With business bookkeeping and basic tax tips for new and old entrepenuers

Thursday, November 20, 2008

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?

Monday, November 10, 2008

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.