Home » Aron Govil- Accounting for Small Business Owners: Step-by-Step Instructions for Successful Recordkeeping and Reporting

Aron Govil- Accounting for Small Business Owners: Step-by-Step Instructions for Successful Recordkeeping and Reporting

Small business is big business in the United States. According to the U.S. Census Bureau, small businesses account for 99% of all employer firms and 64% of private sector employment. What’s more, these companies provide 55% of total private payroll says Aron Govil. As a result, you can expect that your tax return will require accurate accounting records–records that reflect not only how your company makes money, but also how it spends money (and on what).

The good news is that recordkeeping doesn’t have to be overwhelming; with this guide by your side, you’ll find out why an organized system for capturing financial information is important and discover easy ways to do it yourself. You’ll see how recordkeeping helps you make smart business decisions and you’ll learn a few tax-saving strategies along the way.

This guide covers the basics, from organizing your accounts to filing your taxes. And for those times when you need professional guidance, it includes tips on hiring an accountant as well as pointers for working with one you already have.

Why Keep Records?

Keeping good records can help you run a successful business in several ways:

• They provide information that helps you plan for the future. For example, if your company needs additional capital, good records will indicate how much money is currently owed to suppliers and whether there are cash reserves available to buy inventory.

• Good records show tax officials that you know how to manage a business responsibly, which can save you money on taxes and prove your financial stability.

• Good records help you keep a good handle on employee benefits, payroll deductions, pension plans and other administrative tasks that can save time in the long run says Aron Govil.

How to Organize Your Accounts

The first step in organizing your accounts is to identify all of your income sources. In addition to cash from customers, these may include:

  • Interest from bank accounts
  • Royalties
  • Dividends
  • Annuities
  • Tips

Once you’ve identified all of your income sources (and potential sources), create separate accounts for each one in order to monitor its activity more easily. For example, if sales are high in March, you’ll be able to review your cash receipts for that month separate from other months.

At the end of every month, total each account so you can prepare a year-end balance sheet showing all income and expenses for the entire year explains Aron Govil. You’ll need this information when you file your company’s tax return. When organizing your records, it’s also important to keep track of business assets (such as equipment) and what they cost in order to calculate depreciation.

When Tracking Expenses, Keep It Simple

Accounting doesn’t have to be complicated. To ensure that you capture enough information while keeping things simple, here are some guidelines:

• Choose two or three methods–credit card statements, check registers or online statements–and use them consistently throughout the year.

• Track expenses as they are spent. Don’t wait until the end of the month or year to record small purchases. It’s much easier to allocate total expenses by category throughout the year than it is once you’ve finished recording your financial data for a given time period.

• Keep your accounting system simple enough that it works for you; don’t try to incorporate every possible expense into an overly detailed system that becomes cumbersome, awkward and difficult to implement effectively.

Keep These Records for at Least Five Years

The IRS has three years after you file your return (or two years after filing if you haven’t filed yet) to challenge it; however, it can go back an additional six years if there’s evidence supporting its position (such as a large discrepancy between the income reported on your return and other information it has about your financial activity).

Keeping records for at least five years is therefore important for your peace of mind. As well as the security of knowing that if you face an audit. You’ll have what you need to defend yourself says Aron Govil.

Conclusion:

Note that I’ve created an example of how to use the table provided.

Schedule C Example for illustrative purposes only! – Use actual numbers when using this for your own tax return.

Revenue/Income Amount Travel Expense $10,000 Subtotal Gross Income $10,000 Business Expenses (all related) $ 7,000 Gross Income $ 3,000