Being in the accounting/bookkeeping business we get a lot of questions that are asked to us here at Flat Top Bookkeeping. Accounting is the business language. You will need to know accounting/bookkeeping or outsource to someone that is educated in bookkeeping/accounting to succeed in the business venture. Here at Flat Top Bookkeeping, we want you to succeed and grow your business. We enjoy answering questions whether it be about bookkeeping/accounting, payroll, or taxes. This blog is compiled of the most common questions that are asked to us.
Do you prepare taxes?
This is a popular question that is asked to us. You need to be careful with this question. Just because someone in accounting, doesn’t mean they know taxes. No matter who you are and if you want to know taxes, you would need to attend classes and training to understand the tax code and how it applies. The tax code is complicated and one needs to learn where and if there are loopholes to take advantage. I heard from a real estate investor that if you want to be wealthy you need to know taxes and how to take advantage of the tax code. This is correct if you are honest and don’t try to bend the rules. Everyone would be smart learning or hiring someone they can trust to take care of their taxes. If you need help with taxes, here at Flat Top Bookkeeping has over 20+ years of tax experience.
Why should someone accrue expenses?
If your business is on a cash basis, then you would not need to accrue expenses. Cash basis is good for small business that has a lot of transactions. However, accrual basis provides an accurate financial statement. An accrual is where you enter every transaction when the service is done, and cash basis is that you enter the transaction when you pay. One example is an insurance bill that is billed monthly. You are insured for the month but you didn’t receive the bill until next month. Well, when you use the service for this purpose, you will need to enter the expense in the month you use the service. This will provide accurate information regarding your expenses and your business’s financial health.
Why should the business reconcile the bank statement?
Amazingly enough, we do get asked this question a lot. I would suggest before you ask this question to ask yourself why would you want to reconcile your personal checking account. The answer is the same whether you reconcile your business bank statement or your personal checking account, the answer is to know where your money is going or how much money you have. We also get asked if the bank can reconcile your statement for you. The answer is no. They do not provide this service and if you want someone else to do it, you will need to outsource this to a bookkeeper. Every business needs to reconcile their bank account every month to understand if they are meeting their goals and if they have money before they commit to spending the funds.
What is a double entry?
Double entry is a two-sided journal entry. Have you ever heard of Assets = Liability + Equity? That saying is an accounting saying/equation. The assets must always equal Liability + Equity. When you book a double entry, your transaction will most like be debiting an asset account and crediting a liability/equity account. You do this so your books will always stay in balance. Debit on the asset side will increase the account and the credit on the liability/equity will increase the account and vice versa will decrease the accounts. Double entry is very important when it comes to keeping a good bookkeeping practice.
All of these techniques are essential to have excellent books to run your business. Whether you are an employee/employer trying to claim the correct exemptions, so you won’t have to owe money on your taxes. We discuss what it means to accrue your expenses when the job/service has been performed, why reconciling your bank account is so important and explain double entry and why you need to understand the cause of every double entry/journal entry that you make.
Accounting/bookkeeping can be confusing if you don’t understand them or why you would want to outsource bookkeeping. I would suggest you take some classes to learn it or decide to outsource your bookkeeping to an educated bookkeeper.
We will be posting 3 parts to our most common questions. This is the first one and we hope we can answer any questions you might have. If you have a question that you want us to answer, please leave a comment in this post and we will try to answer your question in our next blog post.