For small businesses (consultants and such) I recommend a very simple bookkeeping system. You don't need a fancy accounting software package - you don't need QuickBooks or anything like that. Those programs are really nice, and have lots of bells and whistles, but I find that most small businesses never need any of those features.
Here is what you need to do:
1. Download my Monthly Bookkeeping Worksheet (<----- click on that link)
2. Each week, gather your receipts together. On each receipt, write the expense category on the receipt itself. Don't assume that the category will be obvious 2 years from now - so on the Staples receipt, write down 'Office Supplies"; on the phone bill write down "Cell phone".
2. On your receipts for Meals and Entertainment, also remember to write down
A. Who you had lunch/dinner/entertainment with, and
B. The business purpose (i.e. what you discussed)
3. Each month,
a. Gather your bank statements and credit card statements.
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b. |
If you have both personal expenses and business expenses on the same statement: |
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Note on the statement which items are business related
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I generally recommend marking business items on the statement with a "B"
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c. |
Match up your receipts to the statement - put a checkmark next to each item on the statement to indicate that you have a receipt attached. |
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e. |
Now prepare the monthly summary worksheet |
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1 |
Add up the various items in each expense category from the receipts that you've gathered together. |
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2 |
Review the bank statements and credit card statements for any additional items for which you don't have receipts |
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(By the way, now is the time to go find those receipts - one day you may need them, and you don't want to have to go look for them 3 years from now when you are being audited.) |
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Add up those items on the statements by category. |
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3 |
Enter each summary total on the category line on the monthly worksheet |
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4 |
Confirm that the ending balance of the bank account on the worksheet is the same as the ending balance on the bank statement |
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d. |
Now review the ending Year-to-date column |
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1 |
Are you making money? Is your revenue greater than your expenses? |
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2 |
Where are you spending your money? Are there areas that you could manage better? |
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3 |
If you made money - will you owe tax? How much does the worksheet indicate you will need to pay in tax? Consider transfering that amount to a savings account |
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4 |
Quarterly |
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a. |
Remember to pay your quarterly estimated tax payments |
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Quarterly estimates are due on 4/15, 6/15, 9/15, and 1/15 of the next year. |
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You must pay at least: |
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100% of the prior year tax |
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90% of the current year tax |
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b. |
Remember - If you do pay quarterly taxes, pay the tax from the savings account that you created to hold your tax money |
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