Here is a selection of year-end accounting tasks to do before sending the accounting records to your tax preparer. Show this list to your internal accountant or outside bookkeeper.
1. Match prior year accounting ending balances to the prior year’s tax return.
Each year, after your tax return is finished, record any adjustments your tax preparer made. Then, lock or “close” the year in your accounting software so you don’t accidentally change these numbers.
2. Reconcile your bank account.
Remove old outstanding checks and deposits in transit. Your bank balance in your accounting software should equal the book balance in the bank reconciliation. Utilize the QuickBooks reconcile function, where applicable.
3. Clean up your accounts receivable.
The accounts receivable balance is erroneous when there are client balances that are no longer collectable, credit memos that have already been utilized, and transactions that have been accidentally recorded twice. This affects all accrual basis taxpayers. Even if you are a tax or cash basis business, adjustments in accounting software packages can sometimes affect the cash basis accounting records if things are really messed up.
4. Ensure that fixed assets are not coded to expense accounts.
Reclassify additions to the balance sheet accounts. Put a capitalization policy in place. Expense small asset purchases and depreciate large asset purchases.
5. Reconcile credit card balances to the statement balances at year end.
If the statement period ends mid-month reconcile the January statement to ensure that the December 31 balance is accurate.
6. Communicate with your tax preparer during the year.
Ask questions and let them know about changes to the business (such as buying/selling a building, ownership changes, new states to do business in). A five-minute phone call in June frequently saves a lot of time during tax time. If you have questions in your “Ask My Accountant” or suspense account, ask your accountant how to record the transaction before you give them the information. Don’t wait until tax time. You will be more efficient if you ask early on.
For more information, visit dev.divistack.com, January 2013., Peggy Prall
Considering an ESOP
Is your business right for an ESOP, or employee stock ownership plan? If you are the owner or co-owner of a business and are looking for a way to convert your ownership into cash proceeds, perhaps to fund retirement or to invest in something else, and you want to maintain the status quo, operationally and with current management and workforce, the answer is a qualified “yes.”
At a minimum, an employee stock ownership plan or ESOP should top the list of alternatives for your consideration.
The answer is “no,” however, if you are looking to obtain the highest possible price for the business and don’t much care whether the business continues in its current form, with current management and employees.
If you liked the qualified “yes” response, you can assess whether you are ready to move forward with an ESOP professional and dig into the details of selling to an ESOP.
For more information, see dev.divistack.com, January 2013, Susan Lenczewski
Growing your accounting
As businesses grow, they experience increasing requirements around employees, financial oversight and taxes. Business owners also need to consider the future value and leadership of the business to prepare for the time they’ll exit or sell. These more sophisticated concerns are the realm of CPAs.
In addition to tax planning to help you avoid overpayments to the government, CPAs can help you address cash flow management, exit strategies, audit requirements, health care benefit compliance, lender relations and equipment purchases, real estate, entity selection or acquisition plans.
Ideally, your choice of accountant should mature along with your business size and scope. Your return on investment is in equal measure to how you leverage the skills and experience of your accountant or CPA. It also helps if the professional you choose can interact well with your other advisers, such as attorneys, insurance providers or bankers.
For more information, see dev.divistack.com, March 2013, Jolene Sieben
What’s your ‘blue sky’ value?
You have something special. If only you could explain its value to bankers, investors, insurance providers or even your spouse in a way that is measurable.
Accounting may give you the answer. Really. The world of debits and credits is changing. You can use those changes to better manage and explain your business.
Explain that hole in your stockholder equity or apparent shortage of total assets on your balance sheet. Show how your operating losses since beginning the business are actually positive.
When you first formed your business with cash and other contributions, the balance sheet accurately reflected what your business was worth. But right after inception, the value of your business and the balance sheet parted ways. With more business success, the balance sheet will lag behind what your business is really worth.
Thanks to a shift in the accounting paradigm, accountants can now recognize and quantify intangible business assets. As an entrepreneur, you can use this knowledge to evaluate the kinds of intangible assets you are creating in your business.
You can identify how costs that you are required to report as expenses are actually building assets and value in your business. You can explain that deficit in net worth.
Your blue sky is definable.
Although your accountant does not yet require you to reflect the values of intangibles as they are created, understanding them as you grow your business will support not only proper amortization of assets over time, but also help you optimize your exit strategy.
For more information, visit dev.divistack.com, How-to Upsize, Randy Schostag
Beware state tax audits
Given the budget shortfalls of most states in recent years and the continued hiring of new state auditors, sales and use tax audits are becoming more prevalent than ever before.
What should businesses do now to prepare for the possibility of a future sales and use tax audit? If you are assessing the business obstacles of the immediate future, don’t overlook the importance of sales and use tax compliance. It can affect your bottom line if not handled properly.
There is also an important need to be diligent and accurate with your record-keeping, as it is key to a proper determination during a sales and use tax audit. This can be especially challenging for some businesses due to the sheer volume of resale exemption certificates that may need to be collected from customers, kept on file, and updated regularly.
Generally, all sales of tangible personal property and some select services are taxable on the selling price in Minnesota. Use tax is the complement of sales tax and is owed when a retailer has not charged sales tax.
For example, manufacturers are creating a product that is sold to customers for resale to an ultimate consumer. This would make the sale exempt from sales tax for purposes of resale, and a fully completed resale exemption certificate will need to be kept on file as proof for later down the line.
In instances where a business sells its product to the consumer or end-user directly, the business is responsible to collect and remit sales tax.
On the purchase side, there are certain exemptions and certain taxable items depending on how the purchase is used.
For more information, visit dev.divistack.com, August 2013, Nick Marshall
