By Theresa Wilson, Accounting Specialist at Blue & Co.
As the new year kicks off, so begins another tax season for many businesses. Instead of scrambling to prepare this year, there are a few bookkeeping practices businesses can employ to make tax season a breeze.
Spending a few minutes each day reviewing the business transactions in QuickBooks and adopting the strategies outlined in this article will save businesses valuable time and effort.
Connect all Company Accounts to QuickBooks
One best practice for businesses is connecting all company checking, savings, and credit card accounts so all financial data flows into QuickBooks. Use the bank feeds to populate the banking section rather than hand-entering transactions – this is a huge time-saver!
In the Bank Transactions sections of QuickBooks, the tiles represent all bank accounts that are connected. Checking, Savings, and Credit Card accounts for the business can be connected.
Businesses should seek their accountant’s advice to be sure all appropriate financial accounts are connected in QuickBooks. In the era of multifactor authentication and heightened security, the bank account sometimes may get disconnected. Then, it may be necessary to add a few transactions by hand after reconnecting. But usually, if banking accounts are connected, businesses should rarely have to add banking transactions by hand.
Use Consistent Naming Conventions
Another QuickBooks best practice is ensuring every expense that is accepted into the register has a payee name or vendor name. Equally important is consistency with vendor names.
From the Banking Transactions section, scroll below the bank tiles to view the transactions that need reviewed. Notice that transaction with the description of “A Rental” does not have a payee name. It is important to include the vendor information so the business knows who is being paid.
It is not uncommon for the same company name to appear in different ways in a description memo (i.e Vendor, Vendor.com, Paypal*Vendor). If a bookkeeper spends just a few minutes each day to check over descriptions and utilize a consistent vendor name, then it will save time when the business must prepare 1099s in January. For example, a business routinely hires an HVAC company for repairs and a lawyer for legal help, it is simple to run a report in QuickBooks to determine how much money must be reported on the contractors’ 1099 if every transaction has a consistent vendor name applied.
In the vendor list, notice that Bob’s Burger Joint appears to be duplicated with slightly different vendor names. Verify that the vendor is the same and then Merge the contacts to keep a consistent vendor naming scheme.
The business can also use the vendor list in QuickBooks to quickly confirm a W-9 is on file before paying the vendor and can be provided to the accountant for 1099 preparation. You can find a link to the IRS Form W-9 here.
Spending a short amount of time each day accepting small batches of transactions is the best way to adopt this strategy. Waiting until the end of the month to accept large batches of transactions makes this process seem more tedious and overwhelming.
Monthly Account Reconciliation
One of the most important QuickBooks best practices is a monthly account reconciliation. The monthly account reconciliation ensures each transaction through the bank or credit card connected in QuickBooks appears in the register. This is like balancing a checkbook each month and gives the business a chance to verify each transaction is legitimate and present in QuickBooks. Reconciling is crucial because it ties the transactions in QuickBooks to a documented source like the bank statement, allowing the business to catch missing or duplicated transactions in the register.
The monthly reconciliation should be performed at the beginning of each month after the bank statements for the prior month are available to ensure complete accounting for business transactions. Here is a resource from QuickBooks on how to reconcile.
Implement a Capital Expenditure Policy
Implement a capital expenditure policy and use it as a guide to record your purchases in QuickBooks throughout the year. This policy establishes the minimum cost used to determine if a purchase will be included in the books as a depreciable asset. Your accountant will thank you for this because they need an updated asset list each year for tax reporting.
Small businesses often use a simple litmus test for their capital expenditure policy: if the cost exceeds $2,500, it is recorded as an asset. Purchases of $2,500 or less are recorded as an expense.
If a business buys a piece of equipment for $2,500 or less, record the expense in an account like Office Supplies, Job Supplies, or Medical Supplies. This item will appear in the business Profit and Loss for the year. Place larger tangible purchases over $2,500 in an asset account like Fixed Assets, Furniture and Equipment, or Leasehold Improvements. This item will appear on the Balance Sheet as an asset, and the accountant will add the asset to the depreciation schedule when appropriate.
QuickBooks Quick Tips
Finally, let’s review a few quick tips to help business owners use QuickBooks.
- Categorize any quarterly estimated tax payments to the IRS or state that are paid out of a business account on behalf of the owner as an Owner’s Draw or Distribution.
- If the business pays an amount for property tax, record the payment in a tax expense account.
- Use expense account names that work for the business. Outline what data the business needs to track and create expense accounts accordingly. Your QuickBooks reports can (and should!) be used as a tool to manage your business.
Set up expense accounts that work for the business. If a business wants to track specific expenditures, create detailed expense accounts or sub-accounts as needed.
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When your business adopts these strategies, you will spend less time gathering information and answering your accountant’s questions during their busy tax season, and you will spend more time maximizing your business potential in the areas that matter most. For more information about bookkeeping practices, contact a trusted Blue & Co. Advisor today!
