66: Bookkeeping And Tax Strategies For Wrapping Up The End Of The Year Whether You Are Starting A B
66: Bookkeeping And Tax Strategies For Wrapping Up The End Of The Year Whether You Are Starting A Business, You Are Self-Employed, A Solopreneur, Entrepreneur, Small Business Owner, Remote Virtual Online Bookkeeper, Virtual Assistant Or VA
If you have a business or do bookkeeping for business owners, you know now is the time you need to wrap up your year-end financial statements. If you’ve heard the phrase closing the books, this is exactly what it means. You simply make sure you have all your money coming in and money going out of your business recorded and reconciled so that your financial statements reflect accurate data. You will use this data to prepare your tax return, so it is extremely important that you do this correctly. In today’s podcast episode, you’ll learn the top tasks you need to do to close out your books whether you are using a computerized software system like QuickBooks, Xero, Wave or FreshBooks for your business finances, or if you are doing your bookkeeping manually with an Excel spreadsheet or even a Google Document. Many of the processes are the same regardless of which system you use to do your bookkeeping. Having your financial statements and your bookkeeping ready so that you can have your tax return prepared on time with little to no stress is the ultimate goal here. Whether you are just getting started with your business, you are a self-employed individual, a solopreneur, entrepreneur, small business owner, a remote, virtual, online or in-house bookkeeper, or a virtual assistant or VA, I want you to make sure you are prepared to file your taxes on time feeling confident that you have accurate data. If you’ve ever wondered what you need to do to finalize your end of the year bookkeeping and financial statements, listen in as I walk you through the steps you need to take today...
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If you have a business or do bookkeeping for business owners, you know now is the time you need to wrap up your year end financial statements. If you’ve heard the phrase closing the books, this is exactly what it means. You simply make sure you have all your money coming in and money going out of your business recorded and reconciled so that your financial statements reflect accurate data. You will use this data to prepare your tax return, so it is extremely important that you do this correctly. In today’s podcast episode, you’ll learn the top tasks you need to do to close out your books whether you are using a computerized software system like QuickBooks, Xero, Wave or FreshBooks for your business finances, or if you are doing your bookkeeping manually with an Excel spreadsheet or even a Google Document. Many of the processes are the same regardless of which system you use to do your bookkeeping. Having your financial statements and your bookkeeping ready so that you can have your tax return prepared on time with little to no stress is the ultimate goal here. Whether you are just getting started with your business, you are a self-employed individual, a solopreneur, entrepreneur, small business owner, a remote, virtual, online or in-house bookkeeper, or a virtual assistant or VA, I want you to make sure you are prepared to file your taxes on time feeling confident that you have accurate data. If you’ve ever wondered what you need to do to finalize your end of the year bookkeeping and financial statements, listen in as I walk you through the steps you need to take today...
Welcome Back…Closing the books or finalizing your financial statements is something you need to do so that you know you have accurate information to report on your tax return. This is the process to make sure that all your financial transactions are recorded, up to date and accurate. If all this talk about financial statements and taxes is starting to raise your anxiety, I want you to take a deep breath in and release it slowly. This does not need to be hard or stressful, especially when you know exactly what you need to do, and you have someone you know you can trust to help you out if you get stuck. I understand you may have lots of questions, and that is why I am here for you. Sometimes all you need is to be pointed in the right direction, and that’s exactly why I wanted to talk about this topic today.
You might be asking why I think now is the best time to close out your books or finalize your financial statements, and simply put, it is normally when you have received your bank and credit card statements, you can have all your transactions recorded for the year and then can reconcile to ensure you have everything accounted for. It is when you can make any final adjustments so that all your balances are correct. You will also need to have certain information recorded so that you can keep up with compliance matters such as issuing any 1099s by January 31st. If you don’t have all your information recorded, how will you know how much you have paid your vendors? Making sure you have everything caught up by mid-January will help you meet these and other compliance deadlines as well. I’ve covered what 1099s are and what you need to do to file them in a previous podcast episode. If you’d like, you can go back and listen to that episode so that you know what your business is required to file.
We’re going to start off with touching on what your financial statements include. There are two main reports you will need to file your tax return. The first is your Balance Sheet and the second is your Profit & Loss Report or your Income Statement. Either of these two titles refer to the same report. I’ll refer to this report throughout this podcast as your Income Statement. These two reports will encompass everything you record in your bookkeeping within your business.
The first step I want you to take in closing you’re your books is to make sure that you have recorded all of your invoices for the year. Once these invoices have been recorded, make sure that you look over your Accounts Receivable balances. These are the amounts that your customers owe you. If you find that any of your balances are off, you need to make adjustments, so they are reflecting the correct balance as of the end of the year. If you have balances that you know you will never be able to collect on, you can write these off as bad debt. Your Accounts Receivable balance shows up on your Balance Sheet in your Asset section since it reflects money you will be receiving in the future.
Next, you should do this same process for your bills. Once you have recorded all your bills or payments to vendors, you can look over your Accounts Payable balances to ensure they are all accurate as well. If you need to make any adjustments, now is the time to do this. Your Accounts Payable balance shows up on your Balance Sheet in your Liability section since it includes amounts that you need to pay.
