Bookkeeping is a tedious job to do, but it is highly crucial for the business. Companies may need external support to handle the books as the business expands. Considering the importance of bookkeeping, the company needs to get back in line before the tax sessions.
Every business has prepared itself before the tax season. However, they will be required to file tax returns during this time, and accurate books help the company achieve this feat quite easily. Therefore, businesses must look at the overdue bookkeeping and either fix it themselves or hand it over to a professional.
Business owners often have the necessary insights for tackling the books as they know every business detail far better than anybody else. So, if you are currently at it, here is a step-by-step guide for catching up on your overdue bookkeeping.
Step 1: Separating Receipts And Invoices In One Place
For managing the books, you will need all the data on business expenses, customer invoices, debt collections, and vendor accounts.
- Business expenses include every purchase receipt. This is important during the tax session regarding tracking and claiming deductions.
- Customer invoices are the next important thing to have a proper record. Businesses that deal in cash transactions will have receipts of every transaction sent to the customers. Under the accrual accounting method, the transactions are recorded in the book as soon as the sale takes place, even if the payments are still due.
- The company must also have a proper recollection of the debt they have collected and the ones that have gone bad. Bad debts occur now and then. However, for the company to get a deduction on tax returns based on the bad debts, they need to prove that they have done everything in a systematic order but have been unsuccessful in recovering the debt amount. By reviewing the customer’s account, you can figure out the bad debts.
- While looking at the customer receipts and bad debts, it is also necessary to review the vendor account. This is to ensure full payment settlement. You will need the bills from every vendor you have worked with for the complete year-end financial statement.
Step 2: Bank Account Reconciliation
The company has its accounting records, and the bank has its version. Usually, this should not clash; however, these two data can be tallied if errors occur to get an accurate picture. The bank statements and the company accounts must remain on the same page. The bank account reconciliation is crucial before handing over bookkeeping operations to a professional.
Step 3: Personal Vs. Business Expenses
It is a popular belief that one mustn’t mix work with play. In the case of a business, this can be applied to business expenses and personal expenses. This is why there should be a separate account for the company from the one you use personally. Merging the accounts and their costs also makes you responsible for the business actions and debt liability.
Step 4: Paper Is In The Past; Digital Is Now
Indeed books have value, but that is mostly in terms of literature and language. Regarding businesses, books are finding a sovereign ground in the digital platform. Business accounts usually contain a massive list of transactions, and keeping everything on paper in the past used to make the whole process slower and increased the chance of errors. This has been effectively challenged on the digital front. Different tools are available to get your books shifted to a digital space.
Step 5: Independent Contracts & Employees
The employee payments and the remunerations for independent contractors throughout the tax year, also have to be included in the final books. Independent contractors paid over the limit will require the company to fill out certain legal forms and needs to submit them before the deadline. Employees have a different form to fill out for the taxes.
Step 6: Review From A Tax Professional
You might want to tackle the overdue bookkeeping by yourself as a business owner. Well, there is nothing wrong with doing so, but it is always good to have an extra pair of eyes to look into the matter. Asking a professional to review your company books can only be an act of caution.
Bookkeeping is an intimate method of gathering all the records, receipts, and invoices connected to the business. Once this information is collected, they are filed with accuracy for tax deductions. While a business owner may be equipped with the knowledge and insight to handle the books, this article only tries to clarify the steps to the individual process.