Following up on the previous Tax Season Tip, where we discussed some deductibles that a small business owner has access to, we will next discuss ensuring all your expenses are accounted for. By this, we mean that all of the expenses that run through your business are properly catalogized and recorded. While it sounds easy on paper, you have to remember that depending on how you have structured your business it can be a lot more difficult than expected.
For example, if you have a business account and credit card then it becomes relatively simple to record and reconcile your accounts since only business transactions should flow through them. However, there’s always a chance that you could have made a personal transaction using these and now you have to properly sort them out for the sake of accuracy—remember, businesses are separate entities from their owners, so you've spent the businesses' money on something outside of the business use. In this particular case, you would have to account for the personal expense to reconcile the account.
Thankfully, this is relatively simple to resolve so long as you haven't made too many purchases. You can simply credit an equity account (such as Owner Drawing) for the amount taken out of the business or treat it as a loaned amount to the individual to be paid back at some point. But what if you made business purchases using non-business-associated accounts and credit cards?
Well, you would need to enter that into your books somehow to be 100% transparent. So not only will you need to have proof of said purchase (a receipt or invoice), but you will also have to add them into the books by either writing yourself a reimbursement for the amount spent or increase your Equity account (Owner's Contribution for example). All of this might seem like a lot of work, but it’s mandatory as you want your accounts to be as accurate as possible.
We’ll keep bringing you more Tax Season Tips, so remember to subscribe to our blog. And if you require a bookkeeper, don’t hesitate to Contact Us. We'll help keep your books in the black.
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