Tag Archives: Debit card

How to Handle your Business Expenses

Accounting and paperwork are scary to a lot of business owners, but it is a part of life. By setting up a system, you will make your life a lot easier.

Receipt Please

Receipt Please (Photo credit: Peter π)

For most people, accounting is not a priority in their business, but when month end or tax time comes, they are scrambling to find all their documents and prepare things. But if you take a bit of time each week or month to track your expenses, you will be ahead of the game and you will not have to look all over the place to find your paperwork.

One Location – First things first, put all your receipts in one location. This way, even if you do not have time to deal with it right now, you will know where to find it.

Make Notes – Mark your receipt with any relevant notes such as you were mailing a parcel to Jane or you took Joan out for coffee to discuss why your business would be a great fit with hers. These receipts are easy to forget their purpose.

Legibility – Make sure that the receipt is legible. If it is not, you can ask the location to write you a written receipt. If it is on the glossy till paper, you may want to photocopy or scan it, as those tend to fade over time.

Keep Current – Try to work on your books every week or at a minimum, once a month if you do not have a lot of transactions. This will save you a lot of time and headaches down the road.

Filing – Have a filing system that makes sense and you can keep up with. Challenge yourself to see how fast you can find something; if you have to go through multiple folders then it is not the right system for you.

Credit Cards – A great way to keep track of your spending is to put everything onto a credit card or debit card where you get a statement listing the expense. You won’t forget about it this way. Do not use the same card for your business as you do for your personal spending, as this can be very confusing and cause issues at tax time, especially if you are audited.

Envelopes/Folders – Envelopes and folders are a great way to organize your paperwork. Put unrecorded receipts in one until you record it, and then move to the appropriate folder once it’s recorded. You may choose to organize these by month or by type of expense; whichever works better for you and makes more sense.

One of the best reasons for keeping your expenses current and tracked is that you can see at a glance how well your business is doing and where you may be spending too much money. This is very important for a small business owner.

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Basic Accounting Transactions

Accounts

Image by psd via Flickr

This is to help you with the basic bookkeeping you will need for your business.   Whether you do your books manually or using software, it is always helpful to know the theory behind it.  This also applies if you hire someone as then you can understand what they are doing.

In accounting, most people use a double entry method, which means there are two sides to the transaction.  The transaction equals 0 but it affects two different accounts.  You can do it differently, but this is the most common method.

I always like to think of things in relation to how it affects the Cash account.  Cash is always a debit balance, which means there is money in the account.  A debit to cash means that you have taken in money and a credit to cash means that you have spent money.  If you can always relate your transaction to cash, you should be fine.

Customer purchases from you:

DR Cash                                          110.00

CR Sales                                          95.00 CR

CR Taxes collected                     5.00 CR

CR Shipping                                   10.00 CR

 

On the other hand, you will have expenses.  These will decrease cash.  A transaction for that looks like this:

DR Expense                                  50.00

DR Taxes                                        5.00

CR Cash                                          55.00 CR

 

Another time that you would decrease cash is when you are buying products from your company. If you have to use a credit card, you would use “credit card” instead of “cash”

DR Purchases                               75.00

DR Taxes                                        5.00

DR Shipping                                  10.00

CR Cash OR Credit Card            90.00 CR

 

When it then comes time to pay off your credit card, you would make the following transaction:

DR Credit Card                             90.00

CR Cash                                          90.00 CR

You will see between these two transactions, the credit card balance would be 0 which should equal your balance.

There is no reason why you cannot do your bookkeeping manually but using software is definitely a better option as it can run reports to help you out.  For instance, you can run a report when it comes to tax time to help you fill out your taxes.  You can typically get software that will help you to reconcile your bank or to provide year end reports to show how your business is doing.

Watch the posts the next two days for free and paid accounting software information.

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