, to be better safe than sorry, I recommend you keep all those pesky little receipts. The IRS rules recommend keeping receipts for at least 3 years. If you buy an asset, which I will discuss in future postings, you may want to keep the receipts longer, because many assets have to be depreciated over several years.

However the IRS also states that if there is fraud involved on a tax return, there is no statute of limitations, which means they can go back more than 3 years. However if you are a small business, I would not worry about this too much, and you shouldn't be doing fraud anyway, it's not worth the pain it can cause you.

So how should receipts be stored? If you are just starting out, you can get an expandable folder with pockets and simply store them by month. Or you can begin categories such as phone, utilities, office supplies, etc. Whatever main categories of spending you do, make a tab label. However if you are not sure what categories you should use then just do it by month for now. Since bookkeeping is normally entered by monthly periods, it is easier to pull a receipt by month when you need to look something up.

Another way to do it is to buy some over-sized manila envelopes, label an envelope for each month, and stick the receipt in the appropriate envelope.

Now if you are buying file cabinets, you can use this same theory in your cabinets. Either file them by month or by type. Some businesses also file by the name of the company they purchased from, however this can get ridiculous especially if you buy something from a company only once. Do you really want to create a file for each company you buy from for one purchase? For now I recommend the simplest method, which is by month.

Next: Is there something I should write on those receipts?

What to write in your check register

From: Business School 101

and Alamo Bookkeeping Associates

Alright so now you have started using your business checking account for your business purchases. So what are you suppose to write in the little book the bank gives you called a check register?

Here is what you should be writing:

The date of the purchase.

The name of the store/business you purchased from.

The amount.

Why you bought it.

Example: 3/27/06 Office Depot $50.00

Sign for Window.

Try to do this at the time of purchase so you don't forget. It is a lot harder to try to remember a month later what you bought where and for what reason. This information is important for bookkeeping and tax purposes because expenses are placed in categories (more on this in a future posting).

I also recommend that if you buy something for cash (some places will not take checks) that you also write that down in your check register and note it is a cash purchase, that way you don't forget to include it in your expenses for bookkeeping.

Next: What do I do with all the receipts?

How to use your business checking

Business School 101- Lesson 2

From: Alamo Bookkeeping Associates

Alright, so now you have gone to the trouble of opening a business account at a bank, you now feel "official" and are wondering how you should use this account.

Here is my advice: Try to use it for everything you can if it is an expenditure for your business. When you go to the Office Max or whatever office store, use your business checking. When you take out permits or licenses, use it. When you buy food or go out to dinner and you are doing it with or for a client, use it. In short, you want to use it for whatever you are purchasing or getting a permit for, even utilities for a business location. One of the biggest headaches at the end of the year for small businesses is trying to decipher what you spent, where and why. If you mix these expenses with your personal expenses, you have one big headache at the end of the year trying to remember why you bought something and what it was for. If you pay cash you may lose the receipt or forget to record cash spent on the business.

Next-what to write in your check register.

What else do I need to get my books started?

Business School 101 - Lesson 1 cont.

From: Alamo Bookkeeping Associates

Alright, so when you go to the bank, they are going to ask you if you will be doing the business in your own name, or if you have a "DBA" (Does Business As). A DBA, also called an assumed name, is simply a name you have chosen for your business, that you use in place of your name. For instance, Your name is Jackie Jones, but you want your business to be called, "Jackie's World", or "Juicy Juices", or any other name you want. The business name does not have to have your name in it. And you don't have to be a corporation to use a business name (more on incorporating later).

So how do you get an assumed name? Well the best way to do it is to go to your county courthouse. They will have an office for assumed name filings. Many times this office is part of another office, such as for marriage licenses or something else. You fill out a form and let them know the name or names you want to use. You may need to pick out more than one name in case someone else beat you to the name, so have an alternate business name ready. The clerk will tell you if the name you picked is already taken or not. However it only tells you for the county, not state or nationally so you may want to check the phonebook or Internet to see if someone else is using that name extensively. You can also go to the web site for your Secretary of State and apply there, however it may take longer.

An assumed name certificate is good for ten years in Texas, this may be different in other states. There will be a nominal fee, probably not more that $20.00, depending on where you live. The clerk will ask you if you need an "official" certificate, say yes, as you will need that for the bank.

This is what you take to the bank when you open your business account. You are now an "official" business.

Next: Ok, now I have a business account and name, now what?

What exactly is a set of "Books"?

Business School 101

From Alamo Bookkeeping Associates

Ok, so now you have a small business started, maybe have big plans and you are concerned about getting a set of "books". So what exactly does that entail? Well it entails a lot of small things. First of all, you should NOT combine your personal expenses with your business expenses in the same bank account. Number one, it's hard to remember when you go back and look at your check register (if you bother to keep one), whether something you bought at the grocery store was for business or personal, unless it was obvious office supplies. There are a lot of things you can buy at a grocery store for an office or business, such as paper goods, cleaning supplies, water, snacks, etc.

So the best thing to do from the start is open a separate bank account at your bank or another one that is convenient to you. Many banks have free checking for small businesses. If you are a big business, then you will probably have to pay some fees due to the number of transactions you have. However if you are just starting out or plan to have a slow start you do not need anything other than a basic checking account, with maybe a debit card. Don't bother with the hard sell of your friendly banker, he will try to sell you top of the line with a nice monthly fee for them. You don't need that now. You can always upgrade later. However I definitely recommend that you ask for your check copies to be returned with your bank statements. It is a lot easier to get the copies with the original statements than to request them later.

The other reason you don't want to mix personal purchases with business ones is because if by some remote chance you get audited by the IRS (highly unlikely for a small start-up), or have to show your bank statements to somebody (think loans) you will be revealing everything that you purchase and maybe there is some stuff on there you don't want to show such as certain types of magazines, or other personal paraphernalia. Keep your private stuff off your business receipts.

Next: What else do I need to get my "books" started?

So when should I start worrying about keeping "books"?

Business School 101 - Lesson 1:

From Alamo Bookkeeping Associates

Picture by freefoto.com

Alright, so I am asked the question, when should I start worrying about my "books". A lot of people don't even know what "books" are, they just hear the term from other people and in some movies, usually movies having to do with the mafia or other criminals.

Books, are accounting information. It basically measures how much money you make and how much you spend on your business. When should you start a set of books? Well, it kind of depends on how much activity you have. My advice is as soon as you hit over 20 transactions, that is, deposits to your bank or checks/debits, cash transactions concerning your business, you should probably start some bookkeeping, so you can keep track of what is going on, and don't have to rely on your memory as the months go by.

Next, what exactly is a set of books?