If you have a credit card for your business, I want you to make sure you have recorded all the transactions through the end of the year. Your credit card balance will show up on your Balance Sheet in the Liability section as well since this balance is also a balance you will need to pay in the future.
Once you have received your bank and credit card statements, it is time to reconcile them. This is something I recommend you do on a monthly basis so that when you get to the end of the year, you only have your last month to reconcile. If you are behind, make sure you reconcile each month to ensure you have captured every transaction. Many clients will miss bank service charges or interest when they are not reconciling their bank statements. When you are reconciling your statements, watch for any outstanding withdrawals or deposits. If you see outstanding transactions make sure that they are still going to clear. This is where many clients will find missing or duplicate entries if they are using a computerized software system for their bookkeeping such as QuickBooks. If you find you need to make adjustments on any outstanding transactions make sure you do this before you close out your books.
Now it’s time to look over your Balance Sheet. I recommend taking a look at your Balance Sheet to make sure that every account that is listed has the correct balance. You will start with your asset section. If you have reconciled your bank accounts and cleared up any outstanding transactions, these accounts should be correct. You will also see your fixed assets, accounts receivable and inventory if your business has these accounts. Next look over your liability section. Here you will see balances such as your accounts payable, credit card payable, payroll liabilities, sales tax payable and loan balances. You can confirm any loan amounts by looking at your loan statements. Towards the end of your Balance Sheet, you will see your equity section. Make sure these amounts are correct as well.
The Income Statement is the next report I want you to take a look at. This report will list all of your income and expenses for the year. You can go through each of your accounts to make sure that you have recorded each entry in the correct account. If anything needs to be changed, this is the time to make the change. Make sure that you do not have any personal expenses showing up on your Income Statement. These should be recorded as a draw and would show up in your equity section of your Balance Sheet.
If you have any business expenses that you have paid for personally, you will want to make sure that you have these recorded in your financial statements as well. These may require you to use a Journal Entry to enter the transactions. One of the most popular adjusting entries at the end of the year is the mileage deduction entry. If you are using the standard mileage deduction method of recording your automobile expense, you need to make an entry to get this amount in your financial statements. You are required to have a log of all your business trips made throughout the year. When you add up the total number of business miles you have driven throughout the year, you will calculate your standard mileage deduction by taking your total business miles and multiplying this number by the standard mileage rate for the year. This can be a considerable amount if you do a lot of driving for your business, so make sure you are keeping your log so that you can take advantage of this deduction. I tell clients that if they are not tracking this, they might as well throw a dollar bill out the window every time they drive two miles. If you do a lot of driving, that could really add up.
When your financial statements are correct, I recommend closing the books by setting a lock date if you are using QuickBooks or QuickBooks Online. This will prevent you from accidentally recording any entries in your closed period. This would also be a good time to do a backup of your QuickBooks file if you are using the desktop version.
Now that your financial statements are complete, you can contact your tax preparer to have your taxes done. I recommend getting your information to your tax preparer early. They get extremely busy, and I am sure they would appreciate having ample time to prepare your tax return.
Like I mentioned earlier, if you have any questions about closing the books for your business, or if you are looking for help with your bookkeeping, reach out to me and let me know. One of my objectives for this podcast is to help business owners like you make sure you have accurate financial statements you can rely on, and I am here to help you. You know you can always reach out to me by going to www.FinancialAdventure.com/Contact-Us. I personally respond to all my emails, and I understand that this time of the year brings up lots of questions. Even though understanding your financial statements is important, it is only one part of the success of your business. I am in the process of creating a couple of mastermind and coaching groups which are advantageous for both your development as a business owner and the success and growth of your business. Our masterminds cover many of the significant topics you run into in your business that most business owners wish they had someone they could trust to talk to. If you are looking for one on one consulting, you are ready to be laser focused on the achievements you want to accomplish and you are looking for an intimate setting with a small group of business owners who have a similar vision as you to raise your business to the next level, make sure you go to www.FinancialAdventure.com/Mastermind to apply. I have two masterminds for you to choose from. The Mastering Your Small Business Finances CEO Mastermind which is an elite mastermind group for entrepreneurs & business owners who want to level up their business and reach their business goals faster and more efficiently with an experienced, trusted and knowledgeable group of members who want to help you as much as they are looking for help themselves. The second is the Elevate Your Bookkeeping Business GROW Mastermind. This mastermind is for bookkeepers who want to grow and expand their bookkeeping business by leveraging the experience and knowledge from other like-minded bookkeepers and accountants. Both mastermind options are perfect for you if you are ready to grow your business and desire the input, guidance and feedback from other successful entrepreneurs. I’ll post links for these and other valuable resources for business owners and bookkeepers where you are listening to this podcast and in the show notes.
And, you know I’m going to ask…what’s at least one thing you will take away from this episode that will help your business succeed and grow your bottom line? If you need some accountability, join our PRIVATE Facebook community and post your action item, we’d love to support you.